Bitcoin drops below $20k, Ether cracks $1k – what this means
davidgerard.co.uk
davidgerard.co.uk
I'd like a pony while you're at it.
Most of the non crypto companies were not profitable when they IPOd the last few years and many still are barely profitable.
We can say the same about companies that made open source software and we’re going to make money via “services or supper contracts”. That hasn’t worked out well for mLabs or ElasticCo.
Most startups are just Ponzi schemes.
The crypto whataboutist apologies are something else.
Sounds like a good investment to me.
1. Amazon had positive margins early on and was reinvesting money to build infrastructure and real assets. Most startups aren’t. All Bezos had to do to turn a profit at any time is stop building warehouses.
2. Amazon completely pivoted and almost all of its profit comes from AWS. And no Amazon did not use excess capacity to start AWS. It was built from the ground up as a separate service [1]. Every company likes to point to Amazon and say we can do it too. That’s just like a company claiming if they bring their former CEO back after 10 years they can become a three trillion dollar company.
And standard disclaimer since you brought up Amazon, I work at AWS.
[1] https://readwrite.com/popping-the-amazon-web-services-capaci...
How is that a Ponzi in any sense? It’s not like Elastic makes money from selling its own stock on endless promises. The product exists, works, and generates a billion dollar in sales. The valuation may not be attractive, but it seems clear to me that this can be a profitable and stable business if they decided to stop buying growth.
https://www.elastic.co/about/press/elastic-reports-strong-se...
What is Elastic doing to “buy growth”?
If they stopped doing those things and just served the existing customers who bring in the $1B revenue today, I’m guessing they could be profitable fairly quickly and start paying dividends (or returning capital through stock buybacks).
But that kind of stable enterprise software company would be mostly attractive as a takeover target for a larger player or private equity; it’s not the story that investors in public markets want to hear. So Elastic’s valuation would be slashed.
This doesn’t make the company a Ponzi though. Seeking growth is a valid strategy and one that’s still sought out by many investors despite the valuation correction from last year.
"Ponzi scheme" has a specific meaning. Many cryptocurrency projects appear to fairly closely fit this meaning, while "for-profit business that's making year after year of losses and being propped up by VC funding" does not.
Not everything that's a very bad investment—or even outright fraud—is a Ponzi scheme.
BTW, the party has stopped for non profitable companies.
Most startups (in the tech sense) are ventures. They are attempts to generate new cash flows and create something new that didn't previously exist (or a new twist on something that already existed).
They are unproven. They are risks. But the vast majority are not Ponzi schemes.
1. Investors pour money in to companies not hoping that they become profitable. But hoping they can get their money back via an IPO while they are still not profitable.
2. The investment bankers dump their allocation at IPO and get to take advantage of the hype. Then sell the stock to retail investors.
3. The retail investors fall for the hype even though the company still isn’t profitable and the stock price drops?
That’s the definition of a “Ponzi scheme”. Everyone throws good money after bad hoping that there is a “bigger fool”.
At that stage of a business, you wouldn't be taking seed-stage or series-A funding; it'd be series-B or series-C — where the type of investors who do those investments are just as risk-averse as banks, and are looking at essentially the same things banks look at.
At that stage of a business, you know there isn't anything on the horizon that'll kill your share price. Your market cap is stable (save for the growth you're trying to enable.) So you should be extremely wary to let go of any more equity. You should highly prefer debt-backed investment (i.e. loans) over equity-backed investment, because your equity value increase from the growth should be predictably paying off that debt, and then some, likely the same fiscal year you take on the loan. Selling any equity at that period in a company's growth is throwing earnings down the drain.
You can't. Be serious.
Most startups have no revenue. What bank would lend you money?
And 10% interest to preserve your cap table and board?
For example, the company has been growing 2x per year for the last few years and there's a good chance this will continue for the next several years. But only if the company invests a massive sum of money with a substantial risk.
While I respect your decision, if we are talking about technical exposure to interesting challenges, I think you're leaving a lot on the table by defaulting to no-hire.
I kid.
In late 2020, the bitcoin exchange rate began a meteoric rise. One hypothesis was that this steep rise was foreshadowing massive inflation ahead. It was, of course lambasted as ridiculous. Inflation was dead and everyone knew it.
Fast forward to 2022 and an inflationary spike is bearing down on the economy with its jaws wide open. It has taken central bankers everywhere by complete surprise.
Now the bitcoin exchange rate is collapsing. The article's take on "what this means" is something along the lines of a fool and his money are soon parted.
What the article never considers is the possibility that this collapse in exchange rate is the canary in the coalmine signaling that inflation is about to fall off a cliff. Money is being destroyed at rate that central bankers can't even fathom, at the same time they're raising short term interest rates and starting QT. This would have very ominous implications for the world economy if true.
The financial collapse starts with Bitcoin because it's the most highly-levered and least regulated market. It now feels the brunt of the global monetary ebb and flow first.
Only time will tell how accurate this interpretation is. But if it's true, there will be far more important things to worry about than the schadenfreude of scammers getting their comeuppance.
Thanks for the analysis. Could you please elaborate on this last point?
At the extremes, the billionaires will be able to escape to New Zealand or some island retreat; the rest of us, including the middle class, upper middle class, wealthy, and the independently wealthy — even double or triple digit millionaires, could be very screwed.
Correlation does not ...
> Do your research.
Thousands of times this has been brought up and debunked. Tether is minted when there are new fiat deposits. It's the influx of fiat money that is creating new tether and raising crypt prices. That's how it is supposed to work. Nothing suspicious about it.
Note: I have no idea if Tether had and/or still has all the assets backing all the minted Tether, and maybe it will collapse in 5 minutes so I'm not here to defend them, but before you tell other people to do their reserach, maybe you should do some yourself, and go with some more educated criticism.
Fear is what's driving this slump right now, and tether is a big part of it.
I don't understand macroeconomics but "government spending causes inflation" is a pretty mainstream ideological precept - the opposite opinion is fringe.
Edit: maybe I didn't put enough weight on "massive" when reading the above comment
https://www.wsj.com/articles/on-inflation-economics-has-some...
It's hard to understate the degree to which fed economists didn't see this coming.
It was pretty obvious what was about to happen!
Hoo boy.
"the current Fed chair, Jerome H. Powell, has dismissed claims that the Fed’s money-printing is fueling today’s price spiral, emphasizing instead the disruptions associated with reopening the economy. Like his most recent predecessors, dating to Alan Greenspan, Powell says that financial innovations mean there no longer is a link between the amount of money circulating in the economy and rising prices"
https://www.washingtonpost.com/business/2022/02/06/federal-r...
You're right that the idea government money printing doesn't cause inflation is fringe absurdity. Unfortunately the fringe that believes in it are central bankers.
What seems more likely?
- Central bankers who control the economy do not understand the basic principles of the system they manage.
- They lie about their motivations for political reasons.
The more interesting question is, if you incentives are strong enough to want to deny the nature of a system, do you become a liar or do you genuinely stop understanding it? Was Yellen's bafflement at the non-transitory inflation a mere act, or was it genuine confusion caused by a core corruption of her own understanding of basic economics?
The argument of dumbest meaning is just to say that the BTC bull run was just because of a bunch of bored people speculating.
It's not decentralized. It's not free or self-sovereign. It's not honest money. It's not a store of value or an inflation hedge.
It's also not free of nation state influence. Any nation state that wanted to invest the money could 51% attack or more likely sabotage these systems in a more covert way. Nasty dictatorships like North Korea or Putinistan constantly scam and hack the cryptocurrency ecosystem to siphon off money to fund their regimes. Any state could place regulations in the way of the actual use of cryptocurrency and kill it even if the tech worked fine.
It might have been some of those things when it was small. Since then scaling problems inherent in this first generation of the tech led to all forms of hidden centralization, industrial economies of scale led to mining cartels, and perverse economic incentives (some built into the crypto system) led to it being dominated by scams, gambling, and pyramid schemes.
Its goals were not necessarily bad. It just failed to achieve them.
Edit: social media also failed to achieve many of its goals, becoming instead a cesspool of bullshit and a dragnet for surveillance. I think there's a lesson in here about how totally unique unknown unknown problems tend to manifest in interactive information systems at enormous scale. Systems behave very differently when you scale them out to millions, hundreds of millions, or billions of participants or nodes than they do at toy or early adopter scale. It's not just decentralized systems that are bitten by this. Centralized media are bitten too, just in different ways by different sorts of problems.
Do you have any evidence of which chains this happened to?
* North Korea: Missile programme funded through stolen crypto, UN report says https://www.bbc.com/news/world-asia-60281129
* North Korea’s Crypto Operations Are Supporting Its Nuclear Program https://thediplomat.com/2022/04/north-koreas-crypto-operatio...
* Could Putin be exploring cryptocurrencies to bypass western sanctions? https://www.theguardian.com/business/2022/mar/01/could-putin...
BTC is down 33% *in a month*. Its not even remotely comparable. YTD, its below 60%.
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I got some buddies in Celsius right now. Has there ever been a circumstance in "the stock market" where you've been unable to access your funds for a week, with _NO_ contact from the CEO or an explanation of what the hell is going on?
EDIT: Whatever happened to "inflation hedge" and "store of value" promises from the community by the way? No one in the stock market promised those things. But as inflation ticked up to 9%, BTC completely collapsed.
A more apples to apples comparison would be comparing crypto market to tech stocks. In which case yes there are valid comparisons.
Tech companies were playing with blockchain this past year, and are now getting burned. You've got cause-and-effect backwards here.
If you didn't live during that time, then you wouldn't know anything of that era. Yahoo was the #1 search engine. No one cared much about Google. Amazon was a book store.
Ebay was far bigger than Amazon for general purpose goods. Webvan was your hope at making the internet mainstream. Etc. etc.
The biggest "internet" company was either AOL or Netscape IMO. Neither of them really the winner over the next 20 years.
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If you lived in that era, you would know just how unlikely it was that you'd have picked Amazon or Google out of the ashes.
Chances are, you would have been caught up with Enron and Worldcom's schemes, just like everyone else was.
In any case, Celsius has managed to convince a lot of people that their 10% or 20% APY stablecoins and "staking platform" was risk free. Sometimes, these people need to have their own money burned, before they believe in the potential of risk.
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I don't know anything about internet celebrity figures. But I do know a thing or two about risk-free rates and reasonable return rates.
Celsius locked everyone's accounts on Monday, _BEFORE_ hiring those bankruptcy law firms.
By the time you heard the news of the bankruptcy lawyers, it was already too late. Your funds were locked.
The swings in crypto are just bigger, just like swings are bigger in stock market than in bonds.
You can go to the stock market and buy shares and then actually get the thing. If you buy enough shares of Ford, for example, you can walk into the factory and drive off with any car you see, because you would literally own that car. If you buy enough shares of McDonalds you could rename it to McDowell’s if you wanted.
That’s pretty different to what would happen if you bought every Bitcoin in existence.
But it’s not true. With crypto you’re buying an entry in a ledger and the hope that other people will want to buy that entry from you later.
With stocks you’re buying actual shares of an actual company with actual assets, and you now have an ownership claim on those.
Crypto is like taking the stock market and removing the only thing that actually gives stocks value, then selling the stock anyway.
Because shorting isn‘t free, and as the old saying goes, the market can remain irrational longer than you can remain solvent.
These days it is "quaint" to consider stock dividends, but in ye olde days they were supposed to be owning part of a capital machine to turn commodities inputs into widgets, selling those widgets at a profit and giving back dividends to the stock owners. If the stock was producing dividends at $1/share then the price would have a floor at around $10/share assuming those dividends held steady.
There's no floor under crypto because the incoming cash flow from people trying to get rich entirely funds the outgoing cash flow for people who are rich or who are running for the exits. Once the pool of actual money in the system goes to zero then you have more people running for the exits than are throwing cash into the system and the price discovery rapidly goes to zero.
There is some theoretical floor because if people are throwing thousands per day into the system while people are trying to extract millions per day, then if you cut the price down by 1,000 the flows are theoretically balanced. This is the proverbial "well if bitcoin goes to $50 then I'll buy a BTC every week so there must be a price floor". But at that point the exchanges have all gone bankrupt and your $50/week won't keep the lights on, so the owners of the exchanges have fled to sandy beaches with the remaining millions, or gotten arrested, or been assassinated.
This is also why you shouldn't try shorting the market. The exchange where you place those bets on may disappear.
Of course you could short Microstrategy on the actual stock market, but I suspect those options are going to be extraordinarily expensive at this point because everyone is thinking that (and BTC is not likely to go to zero tomorrow, its likely to keep shuffling on like a zombie for months[*]).
[*] I suppose I should more accurately assert that nobody knows when it'll go to zero and the problem is timing it accurately because shorting always has a time-cost, and I certainly don't know how to do that. But it does seem to be running pretty hard into a brick wall at the moment. My statement is less of a prediction and more of a rationale of why I'm not running out to short Microstrategy right now.
Do they? If there were no magic 10x, 100x, and 1000x returns in crypto and it only solved the centralization problem, would even 1 out of 100 current crypto proponents still care about it?
I'd argue it's the risk of volatility which both drives high returns and suppresses these uses, so a stabilization of market prices would eventually see growth in these use-cases as their potential audience puts proportionally less weight on the risk-factor.
One might not see 1 out of 100 current investors remain, but do think that these audiences could grow to equal or surpass such a small segment of the current interest.
Right now the belief of most bitcoin/crypto adopters is that it’s a way to get rich quick
Like most macroeconomic forces, it matters more what the majority believe to be true than what the vision is for something, whether it’s true or not.
But that's besides the point, croins failed as currencies and are closer to investment vehicles (without fundamentally valuable assets underneath).
The problem is bitcoin is being treated like an investment because of “greater fool theory” and no one is treating it like a currency in any meaningful way. It’s crashing because it’s not showing its value as an effective currency. At least not yet. Right now it’s a store for excess liquidity and that makes it too volatile to function as a currency.
I feel like I'm almost alone in seeing no real purpose in the existence of cryptocurrencies per se; but nevertheless believing that there's value in the technology ecosystem of crypto/DeFi (e.g. in smart contracts as a substrate for security tokens; in NFTs as legal deeds; etc.) entirely independent of the existence of cryptocurrencies.
If Bitcoin and other "just a currency" ledger-platforms ceased to exist overnight; and the value of Ether and other "distributed-computer eStamp" currencies went to near-zero; and only stablecoins backed by governments continued to exist as representations of "stored value" on these platforms — these distributed-computer platforms would still be useful substrates for fin-tech innovation. They'd just be free of speculation + Ponzi schemes.
Security tokens would need to follow the same securities laws as centralized solutions but I can see an advantage in having liquid shares. Price discovery would be pretty powerful. Although the founders might not like what happens to their valuation.
Which securities laws? I'm imagining you are talking about the US as this site is very Silicon Valley centric but not every company is based in the US and there are over a hundred different jurisdictions in the world. US laws aren't the end all be all and the way things are going they might be even less relevant in the future.
We are living in an incredibly global society and there is currently no global governance layer that covers global public goods and digital-only projects. We'll likely develop something in the future but today there are entrepreneurs creating applications and projects at the species level that have no defined state owner and it wouldn't make sense to assign them one.
It’s a shitty way to do it. No criminal would ever use crypto if <insert legal payment frameworks> were accessible to them.
Of course you also need to go through p2p on both sides and the volatility is a problem, but both of these are tolerable depending on circumstances.
If crypto was better and cheaper for remittances, then Western Union would already be using it - they've certainly been experimenting with it for most of a decade. Companies can be stick-in-the-muds, but not that much of stick-in-the-muds.
Give it a rest.
Meaning that you can trade billions on it's ups and downs, and make profit this way. Anything that can generate profit is valuable. Notice how the big exchanges, Binance, FTX are worth tens of billions of dollars, and their owners are deca-billionaires, thus kind of proving this thesis, because exchanges are first in the line to extract profit from volatility through transaction commissions.
TL;DR: bitcoin is backed by it's crazy volatility
The whole Eth blockchain has as much compute power as 1/5,000th of a raspberry pi.
It’s an insanely inefficient non-scalable tech. To sacrifice many orders of magnitude of performance, while pumping a whole countries worth of C02 into the atmosphere, just to have a system that is “decentralised” makes no sense.
None of the applications can be properly decentralised. Your house deed stuff needs to be enshrined in law, enforced by police etc., your NFT tickets need the venue to validate.
Just stop it. It’s junk. The planets future is perilous enough already.
Proof-of-Work blockchains are a strawman. Nobody in or out of the ecosystem thinks they should exist. They're a legacy technology sticking around on inertia; the mainframes to Proof-of-Stake's microcomputers.
> None of the applications can be properly decentralised. Your house deed stuff needs to be enshrined in law, enforced by police etc.
So? I didn't say anything about decentralization. I believe that these distributed-compute platforms that use signed append-only ledgers as shared storage ("blockchains") are a better way to do regular old centralized fin-tech. (Like I said above: security tokens. Those are embedded in a specific nation's regulatory environment!)
(See also: https://www.bankofcanada.ca/research/digital-currencies-and-...)
However, there is a very specific case that blockchains enable that traditional finance doesn't — and that's "multilateral agreement with no shared legal framework." E.g. a person in the US making a contract with a citizen of North Korea. If these two people get into a dispute, there's nothing their governments will do to arbitrate that agreement. But they can at least rely on technological mechanisms to enforce certain rules about what they can and cannot do to screw one-another over (e.g. requiring 2-of-3 multi-signature validation to remove value from an escrow holding account.)
> your NFT tickets need the venue to validate
They need a venue to validate. If one supplier is willing to take another supplier's "tickets", so to speak, then you now have an economy.
Let's say these NFTs are game licenses — if the Epic Games Store went under, Steam could say "we'll accept Epic Game Store licenses to download+activate games on Steam" as a PR move. Do that a couple of times, and now you have an economy of transferrable game licenses, maybe with an industry body that governs their issuance acceptance.
I'm not saying that this happens by default; but rather that this end-state is the point of the technology; and anything else people do with it is basically noise.
If you have a trusted counter- or third party, the rest can be done and is literally often done by email (sometimes even signed!) and spreadsheets.
Well, yes; signed email sent through anonymous remailers hosted by a network of peers (e.g. Mixmaster) is the direct ancestor of blockchains. Designed by the same group of people (the "cypherpunks"), even!
Blockchains just add to Mixmaster-like networks a shared reputational-currency ledger with some inherent means of acquiring a balance on it, to facilitate the feature that spam-email-solution-proposers call "eStamps" — which prevents blockchain networks from being flooded with spam transactions, while also not requiring per-account identity verification. (Remailer networks had to deal with a lot of spam in their pursuit of anonymity.)
Essentially, blockchains are a formalization of "signed emails and spreadsheets."
However, there's a specific thing you get from blockchains' peer-to-peer distribution, that you don't get from "signed emails and spreadsheets" in this example use-case.
The problem is reconciling the state when the person in the US doesn't trust any computer hosted/set up by the North Korean, and vice-versa. They can pick a third party, but how do they collaborate to set up the escrow system to enable the third party to reliably send their third signature; when the future two of them now disagree and are actively trying to trick one-another into thinking that e.g. the third party cannot be reached?
Even if the third party hosts the escrow system themselves in some neutral country — the two of them probably would just DoS-attack that centralized system to prevent the third party from issuing their judgement.
Presuming a big-enough blockchain, and anonymity for the arbitrator (enabled by the "eStamp" ledger property), you can't effectively silence the third party from publishing to it.
They absolutely do not, at least not successfully so far.
Which blockchain has solved the Sybil attack (a precondition for establishing any kind of reputation/rating system)? Which blockchain has successfully bridged physical and digital trust?
Proponents keep coming up with the wildest use cases, like "decentralized carbon emission tracking" or "trustless logistics". I absolutely agree that these would be really nice things to have, but so far I've seen absolutely nothing that would convince me that there is a solution somewhere in there.
For the North Korea / US businessman case - I literally cannot come up with any scenario where legal jurisdiction or some external force (police, lawyers, asset seizure) is not needed to enforce the contract. How will the computer know the contract has been breached? Who's going to tell the system what the breach is? Give me an example and I'm happy to reconsider.
Meanwhile, in reality we have a system for this, where judges and lawyers make those calls, and enforce them with the help of police. There's a reason why cross-border deals are risky (enforcement), and no computer is going to solve that.
especially when you have to go via Infura to get any work done on Ethereum - that's a glaring hard dependency that everyone pretends isn't one, as if anyone's going to telnet to port 30303. Approximately everyone just uses Infura, and Infura outages and sanctions enforcement affects the whole Ethereum ecosystem.
What would be the advantage over the government just running the databases for that as well? If there is a central trusted issuer, there is no need for a blockchain.
Also, you seem to be thinking like currencies (whether fiat securities, or decentralized autonomous securities) are the central point — or only point — of blockchains. This is true of "ledger-only" blockchains like Bitcoin — which is why I say those would be mostly irrelevant.
But in decentralized-computation platforms like Ethereum, there are lots of other things going on; and I'm not suggesting to limit any of that stuff to only fiat/regulated use-cases. My argument is against cryptocurrencies (decentralized autonomous securities) specifically; not against utility tokens, governance tokens, DAOs, virtual pets, or anything else people do with blockchains. All that stuff is inherently global — and it would make no sense to have to "shard" the state of any of it onto into separate ledgers per legal regime. The legal regimes can come to the distributed computer, not the other way around.
> But in decentralized-computation platforms like Ethereum, there are lots of other things going on
What are they? Please name one successful, trustless Ethereum use case beyond DeFi.
The blockchain isn't connected to anything; most importantly, it's not connected to a legal system capable of interpreting and adjudicating contracts and reliably passing judgement on real-world properties that are the subject of those contracts.
Yes, it would be absolutely great to have an "API for the legal system" (and by extension the financial one), but I doubt that blockchain brings anything of significance to the table here. (Distributed consensus might well be a component of such a system, but arguably not the most important one by a long shot.)
For me it means that I can finally buy a GPU at a reasonable price.
- The proof-of-stake chain has been running for a year and a half.
- They've tested every combination of five execution clients and five staking clients, and they all work.
- They just migrated a large long-running public test network to pure proof-of-stake, and it went well enough to have been considered very successful if it had been the production network.
- There are two public test networks left, and if those go well too, there's nothing left to do besides the production migration.
And this is considered easy/low-risk?
It seems like the most frightening part, although perhaps less frightening as the crash continues.
At some point, you have to accept that you've done all you can, and ship.
https://mobile.twitter.com/martybent/status/8967755346586869...
Just like "instant payments" and "non-inflationary" those have sailed. "Store of value" is looking a little weak.
"Transfer funds to Russia" is holding out ok.
It has also failed as a medium for digital assets now that the NFT craze is showing itself to be hollow and is collapsing. It's failed as a medium for decentralized organizations (DAOs) since they've all either been hacked to death or revealed to not actually be decentralized.
Where do they find a new well of hype now?
I still believe that the concept of decentralized cryptocurrency is technically viable, but the entire current cryptocurrency ecosystem would probably have to be burned to the ground for anything honest and well built and not structurally a hyperdeflationary decentralized Ponzi/pyramid scheme to get traction.
Now the music has stopped and people are scrambling for the exits.
Please do elaborate.
2. Leverage becomes more expensive with higher rates.
3. The same crowd owns both assets (e.g. Bitcoin and Tesla)
4. Qs are low yield assets with high projected future cashflows. Low rates bring those cash flows to the present, high rates discount them more aggressively. Bitcoin has 0 cash flow, so the effect is worse.
Bitcoin proponents have no financial education. Bitcoin is not a hedge for anything (including inflation). Crypto is a high beta asset with an inelastic supply which makes it even more volatile in periods when everyone wants/needs to liquidate simultaneously.
As far as I can tell, even gold tends to go down in the early stages of recessions as people use its liquidity to cover losses elsewhere.
With hindsight it's pretty easy to see that's false, since the common tie is the same investors investing in both asset classes, with dollars they get from economic performance and monetary and fiscal policy.
When NASDAQ sneezes, bitcoin catches COVID. The sort of tech stock buyer who also gets a bit of crypto will tend to be easily squeezed (because they are the sort of person who buys crypto). So when there's a stock market dip, do they sell their stocks? No, they sell the frivolous crap first.
So NASDAQ goes down 3%, bitcoin goes down 10%.
Mostly though, bitcoin is unregulated, illiquid and tiny. So the main force on the market is internal shenanigans - not outside forces at all. There's a paper to this effect (which I can't find right now), showing that BTC and ETH hardly respond to outside events.
Organisations borrowed fiat cash to keep the crypto show going. This all started to unravel when borrowing costs went up. Many crypto businesses used their coins as collateral for loans, as the market collapses their counterparties force liquidation which forces the price downward which forces even more liquidation. And now we are learning how much leverage went into crypto. It's like the GFC except that (1) it seems [mostly] contained in the crypto world and (2) there will be no government backstop.
https://twitter.com/hodlKRYPTONITE/status/153760293205275852...
Wrt to QQQ this is a combination of inreased borrowing costs makes the ongoing game of share buy-backs more expensive; the increased in treasury yield increases the discount rate which reduces the net present value of future cashflows which reduces valuation; increased inflation greatly reduces value of money in the future; and we are very likely going to enter a recession which will reduce earnings and growth.
When there's no fundamental to support a price, it just moves on the whim of risk on/risk off
There are gold critics like Warren Buffet who've argued that gold investing is pointless because, to paraphrase him, "You pay people to dig it out of the ground and refine it and then you pay more people to guard it and let it sit there." Despite critics like Buffet, gold has held its value and often goes up during a downturn. So I can see how Bitcoin proponents might draw the parallels between the two, including the same sort of critics, and thus reasoned if gold works as a hedge then Bitcoin might as well.
There are also some overlap between gold people and Bitcoin proponents, especially in the early days of Bitcoins. My friends who were interested in Bitcoins in the early days were the same types who would buy gold as a store of value. Maybe it's from this early origin that the idea was passed down.
- electronics - decoration/ornamentation - if you give it to some people, they will have sex with you
This is 3 more uses than bitcoin.
Large miners didn't sell the coins and borrowed real money to fund their new mining operations.
Since the rates are going up, they have no choice but to sell.
And that is not to mention the poor folks who borrowed money to buy bitcoins.
[Edit] Are there archives of the various forks of Bitcoin? What about all the "shitcoins"? Unless there's an active effort to save them, the blockchains aren't native to the web, and will get lost to history.
This it went from passing snark, not worthy of anything but a rant/downvote, into the thread you see before you.
It's a weird thought to have an archive of a currency. Imagine being able to explore the history of all the tally sticks that were used, then deliberately destroyed in 1834[1]
https://cloud.google.com/blog/products/data-analytics/introd...
2. It’s interesting the author is saying the collapse already occurred (60k->20k) but also it will continue to crash. With stocks the company’s actual assets/etc create a price floor, but with Bitcoin the theoretical floor is zero?
3. All eyes on tether, it feels like that may be the final punch for crypto.
Bitcoin has only just reached its marginal cost of production. The dynamics of Bitcoin are probably different (it doesn't take years to shut down or spin up a mine), but when they enter bear cycles, many commodities will trade below the marginal cost of production for years. The marginal cost of production itself could also fall if energy prices decline from here.
So yes, no fundamental/mathematical reasoning for why it should be 10k vs 20k vs 0.
You can assume there will always be some level of interest, so 0 is probably impossible, but can trend towards it.
Miners can collectively earn a pre-determined flow of block rewards. If the price rices, then those block rewards become more valuable. So then miners can afford to spend more on hardware and electricity as they compete to get those block rewards.
Now that the price has dropped, the opposite will happen. Miners can no longer spend the same amount on electricity, so many will be shutting down their mining rigs. Only the miners with the lowest electricity cost can keep operating. The difficulty will drop until it is once again in equilibrium with the price.
For real world resource mining, it's different. E.g. if a metal used by industry can't be mined for less than 1 $/kg, then that must put a price floor on the price of that metal (in the long term, ignoring short term price volatility). This dynamic doesn't exist in Bitcoin, which confuses many people.
Miners also need to sell bitcoin to recoup operational costs. They influence the value of bitcoin by being an active trader and setting limits to their sale price.
Current price influences future mining. Past mining influences current price.
https://en.wikipedia.org/wiki/Second_law_of_thermodynamics
This says those energy costs are lost to the universe, forever
https://en.wikipedia.org/wiki/Third_law_of_thermodynamics
And this says the underlying value is zero
However whenever I go down this thought experiment, I tend to find that the applications themselves also don't carry intrinsic value e.g. some tie to the real world outside crypto.
Are there exceptions?
There are people (especially at EY) working on using Ethereum as infrastructure for things like B2B transactions, but that's still in early stages. And here's a recent piece by Vitalik on non-financial applications of blockchains: https://vitalik.ca/general/2022/06/12/nonfin.html
The computation and distribution is very expensive, so I’m not sure what I would run on ethereum until transaction costs get down to a penny or something.
Yes, because there is no intrinsic value with Bitcoin. If a company has real estate and machinery or whatever, there will always be some value there.
Such laws don't really apply to crypto schemes. And they definitely should.
A bit tired of these “Bitcoin is dead” articles. They almost never adds anything to the discussion.
Most people on HN accept that there is some use for some cryotocurrencies.
I would say the opposite. It's rare to see anything positive or even neutral.
I expect that's a false-consensus bias. But without some kind of survey we can't be sure.
There's no one else to "grow" the audience anymore. Cryptocoins are 100% within the mainstream consciousness.
There are now three kinds of people out there:
1. People who know about Cryptocoins and never trusted them. (They saw the superbowl commercials and decided it was stupid).
2. People who bought in within the last 2 years (because of the big advertising spree) and only know what a 60% loss on their assets feels like.
3. People who bought in _before_ the last 2 years, a very, very small minority of people.
#3 is not enough to return BTC to $60,000+ heights. And with #1 and #2 distrusting the coin now, I dare say its over.
Type #4: "ignorant" people who haven't heard of BTC yet, are completely non-existent now. Superbowl commercials, Cable News, Facebook ads, and more have ensured that everyone has heard of this by now.
El Salvador? Hong Kong with Three Arrow's Capital collapse? Russia with its collapsing economy?
I admit I'm ignorant about many parts of the world. But the parts of the world that "matter" with regards to propping up the price of BTC, are the parts that have money. That narrows the list significantly.
* In Asia, there's China, Singapore, Japan, Philippines and a few others. I'm watching anime make fun of Blockchain (Japan), Three Arrows Capital blow up in Hong Kong, and Axie Infinity completely screw over working class Filipinos.
* Europe largely knows English and are just adjacent to the Anglosphere. (I'd expect the French and Germans etc. etc. to know about this whole crypto-nonsense by now as well)
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I guess I'm ignorant about India and some other corners of the world (and Indians know a lot about English anyway and would be adjacent).
Who in the world do you think can be brought into this cryptocoin nonsense now? Where can the cryptocoin world find "new converts", who have enough money to make a difference?
All the 'crypto' stuff can go. This is the opposite. When people understand them, they'll sell.
But, if you're a trader and know what you're doing, taking advantage of bear markets is fine of course.
I think I've figured out why you've never met one of these people.
Majority of people who would want to invest in Bitcoin has already done so.
How do you know that? Why can't the market grow as time passes?
In the USA, you cannot get "more popular" than a superbowl advertisement. And there were dozens of Superbowl ads on cryptocoin this past year.
Those companies make money with their customer base. Coca Cola has the ability to turn 40-cents worth of water, sugar, and flavors into $1 dollar worth of sales. Not only that, but customers are happy with this exchange (and will likely keep making this exchange... at least until people stop liking the taste of sugar).
Even without growth, those companies are insanely profitable. Because Coca Cola has a 3% dividend (and its assets are likely inflation-protected), they're a very safe bet.
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BTC makes no profits. In fact, the entire BTC system consumes tons of electricity constantly. So we can see that moving BTC around costs real resources, but no one seems to have explained to me where "money comes from", aside from a greater-fool.
> BTC makes no profits. In fact, the entire BTC system consumes tons of electricity constantly. So we can see that moving BTC around costs real resources, but no one seems to have explained to me where "money comes from", aside from a greater-fool.
Transaction fees.
You had your best shot at converting them last year, when they were ignorant, and hadn't lost $10,000+ on it yet. Today, they're going to be mad at their losses, the lies, and the fraud, and the outright stealing / locking of accounts.
The people in category #2 are almost certainly, permanently, lost. You can't just play with people's savings like this and expect them to trust you.
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This isn't like a "normal cryptocoin crash". Celsius, and now Gemini, account holders are unable to withdraw funds. Who knows how far this financial-contagion will spread?
What's going on right now is a fundamental loss-of-trust.
The price goes up, the price goes down. That's not the important bit. Locking down accounts and destroying goodwill is the problem with this crash.
Your friends sound like degenerate gamblers. What does that have to do with having a balanced portfolio with a percentage in crypto? More people are going to do this.
Investing in crypto doesn’t mean having all your wealth in it.
I said "locks up". Celsius is likely insolvent. Gemini is only at the stage where there are withdrawal issues.
BTC probably has to drop a bit more before Gemini collapses and/or becomes insolvent, but the issues have begun (like Binance). The other crypto-lenders all locked up like this as BTC dropped from $30k to $20k, it looks like Gemini is stronger but its beginning to have withdrawal issues now.
If BTC keeps crashing, other crypto-lenders (including Gemini) will be wrecked. Its just the nature of how those systems work.
Gemini doesn’t have withdrawal issues. Misinformation only makes your position look weak.
Crypto exchanges always run into platform issues when volume is high. Everyone claims it’s a giant conspiracy because 10x engineers could never fuck up this bad. Well, they can and do.
Your claim Binance is going under is laughable as well. You have zero understanding of this market.
Sure thing bud.
https://www.reddit.com/r/CryptoCurrency/comments/vf6spv/gemi...
> Crypto exchanges always run into platform issues when volume is high.
They also seem to be running into platform issues when they're running out of money.
Volume was high on the way up. Volume on the way down is... much less than before. Coinbase (and others) have laid off thousands of workers because BTC volume has declined precipitously.
This ain't a volume problem. They're just pretending its volume.
Cashed our 7 figures last year. I’m good.
e.g. it's not like Indian celebrities haven't been hyping crypto like western celebrities: https://www.ndtv.com/business/bollywood-stars-endorse-crypto...
"The West" has about a billion population also (370m USA+CA, 600m Europe minus Russia, 30m AUS/NZ). That's not inherently a reason for crypto have potential for another boom cycle here, nor is it inherently the same in India.
This is the biggest problem for crypto skeptics.
They surely add to the list:
Shouldn't very high inflation in US on goods priced with USD + rising global food prices actually bump up the price of BTC? I thought BTC has zero inflation baked in the algorithm, so it should actually move the opposite direction against any currency that experience high inflation right now. I want to be educated.
Turns out 'commodities' (to use the term loosely) are worth whatever people think they are worth, and that includes 'currencies' (loose term) like Bitcoin. There is no "inherent" value to anything, only the value we humans put on them.
Strictly speaking, the only things that are probably "inherently" valuable to humans are: air/oxygen, shelter, water, food. Everything else is a psychological 'trick' we play on our selves to allow for functional socities.
So in order for the price to go up when inflation goes up, we would need more people to want to buy BTC in response to inflation. This does not appear to be the case, for a number of reasons. One reason is, when prices rise people spend more (even if they don't adjust what they buy, which they often do) so they will have less money available to buy BTC, even if they wanted to. Another reason is, the economic and financial systems (including crypto) are interconnected, so disruptions in one can cause actions in another. For example, if stocks go down 70% maybe I'll sell some BTC to buy some cheap stocks. Or maybe I'll get spooked and just stop buying anything.
There's more but that's my read on it.
Bitcoin proponents will try to push that argument that Bitcoin should be the only crypto considered and all other coins ignored, but it doesn’t really work that way in the real world. Even if we look at Bitcoin as the coin and a digital version of gold, a lot of people are surprised to learn that even actual gold hasn’t performed all that well as an investment.
If you want an inflation hedge, investing in actual things that are scarce, in demand, and hard to produce is key. A digital currency that was imagined into existence with computer code can be arbitrarily scarce enough, but that alone doesn’t make it valuable. It has to remain in demand to keep the price up, and Bitcoin’s demand is almost entirely driven by speculators hoping to get rich quickly. Once the coin stops being viewed as a way to get rich quickly, the demand dries up and prices start crashing.
> The link between deflation and adherence to the gold standard, shown in table 2.2, seems quite clear. As noted by Choudhri and Kochin (1980), Spain's abstention from the gold standard insulated that country from the gen- eral deflation; New Zealand and Australia, presumably because they retained links to sterling despite early abandonment of the strict gold standard, did however experience some deflation. Among countries on the gold standard as of 1931, there is a rather uniform experience of about a 13% deflation in both 1930 and 1931. But after 1931 there is a sharp divergence between those countries on and those off the gold standard. Price levels in countries off the gold standard have stabilized by 1933 (with one or two exceptions), and these countries experience mild inflations in 1934-36. In contrast, the gold standard countries continue to deflate, although at a slower rate, until the gold stan- dard's dissolution in 1936.
> In theory, under the "rules of the game", central banks of countries experiencing gold inflows were supposed to assist the price-spice flow mechanism by expanding domestic money supplies and inflating, while deficit countries were supposed to reduce money supply and deflate. In practice, [...] no sanction prevented surplus countries from sterilizing gold inflows and accumulating reserves.
In other words, under the gold standard, surplus countries were expected to experience inflation, while deficit countries were supposed to experience deflation. Some surplus countries (e.g. France) conducted policies that prevented this mechanism from taking place by not letting the money supply grow with gold inflows. It was these policies, not the gold standard itself, what created a deflationary bias.
there is a reason people are still calling for the $400k price soon
Only if it were the only currency in the world, and the amount of value in the world doesn’t decrease significantly.
As soon as there’s more than one currency, the market could decide the relative values of the two changed overnight.
Also, if the amount of value in the world were to decrease significantly, you still would see inflation (as, for example, one can see in times of war, when the amount of money doesn’t change much, but supply for some goods falls, while demand stays the same)
Reply to self: not even then. If the people lose trust in the only currency available (say because of a rumor that the maker of it keeps printing new money), there’s always the option of going back to a barter economy.
1) Price(t) = f(demand(t), supply(t))
2) Inflation hedges have consistent Price over time: Price(t) = f()
3) By the above two, this means that either:
a) demand and supply don't change at all over time
b) demand and supply both change by exactly the right amount given external factors
Realistically, a true inflation hedge does not exist because demand is almost never constant over time. BTC has constant supply, but obviously demand will drop hugely during a depression because people would rather have food than BTC. Same problem with gold. Same problem with land. The reality is simple really: you can't ignore the environment. If you want to properly allocate resources, you're just gonna need to actually speculate correctly about what future demand and supply will be.
ahh - that's where we differ; land == food. farmland is pretty good vs inflation.
People thought that BTC would be treated like gold. Where it would act in opposition to the stock market. If you ignore all the terminology and equations, then you can focus on the behavior of the investors. If investors buy, sell, and perceive BTC as a type of stock, then it will behave as stock. As inflation occurs, it will project into the crypto market via speculative investment.
The "inflation proof" concept of bitcoin is that there is a fixed supply. So, monetary inflation cannot occur within the currency itself. However, in the context of the larger financial market, it will be affected by systemic inflation.
https://www.investopedia.com/trading/support-and-resistance-...
If you had $1M on loan (to pump some shitcoins of course), and your collateral is $2M of bitcoin at $40,000 - and the coin drops to $20,000, the system will automatically liquidate the bitcoin to cover the position. This, combined with automated stop losses and people getting out by selling (whale outs) leads to huge dives like this.
> But it’s not normal. It’s a lot of work to regulate a marketplace so that it’s free enough to work and innovate but not collapse, and the crooks are kept at least manageable.
> Crypto is almost entirely unregulated.
Daily reminder that the population at large has enough idiots (hard to quantify, maybe 20%?) and crooks (also maybe 20%?) that the rest of us folks in the middle need to accept regulation because otherwise all the idiots would starve and probably kill us all in desperation while the crooks would destroy everything in their path (look at Putin).
It's incredibly difficult to get money to do things that are constructive.
Of course money doesn't "want" anything. That's a metaphor. The real driver is human cognitive biases and the dopamine loop. Gambling and scams provide a Skinner box type environment that plugs right into our closed dopamine loop systems. Productive investments often do not. They take too long to mature, are too risky (individually but not necessarily in aggregate), and are too hard. The path of least resistance for economic activity is something like those casino-like loot box games but with markets and pseudo-investments.
Without heavy regulation money will just gamble and scam and gamble and scam. The only way to get it to do anything productive is to systematically block off the other avenues, which is an endless game of whack a mole against both the natural organic tendencies of human beings and the large number of hustlers and sociopaths who love to take advantage of them.
As the USA has demonstrated, this does not require a fully planned economy with a total loss of freedom. It just requires that there be barriers in place to prevent people from advertising casino chips and pyramid schemes as investments, and requiring that such things be gated at the very least by disclaimers that explain what they actually are. The term investment should be reserved for actual investments.
This is actually protecting people from fraud, which is a legitimate function of government in a free society.
Our execution of it has of course been flawed and sloppy, but that's real political systems for you. It's better than nothing. Absolute anarchy is not freedom. It's the rule of the nearest thug with the biggest stick... or the best grift in the case of markets. The "big stick" is a deceptive pitch that hooks your dopamine system and drains you.
Same principle for markets.
About 5 months ago I was banging on about the actual trend suggesting a price of $15 and wad laughed at by the lazer eyed cult.
Either it will hit that level, and the speculative fever will have subsided enough for it to be a stable gold alternative, upon which new layers will have the chance to be built.
Or it will go to de facto $0
But keep in mind, blockchain, unlike a company, is eternal.
But damn that is a huge drop, good time to buy? Or is this really going to now be a hard time for crypto? I think bitcoin is just too confusing to be mainstream and i don't see much need for it.
I would say it's not guaranteed to repeat exactly - but for reference $18,600 would be that point. It could go lower, due to other market factors (recession, defi time bombs, stablecoin insolvency, etc) but it seems to follow this path.
And that point is close, I think.
Like good ol' Warren Buffet has said, bitcoin has no intrinsic useful value, unlike gold or even lead.
It's tulips all the way down.
you can technically eat a tulip. It's less useful than tulips
Bitcoins are a tool to transfer and store value. There are transactions that are more expensive in the traditional banking system. Determine their value and the time they need to stay in Bitcoin, and you know the minimum market capitalization of Bitcoin. On top of that, you have people who want to diversify their investment portfolio. They keep some of their value in Bitcoins and thus reduce the supply of available coins for transactions which increases the market capitalization because you have to transfer the same amount of value with less coins.
They're way too volatile to be any useful kind of store of value, as this month's ~33% drop in value has just proven. Nobody wants their stored value to depreciate that quickly and unexpectedly. That's simply not a good store of value — arguably it's not a store of value at all by most definitions.
(Also: still massively overpriced)
I haven't yet seen the "phoenix" take; where the CBDC's are unveiled as the promised nirvana and there's going to be butterflies and unicorns again. I'm sure it is out there.