It's hard to show that they really sold these coins. Certainly, the LFG transferred the coins to some different exchanges. But did they truly sell them?
If I was running a dodgy ponzi scheme and saw it collapsing catastrophically, I don't think I'd be throwing good money after bad trying to futilely patch it up. Much better to stash the remaining assets away somewhere and personally cash out later on.
Also, “In a sense, the market is going to take that as kind of bullish.” - a.k.a. the standard 'this is good for bitcoin' quote, applicable whatever the news is!
A total ponzi scam coin crashed. This IS good for Bitcoin. Bitcoin is not Luna nor is it one of the thousands of other garbage scam coins. The faster those coins are proven scams the better.
Too many people falsely equate "Bitcoin === Crypto".. or "a fan of bitcoin is a fan of all crypto".
So I'd bounce this back to you: How is Luna's Ponzi crash NOT good for bitcoin?
> Too many people falsely equate "Bitcoin === Crypto".. or "a fan of bitcoin is a fan of all crypto".
It pretty much is. I can open the price graph for any coin and assume the bitcoin movements are similar. Small dip in bitcoin price? Alts get destroyed. Even ethereum gets destroyed.
Eth fell by about 10% relative to BTC pretty much immediately as the Terra/Luna stuff went south. yeah, there's absolutely connections between all the different currencies out there, but they're not equal strength. it's hard to draw good conclusions from price data just because there's so little of it. the last year's been stable with Eth:BTC confined to within 0.06 - 0.08. but zoom out just one more year and the range triples. over more meaningful durations, the different currencies show a lot less correlation.
LUNA minted trillions of brand new tokens within the span of a day or so rendering the token worthless. This is due to the way LUNA was tied to the algorithmic stablecoin UST. It was a true ponzi.
BTC's max supply is capped and the release schedule of new coins is fixed and predictable. There is no possible way that trillions of new bitcoins could suddenly be created.
Luna crashed because people lost trust in it. The only reason people have trust in BTC is because other people have trust in it. If that ever changed, there is no actual use for a BTC, and they are thus intrinsically worthless.
Fiat currency has the backing of a government. The government demands certain payments of this currency in order to own land, and also for some extra rights like mineral extraction, fishing licenses etc. Thus, as long as the government is viable and can confiscate the land of those who don't pay, there will be demand for the currency, and it will be proportional to the value the government assigns to the property and the rate of tax.
Thus, the currency is stable, because you know at the end of the day, there will always be a buyer who needs to pay their taxes.
Monetary supply outstrips the government's ability to collect on it. It is usually done on purpose to benefit some ruling individuals or for strategic reasons to zero the value of a country's debt. But I challenge you to find any example where the hyperinflation didn't make sense to pursue to the people in charge of the money supply.
> But governments can be poorly run so I suppose “stable” is not the right word.
no, but the currency belonging to a particular gov't is as stable as the gov't itself, so your statement is still true; vis a vis the Zimbabwe currency vs the US dollar.
What people refuse to believe is that a currency is actually a reflection of the real world. Yes there is some filtering going on and time lags can be huge but any well managed currency is only going to perform as well as the real economy.
Fiat currency does not actually have the backing of a government. What could the UK do when the pound peg broke? Nothing but lose enormous amounts of money trying to hold it.
The government doesn’t give it a baseline value, it just has the power to force people to use the national currency when doing business involving legal affairs and the like (which may help bring up its value). Even then, I know of 3rd world countries that prefer the US dollar for all day to day (peer to peer) transactions even when the local government has their own currency established.
What scenario involves the UK losing an enormous amount of money would be one where they are attempting to "hold a peg"?
I'm confused. Countries manipulate their currency supply in various ways in order to make their money cheaper or more expensive, I get that. But I thought the main goal was to keep exports or imports to a good balance to avoid wrecking a real economy. Like, actual people's lifestyles and jobs and well-being, beyond just the value of an investment instrument
I'm not sure I see the metaphor holding up here, isn't the issue that came up an arbitrage opportunity caused by a peg that in the real world doesn't really exist or which is easy for actual human beings to intervene in?
Are you describing what Russia did? Did they "lose money" with the actions they actually took? It seemed more about adding rules and changing contracts than by spending money on anything in particular, I'm not sure how one would calculate how much money they lost doing it. Or if that's a useful way to think about it really even, nations just have so many other priorities and their money policy is not at all algorithmic...
So it sounds like this "ERM" is algorithmic enough that it broke things. It did get stopped due to human intervention though, so it feels like a weak metaphor.
I hope international currency markets aren't quite so fast... hopefully we won't find out.
The very concept of a currency peg is that you sell things in exchange for the currency when it is not valued highly enough, and buy things in exchange for it when it is valued too highly. It wasn't the implementation that is algorithmic, it was the idea of a pegged currency itself that made Black Wednesday inevitable.
If a national government can't maintain the value of their currency, they aren't backing it, and if they have so much gold that they can maintain the peg no matter what happens, it isn't fiat (the gold standard is where the government will sell and buy gold at a fixed price, printing or destroying currency in the process). So I would conclude that fiat currencies aren't backed by anything.
Well pegs are stupid ideas. Just let the interest rate "float" into the negative range. That way your currency will remain stable while every other country inflated their currency to represent the same negative yield.
It could leave the Exchange Rate Mechanism which created the conditions for the run. And it did. Fiat currency always has the backing of a government, as 'fiat' suggests.
To be perfectly clear, you're claiming with a straight face that government issued currencies are stable because there will always be a buyer who needs to pay taxes?
Any reasonable definition of stability precludes hyperinflation, we agree on that right?
Historically government backed currencies are are stable because they have two underlying components: an economy denominated in the currency and an implicit threat of force (e.g. standing militaries). It's one of the reasons the US dollar is the chief reserve currency around the world as well as the denomination in which oil is traded in.
You need dollars not because people have faith in them but because people have faith in the underlying institutions they represent. It's fine to claim you back bitcoin because you don't have faith in the traditional institutions but pretending that those institutions don't support dollars in a way that crypto/bitcoin isn't seems a little near-sighted.
Yes it would preclude hyperinflation. Of course, now we should ask ourselves what kind of situation results in the government having to spend more money into the economy than it is receiving back. Oh right, by not taxing those who have money. Money that doesn't circulate doesn't pay taxes. If you keep money in your bank account forever that money will never be taxed, the government will never see that money again. It must run a deficit, not because it is stupid, it must run a deficit because it is actively subsidizing an influential part of the economy and any refusal to pay the subsidy is harshly rejected not just by the rich but also by the poor.
The fact that inflation is the escape hatch for loss aversion psychology tells you that everyone on this planet is actively choosing for there to be inflation or even hyperinflation instead of a negative interest rate.
People will argue how immoral it is for a bank to tell you that your physical capital is slowly depreciating and thus even a 0% interest rate would be too high to offer to you. No, that would violate the principle of private property, private property of coupons that represent the time of other people, who are slowly aging and paying opportunity costs. People think they deserve to own the time of other people as if they were cattle or slaves. After all, their freedom to not be a debt slave violates your right to private property which is a far more pressing matter, after all the psychological bias of loss aversion justifies any hideous act (note how I didn't refer to immoral acts, as many hideous acts are considered moral).
There are plenty of fiat currencies, backed by stable governments, that have become completely worthless. The Zimbabwean Dollar is the most famous one this century. There are plenty others.
This fully disproves your argument, as far as I can see.
You have it backwards. The trillions of tokens were created because people lost trust in it. Specifically, the loss of trust instigated the price drop from $1 to ~98¢. That's what started the collapse. Only afterwards did the "death spiral" of minting of more tokens, which degraded trust, which decreased the price, which drove more minting, etc. happen
There were two coins involved; the overprinting of Luna corresponded with lost confidence in UST. The obvious conclusion is that "algorithmic" stablecoins are bullshit.
Whatever fate lies ahead for Bitcoin, it doesn't have this particular weakness. It's not "leveraged" in the same way as Luna/UST.
People lost trust because they knew people losing trust would cause a death spiral, and they wanted to get out before everyone else.
It was a fire in a crowded theater. Bitcoin depends on trust, yes, but there's no Damoclean sword like there was for Luna. Some people losing confidence does not necessarily lead to others losing confidence.
Like toilet paper in a COVID pandemic... people were acting not because of the item itself, but because they knew how "the crowd" would react - a self-fulfilling prophecy.
You have the chronology wrong. The tokens were created because the price kept slipping, and the more the price slipped the more tokens were printed, the more people panicked etc
If people had thought this was a sane and reasonable move that didn't really affect things the price would quickly return despite the quantity increasing.
The believed durability of the token changed
No matter what strategy is to be used to try to repeg it, it will only work if there's faith in the price.
Price isn't a thing it's a relationship between people about a thing
Bitcoin also has the backing of a government - El Salvador.
I would rather argue though that even government backed currencies are fully dependant on trust, not government usage of it. Just check out any government currency hyperinflation event.
91% of El Salvadoreans prefer to use USD, and most stopped using Chivo (the privately-owned, government controlled wallet) after withdrawing their initial deposit.
> El Salvador is a failed state about to default on its national debt. It's not a real "government" in the way that most of us would define the term.
At least for now, El Salvador has enough cash on hand to pay the $800 million bond payable in February 2023. Current cash foreign reserves are about $3000 million.
I'd like to clarify though, that I'm not an economist, and that the processes required and implications of using those funds to pay the upcoming bonds due are outside my scope of knowledge.
> What criteria of the definition doesn't El Salvador fulfill?
The one that is actually important when it comes to currencies, having something valuable (whether it is a resource, power, political influence, military, finances, etc.) to back the currency up with.
But on the most technical level, you are correct, El Salvador has the ability to back up BTC in the same capacity as a country like Zimbabwe can back up Z$.
It doesn't have the resources nor a policy of "backing" bitcoin. By contrast, countries that issue their own currency have a central bank that is typically tasked with maintaining price stability, hence "backing" the currency.
From the article, El Salvador has been cut off from financial markets by two of the ratings agencies that played a pivotal role in the corruption that caused the 2008 GFC to happen. Their reason for cutting El Salvador off is because their debt to GDP is approaching 87% (a fraction of what other countries have run up, especially due to COVID).
The IMF (International Monetary Fund) which typically steps in to offer predatory financing terms, already outlined their demands: drop Bitcoin support.
So El Salvador really must have gone all into Bitcoin, right? Yes, somewhere between 25million to 73million dollars worth (in contrast to their 800million dollar bond or the ~6billion dollars they raise in taxes each year [1]).
Oh the horror. There is definitely no geopolitical maneuverings here. /s
One of their largest industries (up there with tourism) is remittance processing (mostly for out of the US) denominated in US dollars. Most of their local economy operates on US dolar too, which means accepting Bitcoin everywhere offers some significant advantages:
1. Not being beholden to the whims of American banks and the American government
2. Less administrative overhead would mean being able to offer more competitive services with lower fees [1]
3. Being Bitcoin friendly would attract more crypto oriented industries to be based out of their country: offering a wider market to tap into (global remittances)
[1] "Last year, they collectively transferred nearly $6 billion, or roughly 23% of the country’s gross domestic product, and a chunk of that went to the middlemen facilitating these international transfers." https://www.cnbc.com/2021/09/09/el-salvador-bitcoin-move-cou...
Sorry, I didn't see it. 23% of GDP is the value of the remittances that enter the country. This does not mean that remittance processing (which is an economic activity) represents 23% of GDP. Remittance processing is likely a tiny fraction of GDP, since it's a low value added activity.
Polycat finance only had 3 Million Tokens. That's the max supply. There will never be more than 3 Million Tokens. And yet the price tanked and will never ever recover. It traded at $60 a piece. Now it is trading in cents.
Quant has only 12 Million Tokens. No new tokens will ever be created. It topped at $400 a piece. Now it is trading at $72. It could go down all the way to fractions of cents.
Reality doesn't matter. Perception of reality is all that matters. Likewise, Bitcoin could only ever have a 21 M supply cap and it could end up trading in fractions of cents just like the above two coins in the future.
As I said on the other thread, there is a government with a police force backing fiat. They also guarantee they will buy the fiat currency and in exchange give you the continued use of the land you own. This is why it is called 'fiat', which means backed by law or authority.
Governments have demonstrated that they do not have to accept their own currency [0] and have demonstrated a willingness to drive the value of their currency down. [1]
If a majority of miners fork their clients away from the bitcoin code repo by removing the coin cap, they would be creating a "new bitcoin". If the inter-subjective consensus of users also decide to use this new bitcoin it will be the defacto. Otherwise it will just be another fork (call it Bitcoin NoCap) like bitcoin cash, bitcoin diamond, bitcoin gold, etc.
The original "bitcoin" network (before the cap removal) would still propagate by whoever has the chain history.
The reality is that any attempts to split the chain to a state without a cap, at least with the current cultural consensus at this time, will result in a dead chain after a short period as people sell off the coins on the new fork.
one usually hears the opposite argument: Bitcoin becomes more scarce as users lose their private keys. lost keys => smaller supply => higher price per unit. i can see the opposite argument though: lost keys => less desire to interact with bitcoin => lower demand => lower price per unit. so it might just be a wash.
The former relationship wouldn't play out IRL, since there's no authoritative "lost bitcoin registry" to signal to buyers that the supply has effectively decreased
the effect of supply on demand does indeed require that buyers know something about the supply
I mean, just think about it for a moment: how many bitcoins were "lost" today? Was it 0 or 100,000? Perhaps it's -100,000, because somebody gained access to 100,000 that were previously lost.
If it doesn't make a difference, then the supply isn't affecting demand
If it DOES make a difference, then demand can't be affected, because nobody knows whether it was 0 or 100,000 or -100,000
The effect of supply and demand on price come from people bidding on the free market, not from anyone on the market knowing the global supply and demand.
If people have to know supply and demand to determine prices, how can free market work for thousands of years before the basic principle of economics is established?
No. There is still 1 BTC in this scenerio. When you choose to deposit your 1 BTC you've lost custody of it and somebody else has gained possession of it. All you have is a promise that you'll get it back - which is not === BTC.
You said what happened to Luna can't happen to BTC because the BTC supply is capped. It's not. The inability to mine new BTC doesn't actually matter. The pseudobanks we call exchanges are still able to introduce numberless BTC into circulation through loans. The result is inflation and possibly market crashes in case of defaults. Really no different from what Tether and every other bank is doing.
Yes, it is. They are not introducing BTC into circulation. This is verifiable via the blockchain.
Banks creating IOU's or derivatives or whatever other abstraction they can come up with never generates new BTC. You'd hope that people foolish enough to work with such financial institutions would know the risk of possessing nothing but an instrument created by the bank. If you're unwilling to take custody of your own bitcoin, you better damn well do some good research on third party custodians.
How much BTC exists in the blockchain is ultimately irrelevant. What matters is the amount of BTC actively circulating.
If you deposit 1 BTC on Binance, then I can get your BTC in the form of a loan. I can even withdraw your BTC. Meanwhile, Binance records still say you have 1 BTC, they even allow you to trade with it. So there's really 2 BTC in circulation. That BTC is duplicated, it's in multiple places simultaneously.
That is correct. And, fundamentally, this is possible because the Bitcoin chain is not the only ledger out there tracking BTC. Each (centralized) exchange has its own internal ledger, tracking how much BTC its customers have.
In the non-blockchain space this is called "credit creation" and it absolutely is something that happens there.
But this doesn't happen with Bitcoin.
It's true that there are a number of DeFi apps that will loan BTC.
However if you look at the loan mechanism it is different to how it is done in traditional finance.
A BTC loan is done in one of two ways:
1) The original owner of the BTC is given an IOU in the form of a different token (lets call it "Wrapped BTC" or wBTC) and the original BTC token is given to the person taking the loan, OR
2) The person taking the loan is given another token ("wBTC"). This is more common.
In both these cases no new BTC is actually created. It's possible to create more of this other token though. In the specific case of wBTC[1] they say it is 1:1 backed with BTC, but other tokens might not have the same backing.
I don't have a strong opinion on the utility of BTC, but I think it is worth being accurate in our discussion.
Exchange has all customer deposits intermingled.
Exchange offers crypto loans.
Exchange shows positive balances across all users that exceed deposits (though may or may not balance out with negative balances).
Everything keeps functioning because the exchange is a black box and not everyone wants to move their BTC at the same time. More people can 'own' BTC on paper than there is BTC in existence on the blockchain.
In the same way that most BTC transactions don't involve the blockchain either, they take place entirely within exchanges.
It's true this is how it would work if you are treating BTC as a traditional asset and creating dollars by loaning the same deposits out multiple times.
But for BTC you can't do this. If they have 100 BTC deposited from all their users and then try to loan out 101 that 101st transaction is impossible because the bitcoin isn't there.
I'm sorry this is just nonsense, as has been pointed out many times, exchanges are not constrained by the blockchain of any particular cryptocurrency, most of their transactions don't take place on a blockchain and their customer balances are not stored on the various blockchains.
You may as well talk about this being impossible with paper money, the bank can't give out more than it has! There are only so many notes! But it doesn't need to. People can trade within the bank and between banks so long as the reserves cover the activities.
Quadriga CX worked this way, until it didn't and everyone discovered their cryptocurrency was fictional.
> I'm sorry this is just nonsense, as has been pointed out many times, exchanges are not constrained by the blockchain of any particular cryptocurrency, most of their transactions don't take place on a blockchain and their customer balances are not stored on the various blockchains.
Sure, within the exchange that's true. The instance the BTC leaves the exchange as a loan or withdrawl it is no longer possible for that BTC.
> Quadriga CX worked this way, until it didn't and everyone discovered their cryptocurrency was fictional.
I don't think this was the case, unless you can show me otherwise.
In particular, they had "BTC ATMs" where people could withdraw cash. Note that this is not loaning BTC.
And when the CEO died, the BTC could not be retrieved. There was no magic second exchange-issued BTC around - it was gone because there is only one copy.
Notably there is a precise accounting of the BTC that was lost because there is a public ledger of it. Quadriga CX didn't produce any more BTC - they just lost their customer's BTC.
> I don't think this was the case, unless you can show me otherwise.
Quadriga CX showed their users having BTC in their accounts.
In reality, the guy running the show had already gambled those away on other exchanges.
It all held together, ish, until he died and the music stopped.
> In particular, they had "BTC ATMs" where people could withdraw cash.
This is news to me and hasn't featured in any write-up of QCX I've ever seen.
> And when the CEO died, the BTC could not be retrieved. There was no magic second exchange-issued BTC around - it was gone because there is only one copy.
Yes, this is exactly what we're talking about - we have no real idea how much BTC is in peoples accounts on exchanges, because they are a black box and may be creating it out of thin air. While they don't try to move too much of it and the exchange remains operational, the ecosystem functions as if those balances are correct.
> Quadriga CX didn't produce any more BTC - they just lost their customer's BTC.
While they were still solvent it behaved as if there were more BTC present. Sure, they didn't create more on the blockchain, but they were able to operate as if there was more.
> While they were still solvent it behaved as if there were more BTC present. Sure, they didn't create more on the blockchain, but they were able to operate as if there was more.
So as I said - they can't lend more than 100% of the BTC they have. They can make up anything want within their own exchange of course.
> that 101st transaction is impossible because the bitcoin isn't there.
The exchange's BTC reserves only matter when customers try to withdraw their coins. Until then, the coins are nothing but digits in their database. They can inflate that number as much as they want.
This might work inside the exchange, but doesn't work if you do a loan outside of the exchange.
In DeFi apps you need an actual token to use. If you don't have a the token you can't do a transaction, and apps choose which tokens they support.
So an exchange can create its own token, say it is backed 1:1 by BTC and lend that. But it isn't BTC so apps have to specifically opt into it.
If they loan out the actual BTC they have in the exchange they can only loan out 100% of what they have (not more) because control and use of each BTC token is dictated by the public ledger which is out of their control.
You can do other things (eg use the BTC as collateral for a dollar loan), but again you aren't lending BTC.
Laymen here: How can they introduce numberless BTC? I thought that was the crux of what makes this different from fiat: you can only transact from one address to another, no institution in between.
This still doesn't change how many BTC are in circulation. When the fractional-reserve imaginary bitcoin implodes, it might even increase the price of actual bitcoin?
> This still doesn't change how many BTC are in circulation.
It absolutely does. I can get a loan at an exchange while the original owners of those BTC still have it listed under their accounts. So multiple people can trade with the same coins, as if they had been copied.
> When the fractional-reserve imaginary bitcoin implodes, it might even increase the price of actual bitcoin?
All bitcoin is "unbacked". There's no intrinsically useful asset behind bitcoin. Your private key is just a bundle of bits. Bits are so abundant as to be worthless.
I know? The point is: neither bitcoin nor fiat currencies are asset-backed. In both cases, there are commercial entities that offer accounts where you can deposit the "thing", and the "thing" is then loaned to someone else, and this is done for some kind of valuable inducement.
The question is: why is one called fractional reserve banking, a behavior that is acknowledged to increase the money supply, and the other one called "oh no this is definitely not increase of the money supply, it's just you relinquishing custody of your bitcoin and why would you do that, there's no reason you'd ever do that".
Actually paper fiat currency is accepted by a government to pay property tax. In this way you need it to keep possession of land, so the entire land value of the linked country, and all the infrastructure built on it, is the backing for 'fiat' currency.
Accepting some form of unbacked currency does not give the currency intrinsic value and therefore make it backed. El Salvador made bitcoin legal tender, which means that USD or Bitcoin could be used to pay property taxes there, that doesn't mean that suddenly Bitcoin is backed by El Salvador property.
> Bitcoin could be used to pay property taxes there
There are no annual property taxes in El Salvador :)
But this may be a technicality, based on the Salvadoran legal definition of the term. So it really depends on what is understood as tax in each jurisdiction.
El Salvador law differentiates between taxes and fees. Taxes are born from an "generating action", like selling a computer generates sales tax. While Fees are born from a "service provided" .
So there are monthly fees payable to the local city/town/village hall based on property size and location for services they provide in that area Some common ones are garbage collection, CCTV, city lighting, road maintenance and the contribution for each City/Town annual Festival. A monthly fee for each town's annual party :O Does that exist in other countries?
So once you get your city hall invoice, and wanted to pay in bitcoin, you'd have to visit the city hall to pay in their bitcoin terminal.
At least four city halls are connected to BitRefill which allows online invoice payments using Bitcoin/Lightning. BitRefill connects to a local payment network, then the user types or scans the Invoice barcode, and makes the bitcoin payment for the fees bill.
Not OP but I figure I'll pitch in because nobody else explained it. When referring to backed vs unbacked Bitcoin (or any other UTxO accounting model based cryptocurrency), the "backing" isn't about whether the token is backed by another asset but rather whether your proxy holding of the token is backed by the actual cryptocurrency on the ledger.
If it's some wrapped Bitcoin that is backed, that means that there exists some UTxO which corresponds to the wrapped bitcoin tokens you hold. UTxO are atomic and unique so you can verify that your wrapped tokens have a 1:1 mapping to the tokens held within the UTxO on the native token's network. Non-backed bitcoin instead are just tokens that are handled through some minting mechanism where there is claimed to be a 1:1 equivalence without any actual tooling to prove that.
This concept of backing can actually even be further extended via Secure Multi-Party Computation where private keys can be collectively held in such a way that no user ever can see the private key but together they can coordinate to build and sign transactions with that private key without leaking it even to themselves. This can then be used to actually hold tokens from a foreign/incompatible network and interact with that network with little to any required trust.
Hopefully that helps answer what is meant.
---
Also since it's often a question asked I'll answer preemptively: "What is UTxO?"
I've mentioned the UTxO accounting model a few times here. Bitcoin doesn't have accounts but rather UTxO or Unspent(U) Transaction(Tx) Outputs(O). These are indivisible bundles of tokens that can only be created or consumed/destroyed atomically. There are no accounts but rather just private/public key pairs which can redeem/spend those UTxO. Additionally, all transactions are just a collection of input UTxO (that are consumed with the tx) and newly created UTxO. All Tx must uphold the rule that the sum of all inputs equal the sum of all outputs (or some equivalent of this rule as is the case for Monero's Zero Knowledge transaction proofs). A number of networks use UTxO or a UTxO extension (such as EUTxO or the cell model). Most famous is Bitcoin but Monero, Litecoin, Cardano, Ergo, Nervos, and a number of other networks also use this model.
This is opposed to Ethereum and co (Polkadot, Solana, Luna...) who use the balance-account accounting model. This model works like traditional ledgers where tokens are stored as some balance in an account and transactions are just transfers from one account to another.
> If someone loans you BTC, the supply of BTC has not increased.
True when someone does it, false when a fractional reserve bank does it.
When someone loans money to someone else, money physically changes hands and there is no concept of a reserve. Banks are able to maintain the illusion of full reserves even though they operate in a state of perpetual insolvency.
So is Binance a bank, when it offers 5% APY Bitcoin savings accounts? Or is it perhaps a shadow bank, which is to say an entity that creates money supply through credit without regulation?
Please explain the mechanism by which a "bank" is able to transfer to you an amount of BTC that they do not have wallet control over?
This is a critical difference. A bank can loan you fiat money that they do not physically have, with the almost always correct assumption that most people won't want to convert that database entry into cash at the same time.
This is not possible with bitcoin. Either the bank has the coins in wallets they control to send to a wallet you control, or they do not and can't.
>Please explain the mechanism by which a "bank" is able to transfer to you an amount of BTC that they do not have wallet control over?
BTC that's in an offline wallet is like cash under the bed; and you're right that no-one is lending money that they have under the bed.
However, a significant number of BTC owners don't keep their money in their own wallets - they keep it at an exchange, which almost certainly commingles it with other owners in shared wallets.
You can certainly take a maximalist position here and assert that the exchange is the real owner, because they have the private keys. The fact of the matter is that the real world includes a difference between legal and beneficial ownership; and has done since well before the existence of fiat currencies - because it's useful.
That still is not the same thing. Coins in an exchange can only be traded for other coins in the same exchange - it's effectively KrakenBTC or BinanceBTC or [...]. Unlike fiat money in a bank, these exchange balances exist only in their walled gardens and cannot be exchanged for goods or services, effectively decoupling them from the total supply.
The total supply of bitcoin is the sum of all unspent transaction outputs on the Blockchain. Not what a bunch of exchanges tell their users they have.
>Unlike fiat money in a bank, these exchange balances exist only in their walled gardens and cannot be exchanged for goods or services, effectively decoupling them from the total supply.
These are demand deposits with the exchanges/shadow-banks. You can (at least with some products; others look more like time deposits) withdraw your deposit at any time. This seems basically the same as a bank account where you can withdraw money at any time to buy goods or services.
I visit my "bank". I deposit my "currency" in a demand deposit account. I receive regular interest payments. My "bank" lends my "currency" to other people, in exchange for interest; presumably making a profit on the net interest margin. I can return to my "bank" at any time to withdraw my "currency".
How is this not credit creation? How is, e.g., Binance not operating as an unregulated shadow-bank without any kind of deposit insurance?
Note that the money supply increases simply as a result of banks not holding full reserves against deposits. Whether the bank lends or not is not important, as far as the money supply is concerned. The same applies to crypto-currency exchanges, of course, which can inflate the circulating supply of bitcoins by lowering the reserve ratio, regardless of whether they engage in lending.
You have to convert your Exchange!BTC into BTC to spend it on goods or services. In other words, it has to hit the blockchain. If it is not on the blockchain, then what is being transacted is BTC in name only.
You need not convert your bank balance into cash to spend it on goods or services. The balance itself can be used directly.
If the bitcoins can be withdrawn at any time (i.e. without a notice of withdrawal), then these deposits are just like a current account, which means they are considered a component of the circulating supply of bitcoins (what we would call M1, if bitcoin was a currency).
> You deposit 1 BTC, they loan it out to someone else. Boom, 2 BTC.
Do you mean "they" purchase a second bitcoin with the second person's loan money? if not, where does the second bitcoin come from? (Hint: think about the blockchain)
Bitcoin is fungible. That Bitcoin doesn’t have to be *exactly* yours but they update their ledger and loan 1 BTC to someone after you deposit your 1 BTC into the bank account. Based on the interest rate of that loan, the bank is giving you a cut in Satoshis. If you choose to withdraw the 1 BTC before the other person’s loan is pid back, they must provide you 1 BTC. They can choose to take that 1 BTC from someone else’s account or use the profits they make in loans and other financial transactions to provide you that 1 BTC.
On the blockchain, there only exists the 1 you deposited, the 1 that was loaned, and the 1 that was generated as profit by the bank. The blockchain tracks these transactions. The bank only has to settle these transactions when someone withdraws and when someone is depositing. Internally, there can be as many or as little transactions are as necessary.
If it is close enough for a real bank in USD, it's probably okay for an exchange in bitcoins, right? If the bank/exchange maintains a 5% reserve, every unit of currency can produce a multiplier/velocity of 20. Bank loans substantially increase the ability of businesses to fund activity.
Nothing, but I guess I don’t have to tell you that, since your question seems rhetorical in Nature. However, what keeps BTC from crashing is the same psychological effect that keeps Twitter, Facebook, Nike, or Coca-Cola from crashing: Brand awareness.
Bitcoin sucks compared to many other cryptocurrencies, still it’s the most popular one because it was the first, because people know about it, and because people know that other people know about it.
Even if you could fork Twitter and put it behind a different domain name, for example , Twutter, and you would add some functionality that everybody would like to have (let’s say an edit button), most people would still go to Twitter.
If you could sell the rights to use the name Coca-Cola or Nike, even if you had to make it clear to the customer that the new product that you sold had nothing to do what so ever with old product, the names alone would be worth a couple of fortunes.
So what’s stopping Bitcoin from crashing is the brain virus (or meme if you want) that has infected hundreds of people around the globe and made them believe that other people will know about and believe that Bitcoin is valuable.
And since Bitcoin isn’t hooked up to a doomsday device like Luna and UST was, it can’t destroy itself.
> And since Bitcoin isn’t hooked up to a doomsday device like Luna and UST was, it can’t destroy itself.
I think you undersell that point: Bitcoin has proven itself. A lot of currencies have come and crashed, had backdoors, hacks, hard forks etc.; Bitcoin is simple-ish and stable. It also the longest surviving crypto currency. So it wields a lot of trust and market power.
You always need a backstop, otherwise you only have scarcity and not intrinsic value. Scarcity gives value in a bull market when people want in, but only a backstop gives real intrinsic value in a bear market when people want out.
It isn't like you can reverse the mining process and get back the electricity which was used to mint your BTC or something.
There were two pieces of this particular crypto asset framework. The first part was Luna, which was a generic coin with no pegging mechanism or backing assets. The second part was Terra, which was a USD-pegged stable coin.
The novelty was a guaranteed mint/burn mechanism across the two which was intended to maintain the peg on Terra.
As the prior poster correctly asserts, Luna was never pegged.
To be clear, you're suggesting: "because people are uneducated about bitcoin and crypto, when one project fails they will incorrectly connect it to bitcoin. And that's bad for Bitcoin."
These events are great opportunities to educate ignorant people. > 0 such ignorant people will learn more about bitcoin and why it's not like crypto like Luna. Greater education is extremely good for Bitcoin and bad for scam coins - which rely on ignorance.
Most people investing in crypto just want to put in $1 and take out $2. Trying to educate people about cryptocoins is practically a waste of time at this point - they just don't care. Events like these are bad for Bitcoin on a pure value basis, for anyone invested in Bitcoin.
Every dollar taken out of crypto is at the expense of someone else. Those coiners trying to change $1->$2 are heavily incentivized to lie, manipulate, and convince the naive in the public to put their $1 in.
You could say this is everything with a public market, but with stocks or bonds you also have a legally binding contract to organizational assets that have value. Buybacks, issuing new units, dividends, etc. provide other avenues for cash injection to get your $2 out.
BTC doesn't even have the bare minimum regulation to prevent bad actors from exploiting the public, which is why it's worse since the public only sees coiners trying to whitewash an inefficient database.
You’re thinking about short term traders who want to accumulate more $USD. And sure, they are one actor in the bitcoin eco. Others use bitcoin as their primary currency. And still others would prefer BTC as their currency but, due to tax laws and infrastructure, are hindered from doing so.
You’re judging all current btc owners by bucketing them into one easy-to-consume cliche. Not all btc users give a shit about more fiat. Considering the buying power of fiat is a perpetual dip, it’s not exactly the best thing to accumulate.
While some crypto-enthusiasts are using BTC as hobby money (in which most payment processors convert to USD right away anyway) the vast majority of people using BTC are speculators.
If these are good opportunities to bolster the credibility of BTC et al., the community must just do a very poor job of capitalizing on those opportunities. It is strictly a bad look to have headline after headline affiliating this entire economic sector with fraud, and frankly the shills’ reactions just make the headlines even more unflattering.
This has more to do with media and social media thought bubbles. This is no different than any other topic in the news. There are highly intelligent takes out there. But click bait, trolling, and confirmation bias bs rises to the top in certain areas of media and social media.
Eh, not really. I know plenty of people first and secondhand who are happy to describe their own participation in or creation of, effectively, scams. Arguably one could call them casino games at best. The dynamics of a speculation-ridden and mostly non-regulated industry makes such moves compelling and easy to rationalize.
I too thought there were some interesting “real” things that must be going on somewhere, and surely there are. I figured if there’s one place to find it — or one place it must be found for the sake of the system — it’d be the stablecoins. Then you read into e.g. Tether and realize not only is that a scam, but it’s a transparently obvious one.
So you’re saying, because bitcoin does not have a monopoly on crypto, people are not forced to only buy bitcoin and as bitcoin holders you obviously want that
Would also be nice if the only stock in the stock market was AAPL and no other shit stock with no profit.
Mind quoting me? I’m confident I said no such thing.
If you look at the top 2,000 projects on CoinMarketCap, the vast majority are shitcoins at best or just blatant scams. But I do not believe bitcoin should have a monopoly and, in fact, the competition is healthy.
is the demise of Luna a sign that Bitcoin is a survivor or is Bitcoin just the last part of the Titanic still sticking out of the water. Time will tell but I am not bullish on cryptocurrency.
Anything can be a store of wealth. NFTs even had their day in the sun but it's hard to stay valuable unless you are providing actual value.
So I ask, where' the value in Bitcoin. It used to be a great way to launder money, not so much anymore. It was supposed to democratize finance and allow the individual to not get screwed over by the big banks, but with the amount of rug pulls in crypto, I feel safer at Wells Fargo (and I really hate Wells Fargo).
And don't get me started on DeFi. I'd be horrified by it if I just saw one Flash Loan attack but there's so many that I'd never trust my $$$ anywhere near that.
Don't look too far into what's backing Tether than, unless that burning is also 'good for Bitcoin.'
Lucky, that one has enough vested interest from those making money they'll do an awful lot to stop it following LUNA (inc if you look at the recent depeg)
What functionality was different between Bitcoin and Luna?
Is Luna not run off of Bitcoin?
So if Luna could function as a Ponzi scheme, why doesn't Bitcoin inherently have that same capability or function embedded into it? Or is there something preventing that from happening with Bitcoin?
Terra (token LUNA) is its own chain. Trillions of brand new LUNA tokens were minted within the span of a day or so rendering the token worthless. This is due to the way LUNA was tied to the algorithmic stablecoin UST. It was a true ponzi.
BTC's max supply is capped and the release schedule of new coins is fixed and predictable. There is no possible way that trillions of new bitcoins could suddenly be created.
It's certainly debatable whether Bitcoin has any real worth as a currency or as an investment, or if it's just another giant speculative bubble waiting to fall apart.
But it's definitely looking like "anonymously drop a protocol and disappear" was a smart move.
All these Ethereum-based token coins seem like they're trying to answer the question "what if Bitcoin had a central banker, but it's a kid in his 20s with a CS degree?"
It’s interesting how cryptocurrency advocacy makes otherwise intelligent people discard all principles of engineering with forceful statements like “it’s impossible,” when the only thing realistically standing between someone and as much Bitcoin as they want is SHA-2 compromise. I’m amazed with the money in play that it hasn’t happened yet. It speaks to the strength of the SHA-2 suite (and, complicatedly for me, the NSA) that it’s survived this well with a giant target on its back thanks to cryptocurrency.
Even here, you’ve assumed such an event would be a hack. Sure, one is not going to introduce trillions of coins, but a fast way to design a desired SHA-2 solution is a lot of cryptocurrencies’ factorization heel and played correctly could slowly make one incredibly wealthy (played poorly, it’d just collapse the entire currency and probably the whole idea).
You know how we’re all terrified of fast factorization and its implications for cryptography? Do you really think with the basically five minutes of research the industry has into quantum computing that SHA-2 is good enough for the entire life of a currency? We’ve already shown that coins can’t fork to change stupid shit, so I mean, good luck with an owned hash. So, hard, not impossible. Just don’t forget: once upon a time we thought MD5 was awesome and you’ve never heard of MD4.
“It’s impossible” - I agree it’s almost always too strong.
However, remember we’re discussing the creation of trillions of bitcoin. Even if it occurred, do you really believe the chain would remain? It would be forked. I just can’t imagine a chain being totally compromised and its users being okay with it - both would need to be true.
A smart attacker wouldn't create trillions of bitcoin, they would create a steady trickle of bitcoin indistinguishable from a medium-sized private mining operation that is too small to be noticed for a good while but large enough to make the attacker very very rich. It won't be noticed for months or even years and you cannot erase years of history. There will be no fix, only damage control.
That said, SHA-2 being broken is not very high up on my list of cryptocurrency failure modes if only because there are much more immediate concerns... and I suspect most other people implicitly feel the same way.
That not how bitcoins are created. You don't just make a few extra. The block reward is fixed, if someone made a block with more than the block award it'd be rejected by the network.
No need to create net new coins, if you can crack SHA you can start moving around somebody else's existing bitcoins. Choose your target carefully (lots of dormant and/or hacked BTC out there) and nobody will twig on for a long, long time.
The transference of Bitcoin still relies on digital signatures so the only way to forge transfers would be if ECC (or bitcoin’s implementation of ECC) was broken).
You are agreeing with me. An attacker that has broken sha-2 would pretend to be a miner, not mint trillions of bitcoin (which is not possible as you say).
Either someone puts up an enormous amount of computational power to flood the chain or someone finds a fatal flaw in sha256 and uses that to flood the chain. The former is basically impossible, the latter is just very unlikely. Either way, if someone manages that feat, we can consider Bitcoin practically broken.
So I don't think this point proves they're different functionality - other than the single factor of with more controllers then "printing" a bunch of coins wiping out the value decided by the market isn't easily possible?
It's this single point of failure ("one" controller vs. distributed to diversify risk) that you're stating is what makes it a true Ponzi vs. Bitcoin?
Just as a reminder about how Mt Gox played out - it looks like all the people who lost money on it will receive 1:1 fiat-denominated compensation for their losses, Mark Karpeles won't serve a day in prison, and is likely to walk away with ~3 billion worth of BTC[1].
Who'd have thought that failing to operate a bitcoin exchange is a thousand times more lucrative than actually operating one!
[1] If Mark owed you a bitcoin back in 2014, you're not going to get that bitcoin back. You're going to get somewhere between ~$200 and ~$600 back. He's going to keep the other $30,000.
Edit: Looked deeper into it. It's a really weird story, where it looks like they got hacked (https://www.theguardian.com/technology/2017/jul/27/russian-c...), he tried to fake financial data to make it look like they had money, and he got caught. In the end, he's making more money off of lying and the original investors are screwed. That's really lame.
It's also unfortunate, because a lot of the vibe I get from crypto people I run into (more online than in-person), is survival of the cleverest, and anything is cool if you can get away with it. People I knew outside of crypto who are into it (more on the eng-side), are pretty cool, though and usually don't only trust Bitcoin and see most alt-coins as scams.
Every crypto nut I have interacted with, will call you all sort of derogatory terms if you don't agree that web3 is the future and if a scam happens on any exchange, its because the user were stupid to trust them. Zero accountability for the scammers and fraudsters, it's always the "stupid" users fault.
Well I guess it depends upon how you define "nut". I know several people that are big into crypto (we call them "true believers"), and look at scams failing as good things for the long term health of the system, while not blaming the victims, and they don't get particularly offended if you don't believe in web3 or crypto.
If your definition of crypto nut is that they yell at you if you disagree with them, then yeah, by definition there will be no reasonable crypto nuts.
Nobody got paid yet. This is going to drag out for a long long time.
I also think the BTC-E issue is bigger and gives me reason to think Mark Karpeles wrongfully served jail time in Japan (for the reason that he served time, there could be other reasons if people like that kind of consequence).
This information is out of date. The creditors took over the distribution process and are going to distribute the remaining bitcoin pro rata to creditors. Mark Karpales served about 2 years in prison.
I do not think ha actually did serve any time. "he was sentenced to 30 months in prison, suspended for four years, meaning he will serve no time unless he commits additional offenses over the next four years." according to https://en.wikipedia.org/wiki/Mark_Karpel%C3%A8s .
Thanks for the correction. He was in jail for 10 months during the investigation, until he was finally released on bail. I think I conflated that with the sentence that he was ultimately handed (with some credit for time served).
So he did serve some time. I'm not sure though if there is a big distinction between jail and prison in Japan like there is in the US though.
That is assuming that the whole "we got hacked" is a complete fabrication. It is possible, but isn't it completely short sighted?
I mean, who would change places with him? His head has a price, and he will never be able to hide anywhere in the world or spend any of that money. He is going to live the rest of his life being watched by authorities all around the world and he will have thousands of people believing he is holding the stash.
It's pretty clear by now that he didn't hack his own exchange (the hacker was caught a few years ago). But he did operate it while being insolvent, as well as operate a bot to trade against his users.
Either way, if restitution goes as currently planned, he's going to walk away from this an incredibly wealthy man.
Individuals will keep suing him, but ~3 billion dollars can buy a lot of lawyers, and it seems unlikely that the government has anything left to prosecute him with.
I saw them live, but was too lost in conversation during 95% of their performance, which is a shame because they went dark not longer after that. Still, ZT was a solid part of the history back then.
And for a more relevant track for the current sentiment:
> “In a sense, the market is going to take that as kind of bullish.”
I mean everything is a bit oversold right now on negative emotions, both in the crypto space and in the stock markets.
There's probably going to be a positive bounce just because markets don't move in straight lines.
There is always the chance that something else explodes due to stress tomorrow and hits the headlines and crypto and/or stocks start melting down again (nothing is ever a sure bet), but it feels like we're closer to hitting a point of selling exhaustion and an inflection point of negative sentiment.
The fact that crypto is correlated with tech stock valuations should be raising eyebrows. Flash back a few years and the hypothesis that bitcoin would hedge inflation/fiat depreciation was standard. If BTC is correlated with equities, why not just hold productive equities?
I never understood the argument why crypto was a good store of value. Sure, it’s an ingenious new transactional system, making global payments mostly frictionless, etc, but that’s true whether the value of 1 Bitcoin is $1 or $50,000. If everyone’s just converting back to fiat anyway, only keeping enough BTC transiently to settle transactions, why hold it long term?
Well it's actually a pretty bad transactional currency because it costs so much to transfer btc. So it's kinda the opposite, where people mostly hold it instead of transacting. The argument for a store of value is that of gold but easier to store and transfer, better security etc.. Whether it's a good one is for you to judge.
That's not true. The typical credit card processing fee ranges from about 1.3% to 3.5%. Average international remittance fees are about 7%. For comparison the average Bitcoin fee is about $1 right now, so 1% on a $100 transaction. So Bitcoin compares favorably to its competitors.
1) why are you comparing to credit cards? The average ACH transfer costs zero dollars.
2) why did you pick $100 as your basis? If I try to buy a $5 sandwich in Bitcoin and have to pay 20% transaction fee that is not a good platform for transactions.
I like some parts of crypto, but transaction fees on most coins right now are not one of those parts.
> 1) why are you comparing to credit cards? The average ACH transfer costs zero dollars.
As far as I understand ACH doesn't work globally
> 2) why did you pick $100 as your basis? If I try to buy a $5 sandwich in Bitcoin and have to pay 20% transaction fee that is not a good platform for transactions.
Or use lightning and pay a fraction of a cent transaction fee
Ahh, Lightning. The network that is simultaneously "here and available and usable, right now" when convenient, and "still a few years away", when that argument is convenient.
So for that bitcoin fee, I get fraud protection too? So as a consumer I can challenge a fraudulent charge? And the money, it doesn’t leave my account until I say so? Oh wait no? I get none of those guarantees? Just a “good luck! Buyer beware!”
No thank you. I’ll stick with my credit card. If I want to pay for something semi anonymously I’ll use cash.
Right but the comment I responded to was comparing transaction fees. I pay zero transaction fees for using cash. I am willing to pay some small percentage to help protect me from fraud (and I have used that protection). Why would I pay a fee AND assume all the risk?
This is why IMO blockchains should be designed to be inflationary. On one hand it just makes sense that as more compute is added transactions should be able to process faster and tokens should be minted more rapidly, such that by "mining" you are producing real value (allowing the chain to process more transactions per second and more people to acquire tokens), on the other very few people use crypto for anything besides speculation so such a coin would never be widely adopted.
I think this is why the fiat system is inflationary (low level inflation is seen as healthy). Assuming that productive projects exist, you never want lack of capital to be the reason that they're not done. The free market is never going to perfectly allocate capital, therefore there should be some extra money in the system to allow for errors. The errors would cause inflation (money supply increased, but productive output did not), but this is better than being overly cautious.
Incidentally this is why austerity in debt-laden countries is kind of a terrible idea. You're taking a broken economy and removing what little slack remains in the system. And if the economy was broken due to corruption or incompetent government, you're kind of just betting on regime change at this point, which (apart from the human toll) won't be great economically either.
If the transient use of a cryptocurrency is increasing, the demand for it will be, and the price will follow. If the price is increasing fast enough, it could be worth holding. The same is true of any money or asset used for payments/settling debts (like gold or silver).
Only if people hold it for the transaction for a significant length of time. If people want to get out ASAP, then the faster that transactions happen, the less demand for bitcoin there will be.
this doesn't work super well because if a currency appreciates in value due to usage and you start to hold it, that means there's less of an incentive to spend it in the first place. That's one of the reasons why we're not trading in gold coins any more, it's almost exclusively turned into an appreciating store of value.
Deflationary currency is undesirable as a means of exchange because you don't want to use it, and that is also one of the reasons why central banks target low inflation rates.
That’s not totally true. The value of a Bitcoin does relate to how much effort miners put in. So, $1 might be low enough to allow some sort of attack on the network.
> The value of a Bitcoin does relate to how much effort miners put in.
It looks like you have the causal relationship there backwards. A bitcoin currently has value, so there's a lot of effort miners put in to get the block rewards + fees. But the amount of effort a miner puts in doesn't make the price go up, the price can move independently to hashrate.
> I never understood the argument why crypto was a good store of value.
Its digital gold thats it, its no more a store of value than antique's, rare cars, fine arts etc etc and unsurprisingly those markets can also see the bottom drop out of them for decades. Ultimately its people en masse who decide what something is worth, but big players can manipulate those markets with resources, laws, taxation, media sentiment and its easy to spook people when they value something, so dont get attached to anything if you dont want to be manipulated.
The other thing to note is, it only takes a few hundred million £ on the Asian market to get the GBP to drop against the USD in time for European markets. So there are very few entities who can cause the crypto market to fall like this. Think about that.
Gold can be used for corrosion-resistant electrical contacts, infrared reflectors for space telescopes, decoration in gaudy penthouses, and more even if everyone decided it was useless as a currency.
An antique desk that loses all value in the open market can still be used as a desk or at least firewood.
A rare car can still be used to transport yourself, as a prop in a movie, or scrap for other projects.
A "worthless" painting can still inspire, liven up a room, or gifted as a gag.
Crypto that loses its value has no other underlying utility over and above the output of /dev/random. That's a MASSIVE difference and more clearly demarcates BTC as a money laundering/Ponzi scheme rather than "digital gold" or a viable currency.
> Crypto that loses its value has no other underlying utility over and above the output of /dev/random. That's a MASSIVE difference and more clearly demarcates BTC as a money laundering/Ponzi scheme rather than "digital gold" or a viable currency.
Its a decentralised currency, its not backed up by a country and their nuclear arsenal rammed down people's throats as we will possibly be seeing with Ukraine.
Notes/currency only has value where the threat of violence extends to prevent any counterfeiting attempts, so just like you see matches or cigarettes used as currency in a prison, it still has value. Its value went up when the Greeks had their financial crisis because the Greek banks stopped money leaving the country and this is the important thing, crypto is the thing that helps people move money out of a country fast across borders in a crisis. If you tried to move gold in or out of Switzerland you'll get stopped at the border, they are hot on that sort of stuff but it also shows their level of intelligence in world affairs. Crypto if done properly has a level of privacy affordable to anyone, not just the super rich but also a level of transparency to maintain its integrity from counterfeiting by criminals or the central bank.
I think you've nailed it. It's not backed by a nation. It has no underlying asset like gold. Your assertions of privacy only hold if you never convert it to a traditional currency or asset, otherwise you're on the radar. While many folks in Ukraine have been able to use crypto to buy goods recently, so has Russia to sidestep sanctions. As a result, we're seeing more incentive for nations to put the breaks on BTC and other crypto (with threat from their nuclear arsenal). China already has put substantial obstacles to crypto ownership.
Then there's the lack of an FDIC equivalent for crypto, which is HUGE for the "not just the super rich" demographics. The 19th and 20th centuries had many examples of runs on the bank where life savings were wiped out. Crypto exchanges have already screwed thousands, and maintaining your own wallet and transfers is not ever going mainstream even if crypto had any intrinsic worth beyond speculation—which it doesn't.
If you have the assets to gamble, that's for you to decide. I myself would rather rely on assets with underlying value that extends beyond speculation.
My house is worth way more than I think it should be. Helps my credit score. But if it and all the homes in the area suddenly and magically dropped to $0, I'd still live there, because it's a home. The reason I purchased it wasn't for speculation or my credit score; it was to live in. You can't live or eat or build in BTC. When the bottom drops out, you will only get to keep the bits and the memories of a more naive era.
Eyebrows raised. What this is showing is that both tech stocks and crypto were being propped up by the same investors/behavior (speculation) and are highly correlated. I thought this was a good test regarding crypto being a “store or value” since inflation devalues fiat currency, one hypothesis was crypto would rise with market turmoil and high inflation as “digital gold”. I guess that hypothesis was incorrect.
IMO, this hypothesis hasn't been adequately tested. By all accounts inflation is bad, but not THAT bad. However, I'm sure Bitcoin and most Cryptocurrency is looking pretty stable with respect to Venezuela's 2,00,00% inflation. Bitcoin as a hedge against economic turmoil requires real economic turmoil.
A Venezuelan could also own dollar/euro denominated assets or commodities. BTC would need to be better and more stable than those for someone to view it as an effective hedge.
If US or EU inflation hit 2000% there would be global consequences. There is no reserve asset currently large enough to redenominate US denominated assets, aid payments would collapse, and currencies pegged to the dollar would collapse. Betting on BTC for such a world is reasonable, as there would be a reasonable chance your gold reserves would be become inaccessible, seized, or both. However ammunition might be a more effective financial hedge in this situation.
You mean flash back a few years to the pre-pandemic era? I think its safe to say the ripples of that particular boulder hitting global financial markets will be felt for decades to come.
It's a shame, a couple years ago BTC was anticorrelated with markets. Then institutional investors started playing and since then crypto largely just tracks the markets. I wonder, where do these investors park their cash when they sell holdings during downturns?
S&P has only retraced to March 2021. Nasdaq to Oct 2020. A bunch of COVID plays like Zoom, Peloton, etc only back to summer 2019 levels. That's only 3 years back.
If you look at the dot-com boom, S&P bottomed out in 2002 back to 1997 levels. That's a 5 year retracement. Currently S&P has barely gone back 14 months.
The GFC was worse - bottomed in Dec 2008 hitting 1996 levels - a 12 year retracement. I'd say going back beyond an entire economic cycle is probably actually oversold.
Depends on the timeframe and your gut. I should have specified that I'm thinking about the next 3-6 months or so, not the next 3-6 years.
And there isn't any definition. And particularly in response to exogenous events the markets may decide to keep dropping even though they've dropped a lot. If markets always moved in a straight line it would be easy to make a ton of money off of them so they don't. However, if markets never moved in a straight line though it would be easy to make a ton of money off of them so every now and then they do.
And mostly I'm weighing what I'm seeing, which is that the yield curve isn't inverted yet, the broader economy is healthy and job growth is good and there's way more jobs than there are job seekers, along with no signs that something of substantial size has detonated in the economy yet (CMBS or whatever). Letting the air out of the overpriced tech stocks and venture capital also just doesn't seem large enough to start to tank the economy, larger corrections have happened during mid cycle slowdowns before. And UST-Luna is barely a pimple on the broader economy.
Right now I don't believe this is the start of the next recession, so the fact that COVID plays are back to summer-2019 levels suggests to me that a lot of work has actually gotten done in repricing.
Show me an inverted yield curve and CMBS popping or maybe Russian gas to Germany gets abruptly turned off and then I'll start expecting those longer scale kinds of retracements.
Stock prices are back around where they were before the pandemic. It may have already been overvalued at that time, but perhaps it is a level of overvalue that people are comfortable with as we were already there before the system got flooded with money.
That is normalized to 1 in late 2007. At the end of 2021, it was 2.53; at the end of the first quarter of this year it's at 2.37. In 1Q 2020, it was 1.80. Stock prices have been increasingly disconnected from the economy 2014-2015.
Cool, and that was 2 years ago, during which many index components grew 20-30% year over year. Folks lose perspective on just how good these companies are at growing their revenues.
GOOG for instance, was making a trailing $160B per year going into COVID. Now it's making a trailing $270B per year. [1]
The S&P 500 P/E ratio is down to 20 from 25 on January 1, 2020, so the S&P 500 at least is 17% cheaper now than before COVID. [2]
And looking at mid-cap tech? Shopify is trading at a lower ticker price than at the bottom of the COVID drop on March 19, 2020 - despite having tripled their revenue since then.
"everything is a bit oversold right now on negative emotions"
No!!!
The Fed is raising rates. That is reality. That is not an emotion. That is absolute economic fact. Inflation is high and will remain high for at least a year (maybe longer). The period from 2008 to 2022 is going to be remembered as an abnormal period when we experienced abnormally low rates. The low rates fueled speculation, and bid up certain stocks and assets.
The era of low rates is over. It is possible that you might live another 100 years and never again see a 14 year stretch where rates average as low as they did from 2008 to 2022.
Emotions? No. These are not emotions. Rising rates are a material fact that people need to adjust to.
I think there are going to be two periods remembered in 2008-2022. The 2008-2012-15 where interest rates were made low to prevent a depression and it worked. The the 2012-15-2022 period where interest rates were kept abnormally low because politicians didn't want to be blamed for hurting the stock market causing a bubble that pops when interest rates are forced to rise.
Nope, the fed will crank up short term rates and crater the economy to tamp down wage inflation. That will invert the yield curve and long rates (>10 years) will still remain historically low and disinflationary.
And they've been playing this game since the 90s and the Greenspan fed did it first a blew up the housing bubble that popped in 2008. This cycle goes beyond the memories of Millennials. It just keeps getting worse every cycle.
This is the bit that makes me so angry. Wages lag behind commodity prices and the correction always happens because businesses complain about labor costs (“muh jobs” despite us being at near full employment) and don’t let them catch up to CoL.
It’s infuriating how much the game is rigged against laborers.
> Inflation is high and will remain high for at least a year (maybe longer).
Is it? Month over month inflation numbers are only slightly elevated, in the annualized 3% range. This isn't particularly high - the high inflation already happened, it's over.
CPI and PPI numbers both came in good. PPI of particular note, services were up 0% month over month, and commodities 1.3% for a blended 0.56% (in line with expectations). Commodities of course are likely to correct hard and fast once the geopolitical situation resolves.
The market is forward looking, so don't get stuck on a dead narrative!
> The era of low rates is over.
I'm not sure we know this either. If the hikes play out, we'll land around what, 2-3% for the fed funds rate? That's low, historically. And that's a big if, IMO, since inflation is showing signs of being quite well controlled again, and the Fed's goal isn't to achieve a specific funds rate - just low inflation and high employment. High funds rate hurts the employment goal.
It's fun to speculate but important to remember, you're just speculating. So am I. There's no certainty here, and it's pretty easy to construct a compelling counter-narrative.
All we know for sure right now is the Fed funds rate is 1%.
I mean this sincerely if I could just park my savings in an “exactly matches inflation” account I would be over the moon. So yeah kinda, I believe it. Terrible interest rates have genuinely caused me to have to find somewhere to put my money that isn’t a bank.
Yes. But think institutional investors of various flavors rather than personal, individual accounts.
The 2-3% is the Fed funds rate; actual rates on government and commercial bonds will be somewhat higher. (A friend recently pointed out the current 6% advertised rate on lower-grade commercial bonds.) Couple that with much lower risks (on things that aren't those 6% bonds) and it becomes a good third option for anyone whose previous choice was between -3% inflationary return on cash and stock market risks.
The emotion is the entirely predictable market overreaction to rate changes we all knew would eventually be coming. Market swings are drastically out of proportion to the actual impact these rate changes will have on the underlying businesses. In both directions. It's ALL emotion.
> The era of low rates is over. It is possible that you might live another 100 years and never again see a 14 year stretch where rates average as low as they did from 2008 to 2022.
The interest rate is currently at 1%. In the 80s it hit 20%. I expect it'll go negative in the next 20 years.
You're not wrong. I just think inflation will get within comfortable numbers again, but we'll still face recession events that cause a drive to lower the interest rates.
> The era of low rates is over. It is possible that you might live another 100 years and never again see a 14 year stretch where rates average as low as they did from 2008 to 2022.
Goodness, I hope not. The amount of progress we've seen in these years has been astounding. Deep learning, SpaceX, smart phones. I felt like things had gotten stagnant, then we truly started hitting our stride.
It’s not relay about how much “progress” we’ve made. It’s about employment, once we hit full employment there’s no more water you can squeeze from the rock.
Which is why I’m kinda shocked that the US isn’t more gung ho about immigration because as long as there’s more useful work to do, and there is, we can fuel growth with capital plus people.
Okay, go out and buy puts on the S&P500 that are 6 months out and see how you do. I suspect the market will bounce and blow you out.
Rates are rising, but the yield curve isn't inverted yet, and the stock market is unlikely to continue this losing streak straight down. It normally doesn't happen that way. Emotions right now are very negative and a lot of people are going to make bets thats are exceedingly negative and in the 3-6 month short term period other people will make money off of them.
This does not feel to me like the start of the crash, possibly not even the top, although we might go sideways until the crash.
And there will be low interest rates again.
The point of the Fed raising interest rates on the low end is to tank the economy hard enough to eliminate wage inflation. Given the overhang of jobs over jobseekers (and likely the effects of COVID death and disability on the workforce and boomers retiring) this one is likely to be exceedingly painful.
When the Fed engineers the economy tanking that means that rates will get slashed again and >10 year bonds will not budge upwards.
What it will look like when long rates go up is that wage inflation will actually take hold consistently.
And low rates already blew up the dot com bubble in 2001 and the housing bubble in 2008. Read up on the Greenspan Fed.
They're going to jack rates up, tank the economy and then go back to ZIRP again.
Short rates != Long rates. Fed doesn't control long rates.
Why would short sellers be needing to sell positions during a crash? The market has been dropping so a significant number of these short sellers won't have to sell.
Because people emotionally decide that everything is crashing RIGHT NOW and go short to try to make money off of it because IT CAN ONLY GO DOWN.
Does it seem completely inconceivable that the SPX might not reverse and touch $4766 again? Well why don't you take up a leveraged short position which will be highly profitable if the SPX doubles its current fall which you won't be forced to cover unless the SPX bounces back up again. It's free money.
Except double tops in the market happen, precisely because people decide it's all over and at this point in the market take out short bets, and then get burned when it bounces back up and destroys them. As the market in a doomed economy actually goes upwards they all get burned and squeezed which fuels the short squeeze bounce, even though it violates conventional wisdom.
Once you've destroyed all those people who think they've found the gold mine of a safe leveraged bet then the second downwards move can exceed these lows because those people are licking their wounds (but triple-tops happen as well).
To a certain extent the stock market is an optimization engine that ruins literally everyone who thinks they understand the short term direction of the market. If it didn't, you'd be able to make safe money off of it.
The fact that everyone in this thread thinks its all falling, falling, falling means it is probably going to bounce up about now for a bit (of course if that was a 100% safe thing though you could make safe money off of it so nothing is ever entirely certain -- and Russia might launch a nuke at NATO tomorrow).
Everythinig was way overbought when considering the money for those past purchases came from an accommodative Fed that flooded the economy with $9 trillion that currently sits on its balance sheet, lowered interest rates to literally 0 and the government sending out stimulus like it was candy.
All of which are either done or ending.
So I think a better way to phrase it is that the market is repricing with the new information, it isn't oversold.
Luna's supply hyperinflated (from 100 million Luna to 6 trillion Luna) to try to save UST's backing, as designed. That's why its price got rammed irreversibly into the ground.
Cryptocurrencies in general, and shares of stocks, do not hyperinflate.
Oh, it absolutely did, it crashed down to 4 zeros, then bounced back up to 3, roughly a +300%-1000% price movement over the course of a day. Of course, liquidity may have been incredibly low, but there were reports of people turning $40 into $400 in the aftermath of all this.
Obviously, it crashed so much, the "bottom" was anyone's guess (well.. zero is the only one that makes sense now). But there are bounces all the way down. If you drop a bouncy ball down an infinite staircase it doesn't take a straight line down.
I think it would take something like Russia launching nukes at NATO to cause the stock market to tank in a straight line though.
Maybe less extremely, Russian nat gas going to Germany being shut off overnight might do it as well.
Stocks/securities/crypto usually never go straight down unless it has become apparent that they're fundamentally worthless. I don't see that becoming common sentiment with the US economy.
More likely we're going to see a short squeeze start around now though. WSB on reddit is likely piling into the SPY heavily short, expecting the market to drop line a stone like it did at the start of the pandemic and they're dreaming of chicken tendies. They'll likely get blown out in a squeeze.
Likely, likely, probably though.
I can also predict the winner of the premiere league today based on the odds, but they still gotta play the games.
As I’ve been learning about value investing and growth stocks, it feels like we’re in a weird middle. Stocks aren’t cheap enough to attract the people who want to buy at a discount, and they’re not sexy enough to rally on the hype train. I don’t know what’s going to happen in the short term, and I wouldn’t really want to pretend that I do.
> I mean everything is a bit oversold right now on negative emotions, both in the crypto space and in the stock markets.
I like your optimism but we are still well above what most people would consider reasonable valuations. That said there are trillions of new dollars out there that won't want to sit on the sidelines decaying at an 8% clip forever. It will be interesting to see how it plays out.
I would hope that there would be some kind of evidence that can corroborate this. A sudden movement of 3B is a lot to hide on a public ledger, exchanges or no. Someone will certainly be connecting the dots.
I saw a twitter thread that this was a sell off to repay investment whales at a better rate than the real one - it was some big twitter guy in the space but I couldn't find it if I tried. If anyone knows the one I mean, please comment it here!
>Also, “In a sense, the market is going to take that as kind of bullish.” - a.k.a. the standard 'this is good for bitcoin' quote, applicable whatever the news is!
Good observation. I may not be Warren Buffet, but it angers me greatly to see this kind of moronic chatter masquerading as informed opinion on finance or market dynamics.
Sure, it’s a commodity and trades like a commodity.
Anything that stops a supply from overwhelming demand results in an increase in price.
Commodities traders accept the seasonality of their assets, and arent perma-bulls, with the exception of metals traders. Bitcoin inherits a mixture of stock traders and metals traders sentiment, where perma-bulls mentality of “number go up forever” is present but less warranted.
There are obvious periodic supply and demand movements in bitcoin, just like there is in oil, natural gas, and other commodities.
> Oil and gas are vitally useful. They have actual value to make things and move things and power things.
And what was the point of that copypasta?
Analogies compare dissimilar things in the ways that they are alike, not the ways they are not alike. The trading patterns and supply and demand pressures are the ways they are alike, whether you respect why such pressures exist or not.
Definition: Many arguments rely on an analogy between two or more objects, ideas, or situations. If the two things that are being compared aren’t really alike in the relevant respects, the analogy is a weak one, and the argument that relies on it commits the fallacy of weak analogy.
Tip: Identify what properties are important to the claim you’re making, and see whether the two things you’re comparing both share those properties.“[1]
I suspect the poster you are responding to disagrees that it is a relevant comparison, since commodities, their value, and subsequently the way in which they are traded is in some way influenced by their “vital” civilizational importance.
The implication here is that crypto does not share that crucial (for the analogy) property of vital importance, and as such the trading patterns/market forces are not comparable.
In this case is it reasonable to point out that the analogy is weak, we do not have to ignore how the two candidate comparables are different if they differ in fundamental ways.
I think it's a simpler explanation to assume that they would have robbed it by taking their huge stashes of luna and exploiting their 'buying'... it would hold up much better under scrutiny and they could still manage to transfer a significant fraction of the value into their pockets.
There certainly seemed to be a lot of selling pressure on BTC at the time that pushed the price below $30k that has since abated. It is not implausible that this had something to do with LFG's supposed activities.
> Also, “In a sense, the market is going to take that as kind of bullish.” - a.k.a. the standard 'this is good for bitcoin' quote, applicable whatever the news is!
Yes all weekend I had been wondering and cautious based on how much bitcoin was left to sell! Its just a commodity, supply can be faster than demand, specifically when one whale is expected to flood the market
Terra Luna rallied 500x (50,000%) off the lows. Minting many millionaires that bought that dip. The rumors were that the recovery plan involved a bunch of the bitcoin collateral. I couldn’t verify that well.
Knowing its all gone (or the selling pressure is done, whether you believe it was sold or not) is very helpful
The absolute low appears to be ~2e-5, and the (very temporary) high after that is 6e-3, which is a ~300x rally. However, the 6e-3 high was very temporary, with 4e-4 being the more durable high, with current prices running ~1-2e-4.
...I'm finding it easier to refer to the prices here in scientific notation, and to look at the price graph in log scale. That gives you an idea of how far the price has gone.
Amongst all volume I was not particularly amused by the 15minute bars, it would have been hard to move 7 figures usd, but they could eat a 6-figure market order easily. The rest would need just a little patience.
No need for me to move the goal post to legit vs not real volume, there were some AMMs that had the same liquidity depth.
Yeah I was watching it closely and should have dropped $5k in
I love buying the dip, I just didnt like the infinite inflation. I do my dip buys when there is a better information asymmetry that I perceive because the market cant code. I’m not good at these retail meme coin rallies.
I mean this is penny stock trading at this point. It's easy to show huge theoretical returns when you don't actually have money in there distorting the market.
There are lots of scenarios where the Luna becomes somewhat valuable again. A truly major crypto coin like Luna has never truly disappeared. Probably someone will make a fork like "Luna Classic." There are lots of these things (ETH classic, Bitcoin Cash, Bitcoin SV) that have zero rationale for existing, but are still traded with a high valuation.
tl;dr people will attempt to reflate their bags; some moderate success cannot be ruled out.
Right, there is no takeaway, retail was making it a meme coin for the lulz and this is about volatile fun trading opportunities from people like me that have no care for the name of any asset or ticker.
A buy the dip trade fueled by unverifiable rumors of a recovery plan.
Yep, never seen a bounce with that amplitude and speed before, personally.
I love how crypto can have so many exchanges accessible simultaneously. Prices all over the place. Chart and price aggregators all over the place. Massive information asymmetries. Better to make your own pricing tools and have better information than others, the bar is quite low so its easy to get an advantage here than in tradfi.
It's hard to show that they really sold these coins. Certainly, the LFG transferred the coins to some different exchanges. But did they truly sell them?
If I was running a dodgy ponzi scheme and saw it collapsing catastrophically, I don't think I'd be throwing good money after bad trying to futilely patch it up. Much better to stash the remaining assets away somewhere and personally cash out later on.
Also, “In a sense, the market is going to take that as kind of bullish.” - a.k.a. the standard 'this is good for bitcoin' quote, applicable whatever the news is!