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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

#31

Post by vasilipupkin »

georgecarlin wrote: post #24
pedrocr wrote: post #15

Earlier quoted context omitted.

>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" wi…

No. "stocks/bonds/land/etc" are not actual assets backed by anything OTHER than scarcity. Land has value due to scarcity and utility (everyone needs somewhere to live). Stocks have value almost exclusively due to capital appreciation. You don't get anything for owning non-dividend-paying stocks. And owning dividend paying stocks just means money is not being reinvested (notice that Berkshire Hathaway has never paid d…

I am not against bitcoin but bitcoin is not like stocks and land. stocks in aggregate pay dividends, sometimes in the form of stock buybacks, something that Berkshire does do. Non-dividend paying stocks are priced today due to expected future dividends. In other words, they may not pay dividends now, but they generate expected future profits. Land is physically scarce. Bitcoin is software, so scarcity of software is not the same as physical scarcity.

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

#32

Post by megadethz »

Top19 wrote: post #17

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.

Gemini has no limits on USD withdrawals via wires.

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

#33

Post by pedrocr »

georgecarlin wrote: post #24
pedrocr wrote: post #15

Earlier quoted context omitted.

>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" wi…

No. "stocks/bonds/land/etc" are not actual assets backed by anything OTHER than scarcity. Land has value due to scarcity and utility (everyone needs somewhere to live). Stocks have value almost exclusively due to capital appreciation. You don't get anything for owning non-dividend-paying stocks. And owning dividend paying stocks just means money is not being reinvested (notice that Berkshire Hathaway has never paid d…

>No.

Starting replies like this is getting to be a theme online. It adds nothing to the discussion except make people argue in extreme and entrenched ways.

>"stocks/bonds/land/etc" are not actual assets backed by anything OTHER than scarcity.

I specifically said they were backed by scarcity (land) and by economic activity (stocks and bonds).

>Stocks have value almost exclusively due to capital appreciation. You don't get anything for owning non-dividend-paying stocks. And owning dividend paying stocks just means money is not being reinvested (notice that Berkshire Hathaway has never paid dividends out).

I have no idea what you're trying to say. Stocks generate value out of an economic activity. That's the value that underlies them. If the company then has enough opportunities to continuously reinvest or if it just gives up and returns value through share buybacks or dividends is not really important to the point that what makes stocks valuable is that the company has some form of economic activity. If you find a stock that doesn't have an underlying economic activity and is just driving up price through scarcity that's not a company it's a Ponzi scheme like Enron used to run.

>Bitcoin is EXACTLY like land and stocks, except much, much, much more liquid and useful.

Bitcoin is digital gold. Useful yes, but wow, you really think its value dwarfs the asset classes responsible for representing the available physical area of the planet and the current economic activity of the planet?

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

#34

Post by mrb »

pjbyrne wrote: post #27
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…

Hi, author here. A liquidity crunch is not the same thing as a fall in Bitcoin's price. A liquidity crunch implies that the people who provide the dollars to this market (banks, I'm informed) cease doing so because they don't have confidence that the money they lend to provide USD liquidity to fiat on/offramps will be able to be repaid by their counterparties during whatever the maturity period is of the facility. As…

I've already pointed out you don't seem to understand how Bitcoin exchanges operate: https://twitter.com/zorinaq/status/935016692270489600

Banks don't provide liquidity to Bitcoin exchanges. Exchanges don't borrow from banks. Exchanges don't trade with their money, or their users' money. Exchange users deposit money to exchanges, and exchanges dumbly execute orders specified by their users. That's it. For example BTC/USD bids on an exchange's order book are 100% backed up by dollars that have already been deposited by users on this exchange's bank account.

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

#35

Post by fleitz »

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.

It's like gold, it's an asset (technically a ledger) not a currency, it's an asset because people want it, and like gold has practically no uses other than being shiny.

If the history of technology is any indication it will become obsolete before becoming devalued as cryptofinance people move on to better scams / technology.

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

#36

Post by dahdum »

pjbyrne wrote: post #27
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…

Hi, author here. A liquidity crunch is not the same thing as a fall in Bitcoin's price. A liquidity crunch implies that the people who provide the dollars to this market (banks, I'm informed) cease doing so because they don't have confidence that the money they lend to provide USD liquidity to fiat on/offramps will be able to be repaid by their counterparties during whatever the maturity period is of the facility. As…

In what way does an exchange like Coinbase require liquidity through bank loans to operate? If you sell bitcoin for USD you're selling to another buyer who deposited USD. It's just shifting balances around.

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

#38

Post by fleitz »

vasilipupkin wrote: post #29
jaggederest wrote: post #19

Earlier quoted context omitted.

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.

that argument makes no sense to me personally. For example, if I rented a warehouse, filled up that warehouse with iphones and hired workers to systematically destroy those iphones with hammers, there would be a cost to that activity. but it wouldn't a price floor on anything. The thing itself has to have value, the cost of the thing is not a price floor

You should make a blockchain based on smashing an iPhone taking a picture of it and then hashing the picture. You could probably make a lot of money and drive up the value of old iPhones. Revolutionary new proof of work algorithm.

Call it Instachain or something.

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

#39

Post by pjbyrne »

mrb wrote: post #34
pjbyrne wrote: post #27

Earlier quoted context omitted.

Hi, author here. A liquidity crunch is not the same thing as a fall in Bitcoin's price. A liquidity crunch implies that the people who provide the dollars to this market (banks, I'm informed) cease doing so because they don't have confidence that the money they lend to provide USD liquidity to fiat on/offramps will be able to be repaid by their counterparties during whatever the maturity period is of the facility. As…

I've already pointed out you don't seem to understand how Bitcoin exchanges operate: https://twitter.com/zorinaq/status/935016692270489600 Banks don't provide liquidity to Bitcoin exchanges. Exchanges don't borrow from banks. Exchanges don't trade with their money, or their users' money. Exchange users deposit money to exchanges, and exchanges dumbly execute orders specified by their users. That's it. For example BTC…

No, they aren't, because the price of BTC is growing exponentially without necessarily having dollar deposits grow at the same time. Here's a worked example.

In a closed system:

Day 1: $1 buys 1000 Marmotcoin

Day 2: $1000 buys 1 Marmotcoin

Day 3: 1000 Marmotcoin attempts to sell for $1,000,000

That's what the initial phases of a liquidity shock will look like. I can almost guarantee you that retail operations all have bank liquidity facilities to deal with sudden upswings in withdrawal demand, otherwise they have to commit house money to cover it.

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

#40

Post by panarky »

pjbyrne wrote: post #39
mrb wrote: post #34

Earlier quoted context omitted.

I've already pointed out you don't seem to understand how Bitcoin exchanges operate: https://twitter.com/zorinaq/status/935016692270489600 Banks don't provide liquidity to Bitcoin exchanges. Exchanges don't borrow from banks. Exchanges don't trade with their money, or their users' money. Exchange users deposit money to exchanges, and exchanges dumbly execute orders specified by their users. That's it. For example BTC…

No, they aren't, because the price of BTC is growing exponentially without necessarily having dollar deposits grow at the same time. Here's a worked example. In a closed system: Day 1: $1 buys 1000 Marmotcoin Day 2: $1000 buys 1 Marmotcoin Day 3: 1000 Marmotcoin attempts to sell for $1,000,000 That's what the initial phases of a liquidity shock will look like. I can almost guarantee you that retail operations all hav…

Your article assumes that to sell on Day 3, the exchange has to borrow $1,000,000 from a bank.

That's now how an exchange works.

For the price to be 1,000,000 USD for 1,000 BTC, there must exist buyers with 1,000,000 USD and sellers with 1,000 BTC with orders to trade at that price.

There's no "house money" since exchanges aren't casinos where the players bet against the house. Buyers and sellers are transacting with each other, matching buy orders with sell orders.

The exchange doesn't have to borrow the USD from a bank, the buyers bring the USD to the trade.

There is no "liquidity shock" unless the exchange steals or loses the buyers' USD. And that's a different argument.

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