An $814M Mystery Near the Heart of the Biggest Bitcoin Exchange • Hacker News Board

Re: An $814M Mystery Near the Heart of the Biggest Bitcoin Exchange

#111

Post by jatsign » Tue, Dec 05, 2017, 4:17 PM UTC

ufo wrote: post #22

jatsign wrote: post #7

Earlier quoted context omitted.

The reserve will be in Ethereum (and possibly also in ERC20 tokens like OMG), not USD. You buy Unum using these other cryptocurrencies, and can always sell Unum to buy anything in the reserve, always at the current USD spot price. This of course raises the possibility of the USD value of the reserve falling below the # of issued Unum. In that case, a sale penalty goes into affect, to discourage selling and increasing…

Lots of issues here... - Buying Unum is a lose-lose situation. If the USD price of Ether goes down you redeem your Unum for less than you paid for it. If the price of Ether goes up, you redeem your Unum for less than if you just had bought Ether instead. - Why bother tethering a cryptocurrenvy to Ether instead of just using Ether directly? - Who determines what is the spot price of Ether at any given moment? - Unum c…

- Ether isn't price-stable, which is the whole point of this project.

- The spot price of Ether is found via Oracalize query to cryptocompare's api.

- I'm getting rid of the bonus sale idea, as many people had that concern. The original intent was to use it as a way to build up the reserve.

Sorry, the docs on the site is a bit old. As I said, it's a side project, and I'm incorporating ideas as people give me feedback.

Re: An $814M Mystery Near the Heart of the Biggest Bitcoin Exchange

#112

Post by panarky » Tue, Dec 05, 2017, 4:17 PM UTC

When something doesn't make sense, usually it's because information is missing.

Every market participant knows that Tether doesn't prove their reserves, and yet the market exchange rate to USD stays in a tight band between 0.98 and 1.02 across multiple exchanges.

If the market doesn't trust Tether, then it should trade at a deep discount to USD, not at parity.

Similarly, the conventional wisdom says cryptocurrencies are in a massive speculative bubble. The negative sentiment on Bloomberg, WSJ, NYT, Twitter (not to mention HN) far outweighs the fanboys.

This is the most unregulated free market we've ever seen with many exchanges in many countries, person-to-person facilities like https://localbitcoins.com, margin trading, short selling, futures, options, etc.

If everyone knows the whole thing is a Ponzi-bubble-hype-scam, why isn't that information reflected in the markets?

There must be missing information that would make this make sense.

Re: An $814M Mystery Near the Heart of the Biggest Bitcoin Exchange

#113

Post by s17n » Tue, Dec 05, 2017, 4:21 PM UTC

wpietri wrote: post #101

jpereira wrote: post #17

Stable coin systems are going to be massively important and there's a ton of different projects trying to make it happen. This [1] is a really solid explanation on how one of them, Dai from MakerDAO, works. [1] https://medium.com/cryptolinks/maker-for-dummies-a-plain-eng...

One of the other parallels that interests me is that there's very little incentive to be publicly skeptical of the nonsense. People were immensely critical of Warren Buffett during the dot-com bubble. He was frank that their valuations didn't make sense to him, and he took a pasting for it. He turned out to be right, but only after taking a lot of heat: http://news.bbc.co.uk/2/hi/business/1217716.stm There's little g…

Calling bitcoin a bubble seems like the wrong word. There are basically two possible outcomes: total market cap zero, or in the trillions. How much you think bitcoin is worth depends on your guess (and it really is just a guess, nobody has any idea what is going to happen) about the relative likelihood of each.

Re: An $814M Mystery Near the Heart of the Biggest Bitcoin Exchange

#114

Post by aaavl2821 » Tue, Dec 05, 2017, 4:24 PM UTC

python-guy-vt wrote: post #103

mancerayder wrote: post #84

Can anyone with a more studied background in economics help hypothesize the after-effects on Bitcoin and other altcoins if this 814M 'digital counterfeiting' for lack of a better term, is true? For example, 800M has been artificially pumped into the Bitcoin and general crypto ecosystem, like air in a bicycle tire. And this is a game theory sort of question, too: If this is true: now, what?

> For example, 800M has been artificially pumped into the Bitcoin. This is impossible with Bitcoin. Bitcoins can only be created via mining, Bitcoin mining is a proof-of-work crypto currency. Crypto's typically use proof-of-work or proof-of-stake in order to have value. Tether, on the other hand, seems to have no proof-of-work or proof-of-stake at all and just claims to have a 1:1 ratio of their currency to dollars.…

The statement that "this is impossible with bitcoin" is false. While initially bitcoins are issued as proof of work, as soon as there is a somewhat liquid secondary market then bitcoin becomes a financial asset with a value determined by the market. That value is effectively completely indepdent of any "inherent value" and fully determined by supply and demand

Re: An $814M Mystery Near the Heart of the Biggest Bitcoin Exchange

#115

Post by azureel » Tue, Dec 05, 2017, 4:24 PM UTC

I'm not sure but, isn't this how the real banks operate, too? For example let's take a legal, legit, Bank named X in a country. If all the account owners wanted to retrieve their money, at the same time: can that bank serve that demand?

Because normally for every 1 dollar deposited inside, bank can give away 5 dollars worth of credits to other people. (the ratio changes in every country probably).

So accusing a virtual currency corporation with "you don't own all that money you claim" applies to a real, physical currency banks. I guess.

Re: An $814M Mystery Near the Heart of the Biggest Bitcoin Exchange

#116

Post by rsynnott » Tue, Dec 05, 2017, 4:24 PM UTC

panarky wrote: post #112

When something doesn't make sense, usually it's because information is missing. Every market participant knows that Tether doesn't prove their reserves, and yet the market exchange rate to USD stays in a tight band between 0.98 and 1.02 across multiple exchanges. If the market doesn't trust Tether, then it should trade at a deep discount to USD, not at parity. Similarly, the conventional wisdom says cryptocurrencies…

Bear in mind that this is bitcoin. People continued pumping money into mtgox for _months_ after it was clear to anyone who’d been paying attention that it was dead.

And currently bitcoin’s in an unusually large bubble, so there are lots of people buying into it who’ve never previously had experience of it. I see ads for, basically, “get rich quick with bitcoin” every day now. The people clicking those are not the world’s greatest critical thinkers; if the site on the other end says “buy tethers with our affiliate code to BUY BITCOINS AND GET RICH”, they’ll do it.

There are sufficient people buying tethers at face value, from the company, to keep parity. And I don’t think there’s really a facility to short sell them (that might change things a bit)

Re: An $814M Mystery Near the Heart of the Biggest Bitcoin Exchange

#117

Post by busterc » Tue, Dec 05, 2017, 4:25 PM UTC

I found this comment, by Richard Berger on SeekingAlpha, compelling:

> STOP! and think about what this author has revealed. Even IF Tether is NOT running a fraud, the arbitrage positions that automatically exist between Bitcoin and any tether are real and do create incentive to create an arbitraged feedback loop whereby a pegged tether between Bitcoin - any_generic_tether - USD does exist and self feeds, driving up Bitcoin exactly as the author contends may be happening with the current Tether. So long as such a scheme emerges naturally out of the system design, the design is fatally flawed and must asymptotically compound grow to an infinite exchange rate (impossible and unsustainable by definition), or it must ultimately collapse.

> Thus, the author has demonstrated a basic inherent flaw to crypto-currencies that can not be repaired other than by legal estoppel. Legal estoppel will never occur because jurisdiction is off-shored and proving a case by case would generate infinite litigation along with each estoppel creating a crash. This in itself would kill the cryptos as surely as the fatal flaw itself will.

> It is meaningless to argue WHETHER the author's speculation as to Tether's actions are fraud. The ONLY question is if his identifying of the nature of the available arbitrage can exist in reality. If it can, crypto is dead. No other conclusion is available.

https://seekingalpha.com/article/4129543-bitcoin-one-way-go-...

Re: An $814M Mystery Near the Heart of the Biggest Bitcoin Exchange

#118

Post by coliveira » Tue, Dec 05, 2017, 4:26 PM UTC

pjmorris wrote: post #72

greenleafjacob wrote: post #53

Earlier quoted context omitted.

> how "markets" will prevent the peg from going out of whack. One only needs to read about Long-Term Capital Management to see how flawed this is.

If anyone is looking for books to read during holiday down time, they could do worse than 'Liar's Poker' [0], followed by 'When Genius Failed' [1], following the career of John Meriwether and the rise and fall of LTCM. [0] 'Liar's Poker', Michael Lewis [1] 'When Genius Failed', Roger Lowenstein For a 'light reading intro to finance' trilogy, add 'A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Fina…

Complementing this good list, if you really want to understand what the stock market is (despite all the advertisement), read Frenzied Finance: The Crime of Amalgamated. In this book, a participant of the early markets in the 20th century explain what they really do under the covers. The laws changed a lot from that time, but the goals didn't.

Re: An $814M Mystery Near the Heart of the Biggest Bitcoin Exchange

#119

Post by rsynnott » Tue, Dec 05, 2017, 4:27 PM UTC

empath75 wrote: post #91

mancerayder wrote: post #84

Can anyone with a more studied background in economics help hypothesize the after-effects on Bitcoin and other altcoins if this 814M 'digital counterfeiting' for lack of a better term, is true? For example, 800M has been artificially pumped into the Bitcoin and general crypto ecosystem, like air in a bicycle tire. And this is a game theory sort of question, too: If this is true: now, what?

If people want to pull dollars out of bitfinex, and can't redeem tethers, then the price of bitcoin will skyrocket on bitfinex due to tether hyperinflation (we're probably already seeing that, and have been for months). People will be buying bitcoin at basically any price on usdt denominated exchanges, and start moving them to other exchanges to sell. At that point, you'll start to see price differences between usdt…

Note that this basically happened with mtgox. It took a surprisingly long time to shake out.

Re: An $814M Mystery Near the Heart of the Biggest Bitcoin Exchange

#120

Post by jondubois » Tue, Dec 05, 2017, 4:28 PM UTC

For all the bad press that Bitfinex gets, they're the only exchange that I know which lets you sign up for an account and start depositing, trading and withdrawing cryptocurrencies in less than 10 minutes. At least when my money is on Bitfinex, I know that I can take it all out at any time... With that kind of liquidity, I wouldn't care if Bitfinex was owned and operated by a colony of wild monkeys.

I don't care if they get hacked, so long as they don't get hacked during that small 10 minute window when my funds are sitting on their wallets.

By comparison, I've been waiting for 1 month and a half to get my account verified on Bittrex (to enable withdrawals). Ticket #347145