Mt. Gox knowingly traded non-existent Bitcoins for two weeks, filing shows
theguardian.com
theguardian.com
The reason I tend to believe this scenario is because it's completely consistent with their behavior. I watched them very closely, and there seemed to be no rhyme or reason for their behavior. That is, unless they were missing everyone's bitcoin for some reason. Then their behavior made perfect sense.
In that scenario, Mt. Gox would have knowingly traded non-existent Bitcoins for far, far longer than two weeks.
EDIT: I should mention that there's still no evidence whatsoever that malleability somehow led to the loss of >500,000 BTC.
Maybe pedantic, but many people have been using fractional reserve wrt Mt Gox lately. The usual meaning of that term: A bank will loan out deposits, reserving a fraction for withdrawals. However, a key point is that the bank holds collateral against the loan, and that collateral has a fair-market value, so the balance sheet is still positive. (A major problem in the housing meltdown was that the value of the collateral dropped, making many banks technically insolvent.)
What Mt Gox did is take money from depositors and either lose or spend them. That's just either bad business (if they lost them) or fraud (if they spent them). Calling it "fractional reserve" gives it an air of legitimacy that they really do not deserve.
Edit: I did not intend to start a discussion on the finer points of bank accounting. The major point is: To my knowledge, Gox wasn't trying to make loans with money that deposited with them, which is what a fractional reserve business is.
Then they're hosed, because as soon as somebody somewhere makes a loan using bitcoin, then bitcoin becomes a fractional reserve currency.
Edit: It seems that some cryptocurrency folks have confused "fractional reserve" with "fiat". Those are two very different monetary concepts.
No, there is the other option called full reserve banking.
It's not like cryptocurrencies can change human nature.
if i borrowed 1 bitcoin from you, and then i default, then how are you going to pay back that bitcoin to whoever deposited it?
If you want a lockbox, get a lockbox. If you want a deposit account, you're storing and retrieving fully fungible and interchangeable entities.
Hardly: it simply reveals the speakers utter ignorance on the subject.
FRB has its challenges (which deposit insurance and central banking are largely meant to address). What Mt. Gox was doing was in no way at all FRB.
No, the balance sheet is still positive because the debt owed to the bank is an asset of the bank. This is independent of whether the debt is secured by collateral.
(Of course, even a risky loan that is unsecured by collateral is a very different thing than simply having deposits stolen, so, there is a good point that while Mt.Gox surely had less-than-full reserves, it was doing something very different than fractional reserve banking, even assuming that Mt. Gox's own explanations are correct.)
Not always true. For non-recourse loans, the value never exceeds the collateral. When the collateral gets written down, so does the asset.
It at some point misplaced funds and then tried to cover up this fact.
Complete abuse of the term 'fractional reserve'.
Mt. Gox was doing (attempting) the same thing our traditional banks do in that sense. They were increasing the bitcoin supply using an analogous scheme.
(Note: I'm not defending Mt. Gox here)
Yes, I was avoiding that can of worms. Banks do unsecured lending, there is still an asset entry to offset it so that the books remain positive. Armies of regulators and accountants and volumes of laws in effect here.
But the salient point: A fractional reserve business consciously makes loans with an expectation of being paid back. To my knowledge, Gox was not trying run a fractional reserve business, and the term is being misapplied.
> This is why fractional reserve banking increases the money supply.
It increases a money supply, not the money supply. It does not increase M0 (and there was a time that banks were allowed to do just that.)
In both secured and unsecured loans, the debt itself is the security, with a portion of the interest being attributable to the risk (default) component of the loan.
As for money supply, bank reserves are included in M2 which is used for inflation calculations, so I'd argue that yes, fractional reserve lending does increase money supply, as commonly used.
It's true that there's no collateral, but there is a corresponding asset - the loan itself.
"This is why fractional reserve banking increases the money supply."
Fractional reserve banking would increase the money supply even if banks restricted themselves to fully secured lending. Bank deposit accounts act a lot more like money than does a mortgage.
i'm a bank with 0 dollars in any asset, but 0 debt obligations. So my networth is 0 right now.
You come along to borrow off me $100. Now i have an asset of $100(the debt which you have to pay back + interest), but as soon as you spend your money, i also have a debt of $100.
Now isn't this a good way to make money from nothing?
On the other hand, I've never objected to the notion that fractional reserve creates money - in fact, my comment above explicitly states it.
My understanding is that few banks were actually made insolvent, but that lots had to eat fire-sale prices due to liquidity issues. Your sketch isn't wrong, though.
This was another can of worms. Mark-to-Market accounting was rescinded, partly to address this issue (http://online.wsj.com/news/articles/SB123867739560682309) but many folks thought the banks were dragging their feet on re-marking their housing assets well before that. So were they insolvent because nobody put an accurate, timely value?
Those that anticipated the situation by shorting the banks made some serious money (and then made less when the SEC banned shorting.)
The rest is converted to assets with equivalent value that have worse than instant liquidity, but a higher return on investment. This keeps the balance sheet honest with respect to the total value of assets and liabilities, but technically, the bank cannot honor all of its commitments in the worst case scenario. That's fractional reserve.
Mt. Gox does not even have the imaginary, illiquid assets to balance out its depositor liabilities. That makes it bankrupt, not fractional reserve.
Strictly speaking, it makes them insolvent. The fact that they are insolvent is the reason they have sought the protection offered by bankruptcy, but the two states are distinct.
The implication is that an insolvent person could become solvent by immediate application of better financial management, but a bankrupt person has no choice but to default on a portion of his debts or other financial obligations. Bankruptcy is the noun/adjective descibing what the court does with bankrupt people and businesses.
The ACME brand hair-splitter is the only professional-grade capillascindor you will ever need.
I recall spinning this theory on another hn thread [1]. And sure, you are correct that Mt Gox didn't make loans, didn't act exactly in all respects like bank. But the literal term "fractional reserve" is certainly suggestive of what both a standard modern bank does and what a crocked bitcoin exchange could do - only keep a small amount of money to satisfy inflows and outflows while doing something else with the rest of the money entrusted with it. If Mt. Gox did this, they clearly weren't responsible in doing it since don't have the money entrusted to them. But it pretty much seems like this lack of responsibility would be what distinguishes a failed bitcoin exchange from an ordinary banks.
Consider, Wikipedia says: "Fractional-reserve banking is the practice whereby a bank retains reserves in an amount equal to only a portion of the amount of its customers' deposits to satisfy potential demands for withdrawals. Reserves are held at the bank as currency, or as deposits reflected in the bank's accounts at the central bank. The remainder of customer-deposited funds is used to fund investments or loans that the bank makes to other customers." [2]
Which is to say, a fractional reserve system involves keeping only some money handy and hoping that the money you remove for other purposes goes on to make more money. Now, if you don't tell people you're doing this, then yes it's fraud. Secretly operating something that people don't think of as a bank, as a bank, is fraud. Lose the money you've invested and a fractional system collapses, whether you are openly operating as a bank or secretly operating as a bank. Secret banks do tend to collapse more often just 'cause they're shady. But the secret banks that make money, well you don't hear about them most of the time.
For those interested in this, I strongly recommend Sheila Bair's "Bull by the Horns". She was the head of the FDIC up to and during the 2008 financial crisis, and this is her memoir. She's a fiscally conservative Republican, but one who strongly believes in the value of regulation as a way to create a sound economy so that all citizens can thrive. The book was fun to read, and it gave me a much better understanding of the forces at play and why good regulation of banks is immensely valuable to us all.
So long as only a low percentage of demand depositors ask for their money back at any one time it's not a problem. But when everyone decides to withdraw their money at the same time you have a liquidity crisis. Liquidity problems aren't so bad anymore though -- the Fed steps in an lends all the cash you need against your long term assets. The real problem is when those assets go bad. Now you don't have a liquidity problem you have a solvency problem. The only thing the Fed can do at that point is to simply give the bank money to make up for their bad investments. Which is exactly what they did and are doing, albeit in an obfuscated manner.
A lot of people are critical that after the 2008 crisis very few people got fired for FUBARing the world economy. I get why the US ended up doing that; people were scared of anything that looked like more instability. But I think it was a mistake.
All that said, I agree with your underlying point that just giving insolvent banks money wasn't a great solution at all, though it was minimally sufficient to prevent bank runs at least on formal banks. There were some runs on shadow banking institutions, though in at least one case -- money markets -- the government stopped one by guaranteeing them as though they had been insured banks. That too was a mistake in my opinion.
Borrow short and lend long - great work if you can get it. Of course, this practice is fundamentally unsound (it provides nasty game-theoretic incentives to participants), but it tends to work "well enough" in practice that no one really cares, especially when there is a lender of last resort who is able to print money at will.
If it is simply a classic bank run, and everyone wants their money back now, the lender of last resort could take over all of the distressed bank's illiquid assets and, over time, recover some or all of the lent moneys.
In this case, what the lender of last resort is really doing is making all illiquid assets liquid.
which states that "The fund had a balance of negative $7.4 billion as of Dec. 31, though that was an improvement from the $20 billion hole it was in at the end of 2009."
But each bank loan is balanced, to the reserve ratio that bank operates at, to a corresponding deposit.
> The reason I tend to believe this scenario is because it's completely consistent with their behavior.
Another reason to believe this is that it is something that has happened often in the past before modern banking regulations. Seriously, read history of banking in Netherlands or England, the idea:
"Oops, I just lost my customer deposits. I'm probably going to get lynched now. But hey, if I just hide this until I make the loss back from fees/reckless trading, I'll be able to pay my customers back and avoid being lynched. It's a win-win."
Is something that at least hundreds, if not thousands of bankers have had over the course of history. As far as we know, it never works.
There's no way to know how often this sort of thing has happened in the past. We only find out about the cases where a bank is not able to earn back it's loss and runs out of cash. At that point they have to admit they're insolvent.
If the bank was able to earn back the money and become solvent again, then no one outside the bank would know it happened and the bank would have every reason to cover it up to save its reputation.
Only because when it does work, you never find out.
See also: loss aversion as a cognitive bias resulting in excessive risk taking http://en.wikipedia.org/wiki/Loss_aversion http://blog.usabilla.com/how-loss-aversion-and-risk-influenc...
Also the London whale http://en.wikipedia.org/wiki/2012_JPMorgan_Chase_trading_los... Nick Leeson http://en.wikipedia.org/wiki/Nick_Leeson et al.
> As far as we know, it never works.
You might not know if it does work, but due to the cognitive bias mentioned above, odds are against it.
That's not true at all. Almost every bank in the western world did this in the past six years. They became technically insolvent due to losses in the housing bubble, but through, for example, huge piles of free money given to them by the U.S. government, were able to keep on trucking until they could earn enough money and get back into solvency. That was the entire theory behind the bailout.
Not all banks that were insolvent managed to keep on going; many failed. But many survived.
So this strategy works perfectly well if you have the ear of the Federal Reserve or another entity that can provide very large amounts of money. It works well when the amount you are insolvent by is small compared to your revenue stream. It does not work well if you are a Ponzi scheme operator and if you have stolen ALL of the money.
Feel free to give examples of these behaviors...
They didn't actually need to replenish their supply of good bitcoin; they only needed to buy up all of the bad goxcoin. For example, by halting withdrawals for 2 weeks in order to drive down the price.
Fractional reserves refer to liqudity, not solvency. If I run a financial institution and I owe depositors $100, but have $10 cash and am owed $100 on top of that, I'm running a fractional reserve.
If on the other hand, I'm MtGox, and I owe depositors $100, but have $10 of cash and am owed nothing on top of that, I'm insolvent. Bankrupt. And if I keep operating, I am a fraud.
This is an incredibly important distinction.
A large portion of the BTC community grossly abuses all economic terms because it's a libertarian anarco-capitalist circle jerk much of the time. The sane and educated are few and far between but they're there.
In times where you can't liquidate assets at a high enough fraction of their "I deserve this much" value, then you can't meet your obligations and are thus insolvent as well. If someone's willing to buy your illiquid assets (or lend on the assumption that they're) at full "I deserve it" value, you were still insolvent -- you just got bailed out.
If you are otherwise profitable, then a long enough line of credit can return you to profitability. In that respect as well, an "insolvent" institution can become solvent thanks to this added liquidity.
For those reasons, I believe that in the interesting cases, liquidity and solvency are too deeply entangled to distinguish.
So when MtGox tries to keep the facade up long enough for trading fees to cover the shortfall, then yes, that is different from an "illiquid but solvent" bank getting a loan from the Lender of Last Resort ... but it's a different of degree, not kind (edit: fixed wording, thanks dllthomas). Both of them are trying to cover up functional insolvency with future profits they hope to operate long enough to get.
You mean "degree, not kind"?
Also, I find myself amused at the Haskell interpretation, where "kinds" are the "types" of types...
I'll cut off the inevitable reference to 2007 at the pass by pointing out that none of the big banks that got bailed out ever made it anywhere close to digging themselves into a hole as deep as Mt. Gox did. For example, the biggest bank failure in US history, Washington Mutual, went down with about $300bn in assets against $200bn in deposits. Creditors ended up getting wiped out, but deposits were safe.
Did you completely miss out the part where Goldman Sachs drafted gvt regulation to its advantage and conducted insider market manipulation that led to the 2008 crash ?
Deposits were safe, but all of society got kicked by inflation and increased unemployment. Of course, that only hurts poor people, so, win for the depositors!
I personally think it's unlikely to be hyperinflationary, but it will be very uncomfortable, especially for poor and middle class.
But, perhaps i should not have used the past tense.
The rich are typically in debt a lot, via leveraged investment ('trading on margin'), or, indirectly by things like leveraged ETFs, leveraged currency FX trading, etc, which enjoy very low, bank-level interest rates because it's done in bulk. Not to mention banks with direct access to low-interest loans, (as in bank corporations) which are not begging in the streets for alms (they get bailouts). These debts that the rich enjoy benefit greatly from inflationary devaluation of nominal prices.
Moreover, the investment activity of the rich tends to benefit from inflation.
While I'm sure there are some rich that are heavily leveraged, the majority are not leveraged that highly relative to their asset base. This has been shown in most available statistics on household wealth. For example:
http://www.levyinstitute.org/pubs/wp_589.pdf
In particular the debt-equity ratio of the top 1% (>$8.2m net worth) is 2.8% ; the next 19% (> $473k < $8.2m) is 12.1%, and the middle three quintiles ($200 dollars-$480k) is is 61.1%.
Moreover, the rich representatives in press & politics (WSJ editorial page, Forbes, the GOP, etc.) have been clamouring to raise interest rates for the past 5 years out of inflation fears... for what reason? To benefit the poor?
That said, I did smile and chuckle at your response :)
If MtGox had been expecting to face bank audits, they would have been forced to a) hire some people who actually understood finance, b) would have had much better internal accounting controls, and c) would have had a much harder time blowing up quite so thoroughly.
When I hear people carping about "unnecessary regulation" I imagine some guy looking up at a major bridge and saying, "Ha! You don't need half that metal. I could have done it for way less." Maybe he's right. But more likely, he isn't thinking about high winds, earthquakes, and all of the other extreme circumstances that are the real drivers for how thick the supporting pillars have to be.
However, I think everyone screaming "see! regulation works!" is completely forgetting that this site really did bring Bitcoin up from some obscure hacker/modder toy into what it became today. Perhaps some other site would have filled the void, but with regulation mtgox or anything like it could not have existed.
So yes, regulation has it's places. However, regulation would have made these early "bootstrap" exchanges unworkable, and probably criminal. How does that help anyone either?
This is all due to regulation, banks on their own wouldn't participate in this because it costs the banks with low reserves money but it keeps banks from disappearing overnight like MtGox.
To be fair though Gox was an exchange and not a bank and that is a bit different
Edit: Wow bad spelling..
This encouraged banking institutions to increase the number of sub-prime mortgages with the stated goal of increasing home ownership among lower income communities.
Changes to this regulation made during the 1990s, specifically the 1992 change to require Fannie Mae and Freddie Mac (USG-sponsored entities) to devote a percentage of their annual budget to securitizing (read: buy the loans made by other banks and bundle them into securities) these sub-prime mortgages.
This, among other factors, eliminated a lot of the risk for banks - there was always going to be someone to buy the sub-prime mortgages, thanks to this regulation.
And as long as housing prices went up they could afford to keep issuing predictably bad loans, since the assets that would fall under forfeiture would have a greater value than the principle of the loan.
When housing prices tanked in the mid-2000s, after a solid 10+ year housing bubble, all of this mania inevitably caught up with reality as home values went under water.
So let's not pretend that regulation is some short of magic wizard armor that prevents human stupidity and greed (on all parties: the banks, the Government, the realtors, the home builders, and the consumers who took the loans).
Regulation doesn't guarantee anything other than unintended consequences and should be looked at as a tool of absolute last resort when it comes to addressing market issues.
Consider the FDIC, often held up as an example of successful financial regulation - it's enabled plenty of new forms of reckless behavior on the part of financial institutions (see the Savings & Loan crisis from the 1980s) and more or less guarantees government bailouts to the depositors.
Laws are not magic patches to the fabric of reality and human behavior. They often don't even achieve their stated goals and aren't always so easy to correct.
I would encourage you to read 'The Big Lie' by Barry Ritholtz that completely debunks this nonsense.[1] He even offered a bet of $100,000 to debate anyone in front of a 'jury' about the role of CRA in the crisis (unsurprisingly, he had no takers).[2]
I'll just point out some facts that address your most incorrect assertions, but just about everything you wrote is incorrect or extremely misleading.
This encouraged banking institutions to increase the number of
sub-prime mortgages with the stated goal of increasing home
ownership among lower income communities.
Additionally, many subprime defaults originated in prime loans, up to 60% in Massachusetts![5] So these people qualified for Prime mortgages, and then refinanced with Subprimes. They couldn't possibly be CRA loans.
Fannie Mae and Freddie Mac (USG-sponsored entities) to devote
a percentage of their annual budget to securitizing [..]
these sub-prime mortgages.
Also, if Fannie and Freddie were at fault, then why did the commercial real estate market, with absolutely no government support, have a much more severe price drop (45% compared to 30% [8])?
Or you could take it from the Financial Crisis Inquiry Commission[9]:
The study found that only 6% of such higher-cost loans
were made to low or moderate-income borrowers or in low
or moderate-income neighborhoods covered by the CRA. The
other 94% of higher-cost loans either were made by CRA-
covered institutions that did not receive CRA credit for
these loans or were made by lenders not covered by the CRA.
I would love to hear how the Savings and Loan crisis was the fault of the FDIC though, that promises to be entertaining. Especially when the guy who literally wrote the book on the crisis noted that[10];
Deposit insurance was not essential to S&L control frauds.
[2] http://www.ritholtz.com/blog/2009/06/100000-cra-challenge/
[3] http://rortybomb.wordpress.com/2009/06/29/what-was-a-subprim...
[5] http://www.bostonfed.org/economic/wp/wp2007/wp0715.pdf (page 4-5)
[6] http://i.imgur.com/DLHMGyg.png
[7] http://i.imgur.com/AswjnXN.png
[8] http://i.imgur.com/u1zx8Wj.gif
[9] http://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf (page 220)
[10] http://en.wikipedia.org/wiki/Savings_and_loan_crisis#cite_no...
He then goes on to demonstrate an argument regarding how CRA loans had virtually nothing to do with the crisis. How on earth do you feel he isn't addressing an argument you made?
> According to American Enterprise Institute fellow Edward Pinto, Bank of America reported in 2008 that its CRA portfolio, which constituted 7% of its owned residential mortgages, was responsible for 29 percent of its losses. He also charged that "approximately 50 percent of CRA loans for single-family residences ... [had] characteristics that indicated high credit risk," yet, per the standards used by the various government agencies to evaluate CRA performance at the time, were not counted as "subprime" because borrower credit worthiness was not considered.[125][126][127][128] However, economist Paul Krugman argues that Pinto's category of "other high-risk mortgages" incorrectly includes loans that were not high-risk, that instead were like traditional conforming mortgages.[129] Additionally, another CRA critic concedes that "some of this CRA subprime lending might have taken place, even in the absence of CRA. For that reason, the direct impact of CRA on the volume of subprime lending is not certain."
So if you're basing your argument on the authoritative application of the label "sub-prime," please feel free to indulge in as much or as little semantic pedantry as you like.
In a piece deeply critical of Fannie and Freddie, William Black (again of S&L crisis fame) addresses Pinto's attempts to place Fannie and Freddie's terrible risk management on the back of CRA regulation:
Pinto estimated that Fannie and Freddie held “34% of all the subprime loans and 60% of all Alt-A loans outstanding” [p. 7]. Pinto seems to have treated subprime loans as non-liar’s loans, but that is clearly incorrect. I cited Credit Suisse’s finding that by 2005 and 2006, half of all subprime loans were also stated income (liar’s loans). The presence of such large amounts of Alt-A loans is one of the demonstrations that Pinto, Wallison, and the Republican Commissioners’ “Primer” are flat out wrong to claim that it was affordable housing goals that drove Fannie and Freddie’s CEOs’ decisions to purchase loans they knew would cause the firms to fail. That claim doesn’t pass any logic test. One of its unobvious flaws is that no one was making Fannie and Freddie buy liar’s loans. For the reasons I’ve explained, and Pinto admits, Fannie and Freddie actions with respect to liar’s loans were the opposite of what they would have been if they were trying to demonstrate that the loans were made for affordable housing purposes.
The GSEs were deeply irresponsible with their lending and were poorly run, but both were prevalent long before any CRA impact would have been felt. If AEI / Pinto / Wallison had focused on the actual causes of the mortgage / financial crisis instead of trying to blame poor people and Barney Frank, the world would be a lot better off.
http://www.ritholtz.com/blog/2011/02/wallison-is-far-too-kin...
Just start by comparing the total value of subprime loans at that time with the total value of derivatives, CDOs, etc. built upon them. Then, see where that takes you. It's been covered ad nauseum, so it won't be hard to find.
>Consider the FDIC
I have. Bank runs aren't cool. Neither is depositors losing all of their money.
>it's enabled plenty of new forms of reckless behavior on the part of financial institutions
That's why you regulate with something like Glass-Steagall. It worked pretty well for what it sought to prevent until it was repealed, which really set up the 2008 meltdown. And the S&L crisis? Well, that's why the Fed shouldn't double the interest rate over night. You can't just have actors do any mindless thing, then blame unrelated regulation for not mitigating the consequences. The FDIC didn't have anything to do with creating or escalating that crisis. The eventual scale of that crisis was a product of outright fraud.
In fact, Congress had deregulated the thrifts (S&Ls) just prior to the crisis, which opened the door for that fraud [0]:
>Congress finally acted on deregulating the thrift industry. It passed two laws, the Depository Institutions Deregulation and Monetary Control Act of 1980 and the Garn–St. Germain Depository Institutions Act of 1982. The deregulation...significantly expanded [the thrifts'] lending authority and reduced supervision, which invited fraud.[6] These changes were intended to allow S&Ls to "grow" out of their problems...Other changes in thrift oversight included authorizing the use of more lenient accounting rules to report their financial condition, and the elimination of restrictions on the minimum numbers of S&L stockholders. Such policies, combined with an overall decline in regulatory oversight (known as forbearance), would later be cited as factors in the collapse of the thrift industry
>Regulation...should be looked at as a tool of absolute last resort when it comes to addressing market issues.
So, in summary, you believe, for example, that Glass-Steagall has no value and that banks should be able to place ultra-risky market bets on exotic, esoteric derivative products, using their customers' deposits? And, further, that those customers should not have any form of insurance or recourse?
It's stunning that someone could look back at 2008 and conclude that less regulation is the solution.
[0] http://en.wikipedia.org/wiki/Savings_and_loan_crisis#Backgro...
How many accounts in Mt. Gox got their funds back?
So if they screwed something up, and somehow lost all of your stock and cash, your cash would be covered by the FDIC and your stock would be lost? (Assuming they don't have some sort of supplemental insurance to cover loss of stock.)
Of course, I could be completely wrong. Any experts care to chime in?
EDIT:
From the explanation linked below it looks like banks keep a fraction on hand and the rest is due to the bank in the form of lines of credit. Which I suppose explains why the FDIC still needs to exist - it's not like the bank can just tell everyone they loaned money to pay it back right away if everyone withdraws their money at once.
Also, it seems we are continuously conflating 'regulated currency' with 'regulated banks'.
Also, the FDIC (and eventually the NCUA) was created out of a need to stabilize the dollar, post Great Depression. It's considered an organization that helps regulate liquidity of the currency, which is essential to being a currency.
Bitcoins on the other hand do not have any such regulation, and exhibit recessionary behavior not unlike gold, which was decoupled from the U.S. dollar about the same time the FDIC was created.
Because bitcoins lack liquidity regulation and have an impending production cap, they will almost never make it as a currency. That's not to say some other cryptocurrency won't solve the problem later.
Where can I have a look at the list of competing unregulated US-based exchanges so I can pick the best one?
AFAIK no one who has had money stolen in any of the countless bitcoin scams like BMR, Sheep, etc. used vigilante justice, even though many of them threatened to.
Talk is cheap.
What does it mean for bitcoin to be unregulated? Do people want bitcoin regulated and how?
Is someone stealing your bitcoins illegal? What if an exchange steals your bitcoins? What if you conduct a transaction in bitcoins and you never receive the bitcoins? What if someone conducts a ponzi scheme with bitcoins? Would front running and faking trading activity be legal?
EDIT: Note I hold no bitcoins, never have, nor am I shorting them so I have no skin in the game.
It's one of those things you can't really know in those cases.
It demonstrates shockingly how much trust in the regular economy is actually dependent on government regulation...
There are always small speculative bubbles here and there, it happened exactly like that 6, and 12 months prior. It's interesting how bitcoin prices are highly cyclical. I think there's going to be ONE MORE expansion, in approximately 3 months, that takes the price of btc to about 5k, although it may pop as high as 10k on its way. If for no other reason than there are often self-fulfilling prophecies in finance.
Edit: Satire, guys. Sadly, it sometimes becomes indistinguishable from actual misconceptions. Don't believe me? Similar post from my history: https://news.ycombinator.com/item?id=7227291
The aspect of bitcoin that is "unregulated" by the US government (meaning "not controlled by" the US government) is the production of bitcoin. In that respect, you can think of bitcoin as similar to a bog-standard foreign currency (which the US does not control the production of).
It does fractional reserve banking - some proportion of the bank's assets are indeed held in liquid currency, but the rest are held in assets (read: interest-bearing loans) that are worth of the sum or excess of your deposits.
If every depositor tried to withdraw from the bank all at once, the bank would be in trouble and it would likely have to rely on deposit insurance from the government to cover it.
Now this is another interesting thing -- the market value of the bank selling a loan fluctuates inversely with interest. If they have a loan that a customer is paying 8% on, then that loan has a market value much higher if current rates are 3%, and much lower if current rates are 12% (assuming the risk of the loan doesn't change -- that also affects its market value).
Your bank almost certainly doesn't. Check out fractional reserve banking.