The Bear Case for Crypto, Part II: The Great Bank Run
prestonbyrne.com
The Bear Case for Crypto, Part II: The Great Bank Run
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Re: The Bear Case for Crypto, Part II: The Great Bank Run
#2This article appears to be written under the assumption that coinbase and other exchanges are counterparties to the price. They are not. They are market makers. It's impossible to have a run on dollar demand for BTC, because the price floats. If there are sufficient people selling, the price will simply fall, and has done so several times in the past, before recovering when equilibrium returned to the market. Exchanges are not taking loans to back the dollar value of BTC.
The author appears to lack basic understanding about how markets work in this space.
Re: The Bear Case for Crypto, Part II: The Great Bank Run
#3This article appears to be written under the assumption that coinbase and other exchanges are counterparties to the price. They are not. They are market makers. It's impossible to have a run on dollar demand for BTC, because the price floats. If there are sufficient people selling, the price will simply fall, and has done so several times in the past, before recovering when equilibrium returned to the market. Exchang…
Agreed. I got about half way through the article before realizing the author does not understand how an exchange works.
Re: The Bear Case for Crypto, Part II: The Great Bank Run
#4This article appears to be written under the assumption that coinbase and other exchanges are counterparties to the price. They are not. They are market makers. It's impossible to have a run on dollar demand for BTC, because the price floats. If there are sufficient people selling, the price will simply fall, and has done so several times in the past, before recovering when equilibrium returned to the market. Exchang…
here is a more specific scenario. By a confluence of events, a large number of bitcoin holders decides to liquidate at the same time. Price falls, triggering stops, at which point other people with significant bitcoin holdings panic and try to sell their holdings, triggering further stops, etc. Price rapidly falls by 75% or more within 1 or 2 days.
Re: The Bear Case for Crypto, Part II: The Great Bank Run
#5This article appears to be written under the assumption that coinbase and other exchanges are counterparties to the price. They are not. They are market makers. It's impossible to have a run on dollar demand for BTC, because the price floats. If there are sufficient people selling, the price will simply fall, and has done so several times in the past, before recovering when equilibrium returned to the market. Exchang…
I'm glad I'm not the only one noticing this.
He seems to write to an audience that is less knowledgeable than himself, but lacks factual content and is often cringeworthy.
Re: The Bear Case for Crypto, Part II: The Great Bank Run
#6This article appears to be written under the assumption that coinbase and other exchanges are counterparties to the price. They are not. They are market makers. It's impossible to have a run on dollar demand for BTC, because the price floats. If there are sufficient people selling, the price will simply fall, and has done so several times in the past, before recovering when equilibrium returned to the market. Exchang…
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Re: The Bear Case for Crypto, Part II: The Great Bank Run
#7This article appears to be written under the assumption that coinbase and other exchanges are counterparties to the price. They are not. They are market makers. It's impossible to have a run on dollar demand for BTC, because the price floats. If there are sufficient people selling, the price will simply fall, and has done so several times in the past, before recovering when equilibrium returned to the market. Exchang…
Agreed. I got about half way through the article before realizing the author does not understand how an exchange works.
Still Exchanges need to have two things:
1) enough coin to satisfy coin withdrawals, even in the middle of a panic run
2) enough fiat to satisfy fiat withdrawals, even in the middle of a panic run
I think maybe that's what the author meant, not sure. But if the exchanges fail to show their customers' assets, they will reinforce any panic feedback loop that might be happening sometime in the future.
Re: The Bear Case for Crypto, Part II: The Great Bank Run
#8This article appears to be written under the assumption that coinbase and other exchanges are counterparties to the price. They are not. They are market makers. It's impossible to have a run on dollar demand for BTC, because the price floats. If there are sufficient people selling, the price will simply fall, and has done so several times in the past, before recovering when equilibrium returned to the market. Exchang…
here is a more specific scenario. By a confluence of events, a large number of bitcoin holders decides to liquidate at the same time. Price falls, triggering stops, at which point other people with significant bitcoin holdings panic and try to sell their holdings, triggering further stops, etc. Price rapidly falls by 75% or more within 1 or 2 days.
Then we have cheap bitcoin and people hop right back on.
It's not going to go to 0 ever, unless its replaced by another de facto crypto as the face of the entire industry.
It's a deflationary, uncontrolled currency in a world that prints wealth, its easy to see why people want to hold some money here.
Re: The Bear Case for Crypto, Part II: The Great Bank Run
#9Earlier quoted context omitted.
Agreed. I got about half way through the article before realizing the author does not understand how an exchange works.
Still Exchanges need to have two things: 1) enough coin to satisfy coin withdrawals, even in the middle of a panic run 2) enough fiat to satisfy fiat withdrawals, even in the middle of a panic run I think maybe that's what the author meant, not sure. But if the exchanges fail to show their customers' assets, they will reinforce any panic feedback loop that might be happening sometime in the future.
yes. from the article:
"The most obvious way, in my view, that Bitcoin mania will turn into Bitcoin panic is when a Bitcoin depositor goes to sell their BTC for dollars – and there are no dollars available to satisfy that sell request."
coinbase has to have the dollars to let me withdraw those dollars from coinbase to my bank account. They may not have enough on hand.
Re: The Bear Case for Crypto, Part II: The Great Bank Run
#10Earlier quoted context omitted.
Agreed. I got about half way through the article before realizing the author does not understand how an exchange works.
Still Exchanges need to have two things: 1) enough coin to satisfy coin withdrawals, even in the middle of a panic run 2) enough fiat to satisfy fiat withdrawals, even in the middle of a panic run I think maybe that's what the author meant, not sure. But if the exchanges fail to show their customers' assets, they will reinforce any panic feedback loop that might be happening sometime in the future.
Sure, that it true.
But this is only a problem if coinbase or whoever is acting as a fractional reserve system.
As far as I know, every single dollar and Bitcoin that coinbase "says" you have is actually in an account somewhere, dollar for dollar and Bitcoin for Bitcoin.
If this is NOT true, and coinbase is a fractional reserve system, that would be a huge scandal.