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Comment by SilverBirch | Hacker News Reader

What I really don't understand about this shitcoins is the scale of it. When I read this story I basically thought "ok, but you're going to spend a load of money pumping but there's no way there's liquidity for you to actually perform your dump". But if you look up DOCK today you'll see its market cap is $14m and it's daily traded volume is $1.5m. I would get it that you could move some of these coins using a few bill boards and some sponsored ad reads if they were tiny volume traded, but the implication of this is that millions of dollars are moving back and forth every day on a coin that has absolutely nothing going for it. Who is doing that? There can't possibly be retail moving in and out of this stuff. Really I kind of assume this all has to be wash trading right?

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Wash trading aside, you're right that scams like this need new money. But consider who the target is here: would-be smart guys who are also would-be rich guys. In this new gilded age, we all know there are plenty of people getting wildly rich. Looking at who gets rich, and how quickly it can happen, it's easy to think, "What do they have that I don't have?" (There are answers to that question, of course, but not ones these people are eager to hear.)

That's a view very much encouraged in the cryptocurrency culture, and in the day-trader culture that preceded it. That with smarts and a little luck, a guy can get the riches he was destined for. The people who fall for it of course never ask where the money is coming from, because if they did they'd figure out it was suckers like them.

So when they see an ad that says, "ITS YOUR CHANCE TO BUY THE MOST POWERFUL CRYPTO COIN" they don't ask why the chance is specifically theirs. They don't ask what "powerful" could mean for a currency. They don't ask who's trying to convince them, or why the convincer can't even punctuate a sentence. They say, "Yes! It's my chance, just like I know I deserve!" And then they put in their engagement ring fund or the house downpayment fund or the money they borrow from family.

And very shortly that money ends up in the pockets of assorted assholes, who are now better funded for their next scam.

I think you’re way off on the psychology of participants. Lots play poker. Bluffing is normal.

Ok smart guy.

Many do play poker, but most play at fair games of poker and they play it for fun.

None of that applies to the suckers who bought DOCK based on market manipulation, which is generally a crime. [1] This is more equivalent to Three-card Monte, [2] which may look like a fair game involving cards, but which also preys on the would-be smart.

[1] https://en.wikipedia.org/wiki/Market_manipulation

[2] https://en.wikipedia.org/wiki/Three-card_Monte

Your "lots" is unsubstantiated. "Some" is probably more like it.

> The people who fall for it of course never ask where the money is coming from, because if they did they'd figure out it was suckers like them.

This is the case with all forms of gambling. I think that they know that the money is from others less fortunate. However, human nature seems to make us believe that somehow, we will be the lucky one.

Here's the thing I wonder though. If you sat each one down and explained that the whole thing was basically a ponzi scheme, or like a lottery where everyone loses except one person who wins big, I'm not certain you wouldn't see a majority of them say "Yeah, I know," or just keep "playing" after hearing the explanation. To borrow the cliche, you can't really use logic to change someone's mind when they didn't use logic to make up their mind in the first place. Also, gambling is powerfully addictive to a lot of people.

A lot of people got rich from Madoff’s Ponzi scheme. The problem is they never cashed out their gains. You see the same thing in these kind of crypto trades - yes, you’re participating in a Ponzi scheme, but it actually works as long as it does keep getting new money to buy out your entry position… which can continue happening for quite a long time before actually collapsing.

There are also layers to the Ponzi scheme. The alt-coin is just the first one. Even if you cash out for a profit, you probably didn’t even sell it for fiat directly, but sold it for some “less risky” currency like Ethereum or Bitcoin. One might argue you’ve only moved from one a smaller Ponzi scheme to a larger one. But then again… trading across pools of risk is widely accepted as a method of generating wealth. So who are we to judge?

For sure. It's only a profit when you directly hold more cash than you put in. Madoff's victims didn't lose their money when he finally crashed. They lost it when they put it in.

This mentality was common with penny stocks around 1998 (maybe still true). But the belief (and reality) was that you just didn't want to be left holding the bag at the end. If you got in low enough and got out soon enough, that's all you wanted. So it was all pump and dump. No one believed in the companies, but they believed they could be in early enough and out just in the nick of time.

At a larger scale, I'm not sure the difference with the NYSE or NASDAQ. I don't vote w/ any of the companies for which I own stock. I just hope I buy low and sell when it is much higher -- just the volumes are large enough that small players can't pump the value of the stock -- but reddit and TikTok has shown even this world can be gamed.

On difference is dividends stock buybacks, and physical assets.

Companies can support higher valuations buy owning more stuff, if their market cap is lower than the stuff they own, then they’re clearly underpriced.

If a company starts paying out higher dividends due to higher profits, then their stock is worth more because otherwise the dividend repayment would trend towards zero (i.e. dividend payment per share ends up larger than the share price)

If a company is doing stock buybacks, then they’re using their profits to prop up the price of their shares.

But in all of these scenarios, the companies are producing profits, which are directly or indirectly used to pay for the increase is share value. Shitcoin on the other hand are zero sum, they produce no new value from their existence, they just store value and move it around a little bit.

You're talking about current value - true, companies have that - but a huge part of stock prices are expected future value, which (by its nature) can be quite speculative.

Well sure. But it’s substantially less speculative than shitcoins.

Some degree of skill can be used to understand if a specific company is going to improve its situation long term via sound investments in new projects. You can look at companies stated goals and strategy and decide for yourself if those goals are valuable and if the strategy is viable. And thus make an educated call about future value (with appropriate error bars).

With shitcoins there’s nothing to analysis. They fundamentally don’t do anything. Speculating on shitcoins is just trying to guess what a disorganised mass is going to do in the future. There’s no reasonable way to gain any understanding of what their behaviour is going to be, and if it’s going to increase or decrease the value of the shitcoin, because it’s a disorganised mess.

Ultimately the value of a company present and future derived from the fact that it’s organised, and broadly predictable.

Shitcoin value isn’t driven by anything organised, or predictable.

Owning stuff is a bit challenging though. Say Tesla has access to a bunch of Bitcoin; how much is Tesla worth as a result?

One difference with NYSE or NASDAQ is that those companies could release a dividend or get bought and either of those events would put actual hard currency in your pocket and the price of the stock is (theoretically) based on those events happening.

This is the mentality of a family member of mine who was in early on BTC but also sold early (Liked mined lots at 10cents each, sold all at $10 each).

He is up on every new shit-coin, he spouts a little bit about the world changing proposition, he basically does it because "hes not missing out again".

His idea is to drop $100-$1000 as early as possible (like at the ICO or pre-buy whatever) and hope one of these things 100x'es.

Part of him knows this is a fools game, but he is "smarter" and still doesn't want to be left out yet again.

People like this just kill me.

I don't know how many people remember it, but in the 1990s there was a fad for WWJD bracelets, with 10s of millions sold: https://www.mortaljourney.com/2010/11/1900-century/1990-tren...

In 1999 I met a guy who had missed out on a business opportunity around those. He had just bought into what he was sure was the next big thing: Y2K bracelets, which here stood for "Yield 2 King". He was sure that god was sending him this opportunity.

Even then I felt bad for him.

I had an Uber driver just like this. Missed out once, never again. He also gave me card with a referral code for some shitcoin that you 'mine' by tapping the app once an hour.

A friend of mine made more than $10 million in crypto essentially knowing full well that it was a Ponzi. He simply believed that he could get in and get out quick enough to find a bagholder and he was right.

As much as I enjoy studying scams, I am clearly not suited to be a scammer, because I wouldn't be able to enjoy that money. Me living large off of the suffering of others would taste like ash.

It's shocking to me how many people don't really seem to mind so long as their victim is faceless and nameless and I think that's one of the reasons the blockchain is so compelling for this sort of scam. Ripping off an actual person is much harder than ripping off some dumbass on some computer somewhere in the world that you never have to see or hear or think about once you've secured the bag.

I don't think the arc of crypto looks much different if you subtracted the grifters. There were enough true believers in the space. I know people who have sold $1m of crypto but still HODLing 90% thinking it will go up.

One description I've heard is web 3.0 people are mostly people who saw the financial crash in the late aughts and thought the only thing wrong with it was they didn't get to participate directly.

> the only thing wrong with it was they didn't get to participate directly.

Dear God, this really does sum up a lot of people running around trying to get rich nowadays.

It's greater fool theory, people betting on someone being even dumber than themselves.

Gambling plays a part, but I think it has more to do with the in-group dynamics of the crypto community. The Folding Ideas documentary on NFTs had an interesting segment on this topic.

Crypto forums use a lot of in-group language to communicate their shared belief of the crypto project (i.e. hodling, to the moon, etc., etc.) in order to demonstrate their belonging to the community and they summarily reject skeptics essentially as non-believers. It's a quasi-cult mentality but without a true individual leader. These forums then become echo chambers that serve two primary purposes: to continue purging skeptics and to repeat the crypto mantras over and over again without thinking critically. This is effective because it tends to attract people who may exhibit significant intelligence in other aspects of their lives. Where people really get into trouble is when they start thinking: "of course I'm too smart to get wrapped up in a dumb ponzi scheme, and this definitely isn't one."

This makes it really easy for the pump-and-dumpers to manipulate these people into making more and more risky crypto purchases.

It's a cult. I'm not even joking. https://freedomofmind.com/cult-mind-control/bite-model/

I know it's a pyramid scheme, I'm just getting in early enough to make money on it!

The reason ponzi schemes are so insidious is because it's logical to participate in them - as long as you expect there to be a bigger fool to offload to.

This reasoning worked a little better before the Fed raised its rates.

For the most part that's all crypto

Very well put. It’s what Hannah Arendt said about those who followed Hitler: What they really fell for was their own bullshit story.

Several exchanges will offer you wash trading bots as a service, for a fee. It's considered a marketing expense like any of the others.

Could you name these exchanges that offer wash trading bots?

I'll do the leg work to verify the claim if you can site any exchanges.

I thought I had heard it all in crypto but that wins some scum award.

The YouTube channel that they bought a video on for $30,000 has 1.45 million subscribers.

Edit: the video only got 40,000 views though. https://news.ycombinator.com/item?id=32068788

Yes, so basically certainly what’s happening here is the crypto guy bought subscribers so he looks popular so he can charge to shill. Scams all the way down.

There’s a certain poetic justice in that.

Yup. Wash trading by bots is endemic throughout crypto, worse on certain specific exchanges but prevalent throughout. Very very little of the volume is from real live people buying or selling!

Not necessarily wash trading (though it does occur), a lot of it is just perpetual chain reactions of bots. Remove exchanges with no or negligible fees from the calculation and the volumes for these coins tend to plummet.

I wonder if a bot limited exchange would be able to succeed?

"The missing cryptoqueen" podcast gives a good idea of who the buyers could be.

Wash trading and bots.

> There can't possibly be retail moving in and out of this stuff.

There’s a couple different angles with these coins. First, there’s plain old hype where regular people see XX% gains in a day and jump in. There’s also groups that decide ahead of time to do coordinated pumps, which helps feed into the hype. There’s also a LOT of bots that follow these trends and also ones that simply gamble by buying up some amount of a coin the instant it appears on Uniswap et al, with the assumption that it’ll probably pump at least a bit in the short term.

I don't know....

What do you need to have a daily traded volume of $1m? Lets find examples.

E.g. 1 - you need e.g. 1k people trading $1k

Is that unrealistic? I don't know. The world is a very big place with a lot of stupid people. But wait! all of these morons use stupid leverage. Many of these platforms give you 100x. Yes, really.

Here's a few more ways that you can get $1m daily:

e.g. 2 - 1k people putting up $10 with 100x leverage

e.g. 3 - 100 people putting up $100 with 100x leverage

Neither of these look unrealistic to me.

How is the leverage working here beyond providing a convenient lie.

100x$100 is $10k no matter how much you lie that your shitcoin is worth 100x what people will pay for them. And that's diminishing your yield making it marginal whether you're matching your opportunity cost.

> 100x$100 is $10k no matter how much you lie that your shitcoin is worth 100x what people will pay for them.

It's not worth 100x. You don't understand how leverage works, clearly.

Well, that helped. /s

I thought leverage was effectively borrowing on anticipated gains. So I would spend $100 to, get credit to the tune of $10k, then buy my crypto with that. But, here we're talking about people buying a coin and the _seller_ saying the coin is worth 100x and so skipping the step of using fractional reserve to 'create' the funds (the loan amount) to exchange for crypto and just going straight to a deceit.

With leverage there's a debt written to counter the credit, here that doesn't seem to be happening.

So, where am I misunderstand the situation here?

> But, here we're talking about people buying a coin and the _seller_ saying the coin is worth 100x and so skipping the step of using fractional reserve to 'create' the funds (the loan amount) to exchange for crypto and just going straight to a deceit.

This is a meaningless word salad.

You have an account with an exchange. Taking a position with leverage 100x just means that every time the instrument moves $1 up, your account goes $100 up, and when it moves $1 down, your account goes $100 down.

> So, where am I misunderstand the situation here?

It's pretty simple.

They put in $10 to borrow 100x$10 to buy $1000 worth of the coin. If the coin price goes down 1%, the borrower is wiped out.

You don't need fractional reserves for leverage.

>They put in $10 to borrow 100x$10 to buy $1000 worth of the coin. //

If that is all with the coin seller/creator then you're not actually borrowing the money they're just saying 'that $10 token you bought from me 1s ago is worth $1000, you're rich'; you bought $10 worth of coins, the market price is $10, there's no actual leverage involved it's just a deceit.

If the seller is taking the $10 you pay to a different institution, borrowing $1000, then buying the coins, then legitimately they can say it's $1000 of coins. It's still clearly a scheme. The company lending that money are morons in this case unless they are doing it knowing full well that they are going to need to pursue people for the debt.

If the coin is trading at whatever price (say $100 a piece), you can leverage by 100x doing this:

- Put $100 as deposit.

- They borrow you 10k to buy 100 shitcoins for $100 each (instead of 1 you can really afford), so 10k of shitcoins with the condition that if the coin price falls below $99 your position is liquidated and you lose all.

Note that there's no seller saying "the coin is worth X", it just trades at that price.

> E.g. 1 - you need e.g. 1k people trading $1k

Or 2 people, who pass $1K "worth" of coin back and forth 1k times.

it's more efficiently, as you can replace the people with for loops.

Yes, the person I was responding to already said wash trading. You're just repeating what he said, you've added nothing to the conversation.

My point was that wash trading isn't the only explanation.

I think wash trading is the explanation. Without regulation these numbers aren’t very useful because of wash trading.

The real question is why only this amount of wash trading and why everyone doesn’t do a billion.

My explanation, on the other hand, also explains why it's not a billion.

So my explanation has more explanatory power than yours.

> The real question is why only this amount of wash trading and why everyone doesn’t do a billion.

You can't fool everyone all the time, but the transactions (volume etc) are likely intended to be realistic enough to fool some people sometimes.

Leverage can show you a short term source of revenue, but what we're saying here is a few things: Firstly, they're still going to be paying the fees and spread, so they're still losing tonnes on fees (and this is massive volume per day). That's just not sustainable, especially if people are getting wiped out with these pump and dumps, if it's done against people on leverage someone is going to be stuck holding the bag.

On the pump phase, everything could work, even if it's not sustainable and even if everybody suspects that is not sustainable.

I'm old enough to have lived the .com bubble as an adult, and almost everybody knew/suspected it was a bubble, and that 95% of the business would fall at some point in the near future. But if you believed that it would last at least one more year, and you can squeeze a 20% profit, and you can do it leveraged 10x... it's just too tempting to many.

Fast forward 7 or so years, housing bubble, same tune: it was a main talking point, everybody knew it was a bubble and unsustainable, but very few predicted the burst to 2007 (and even the ones who did were the same that predicted it to 2004, 2005 and 2006). You are in 2004, everybody saying "this is a bubble" and waiting. In 2005 people still waiting looked like losers, while 2004 buyers laughed and I-told-you.

Nobody wants to be a loser, and some people should beat the market or get fired. Only way to beat the market? Ride the bubble. And the rational way to ride a known bubble is leveraged: you enter the market, profit heavily, and ideally exit (it almost never works). You know you cannot ride a bubble expecting it to rise forever, you know it's going to crash, so you need to enter and exit ASAP.

> - 100 people putting up $100 with 100x leverage

You just made me realize how much cash trading platform probably are making using leverage. That explain why they were so quick to add theses coins. I'm curious to know how they manage the risk though.

Hmmmm do fees scale with leverage? I don't know if that's true...

My understanding is that leverage is profitable to trading platforms, not because the fees are bigger, but because bigger leverage is "more fun" and so people trade more.

I don't know, you might be right.

The fee is a percentage of the contract size, so higher leverage allows for bigger orders is higher fees.

The contract size doesn't change with leverage.

Do you mean a percentage of the notional value?

Sorry, you are correct, the fee is a percentage of the notional value.

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