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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

#11

Post by vasilipupkin »

nrhk wrote: post #8
vasilipupkin wrote: post #4

Earlier quoted context omitted.

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.

Sure, I am not saying it will be worth zero ever. I am saying it can become worth a lot less than today in a matter of days. Part of the problem that I have is I have no idea how to value bitcoin. I can sort of understand how to roughly value a company. But bitcoin I have no idea.

Re: The Bear Case for Crypto, Part II: The Great Bank Run

#12

Post by ifdefdebug »

vasilipupkin wrote: post #9
ifdefdebug wrote: post #7

Earlier quoted context omitted.

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.

but that's a different problem. If you want to sell BTC for dollars, you depend on the order book to have enough bids in it to satisfy your request, or you have to make a sell order and hope for someone to take it. Exchanges don't have to show liquidity for that, they have to show liquidity when people want to withdraw their assets (edit: complete truncated sentence).

Re: The Bear Case for Crypto, Part II: The Great Bank Run

#13

Post by walrus1066 »

I think it'll be more of an old fashioned speculative bubble burst.

The smart money will start taking profits by selling their coin, as the price goes down those that bought the high will lose their nerve and sell to stem their losses. Then the rest will start selling shortly after. Eventually there'll be nobody willing to buy at any price, it'll be worthless.

Re: The Bear Case for Crypto, Part II: The Great Bank Run

#14

Post by vasilipupkin »

ifdefdebug wrote: post #12
vasilipupkin wrote: post #9

Earlier quoted context omitted.

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.

but that's a different problem. If you want to sell BTC for dollars, you depend on the order book to have enough bids in it to satisfy your request, or you have to make a sell order and hope for someone to take it. Exchanges don't have to show liquidity for that, they have to show liquidity when people want to withdraw their assets (edit: complete truncated sentence).

yes, that's the problem. the order book is already quite thin - and in a panic, it can disappear and reappear at a much lower price.

Re: The Bear Case for Crypto, Part II: The Great Bank Run

#15

Post by pedrocr »

nrhk wrote: post #8
vasilipupkin wrote: post #4

Earlier quoted context omitted.

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.

>in a world that prints wealth

Where else, besides the crypto-currency market itself, is "wealth" being "printed"?

Fiat currencies may be inflationary but they're only used to price wealth not actually hold it. Actual wealth, unlike crypto-curency "wealth", is held in stocks/bonds/land/etc which are actual assets backed by some kind of economic activity or physical scarcity. Comparing "Bitcoin as a store of value" with fiat currencies is a strawman, you need to compare it with gold if that's what you want it for. If you want to compare Bitcoin to fiat currencies you need "Bitcoin as a means of transactions" and at that it's become terribly inefficient and underused compared to expectations.

Re: The Bear Case for Crypto, Part II: The Great Bank Run

#16

Post by ifdefdebug »

vasilipupkin wrote: post #14
ifdefdebug wrote: post #12

Earlier quoted context omitted.

but that's a different problem. If you want to sell BTC for dollars, you depend on the order book to have enough bids in it to satisfy your request, or you have to make a sell order and hope for someone to take it. Exchanges don't have to show liquidity for that, they have to show liquidity when people want to withdraw their assets (edit: complete truncated sentence).

yes, that's the problem. the order book is already quite thin - and in a panic, it can disappear and reappear at a much lower price.

Very true. That's why a stop loss to market is a total suicide in this market. Better do a stop loss to limit and if the limit fails, keep your coins and wait for better times...

Re: The Bear Case for Crypto, Part II: The Great Bank Run

#17

Post by Top19 »

Found out today you can only take $10,000 a day out of Coinbase. I guess this could be good, because it’s essentially a “bail-in” that forces people to stay in the market and prevents a run, but still I had no idea of the lack of liquidity in bitcoin with the current system.

Re: The Bear Case for Crypto, Part II: The Great Bank Run

#18

Post by banderman »

1053r wrote: post #2

This 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…

What about all of the exchanges offering significant margin trading? Where does all that credit come from? How can they guarantee that'll all be covered in a significant price drop if the buy side of the book is cleared?

Re: The Bear Case for Crypto, Part II: The Great Bank Run

#19

Post by jaggederest »

vasilipupkin wrote: post #11
nrhk wrote: post #8

Earlier quoted context omitted.

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.

Sure, I am not saying it will be worth zero ever. I am saying it can become worth a lot less than today in a matter of days. Part of the problem that I have is I have no idea how to value bitcoin. I can sort of understand how to roughly value a company. But bitcoin I have no idea.

There's something of a practical floor on price at the cost of the electricity to mine a coin times the lowest rate of electricity available at the moment. (Somewhere in the realm of $500 AFAIK)

Now, since the difficulty changes over time I could imagine that not being as high as people think (e.g. if mining companies abandon bitcoin for other currencies), but there is a real world equivalent to book value.

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