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Why you can’t cash out part 1: Bitcoin’s “price” is largely fictional

davidgerard.co.uk

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Re: Why you can’t cash out part 1: Bitcoin’s “price” is largely fictional

#22

Post by arcticfox »

twelve40 wrote: post #17
davidgerard wrote: post #10

Earlier quoted context omitted.

(author here) This is targeted to the general public, who do actually need Finance 101, because they really don't know what they're getting lured into by the mindlessly positive articles and headlines in the mainstream press. Mostly written by people who don't understand either. I actually consider it seriously unethical to market cryptos as an investment to retail investors - they just do not understand the insane l…

But at the end of the day, how is it different from the current equities market? (aside from immature tools and imperfect infrastructure that is just shaping up). Stock market can tank 50% like it did in 2009 (together with the real estate market) and your average investor will be screwed just the same. Even tech and fundamental analysis gurus cannot explain the endless bull market we're on, how is getting lured into…

But the stock market - in general - has ridiculously profitable and powerful entities behind it. No matter what happens to investor confidence, ownership of Apple is going to be very valuable because they generate a ridiculous amount of profit.

Cryptos, on the other hand, are entirely based on investor confidence.

Re: Why you can’t cash out part 1: Bitcoin’s “price” is largely fictional

#23

Post by rlpb »

> The delays — ten minutes to over an hour — and fees add enough friction to generate the spread between exchanges, even if you assume everyone’s using trading bots as quickly as possible.

Can an arbitrager not simply hold both BTC and cash on multiple exchanges at once? When a price difference swings one way, sell on one exchange and buy on the other, without worrying about transferring anything between exchanges. When the price difference swings the other way, do it the other way round.

If price differences average in both directions over time, you shouldn't run short of either BTC or cash but you will make a profit.

If price difference average in one particular direction, you can notice that trend and transfer across in advance.

An initial investment is required, but that is true of any arbitraging activity.

I had assumed that this is what arbitragers have always done.

Re: Why you can’t cash out part 1: Bitcoin’s “price” is largely fictional

#25

Post by patrickg_zill »

Edmond wrote: post #18
davidgerard wrote: post #10

Earlier quoted context omitted.

(author here) This is targeted to the general public, who do actually need Finance 101, because they really don't know what they're getting lured into by the mindlessly positive articles and headlines in the mainstream press. Mostly written by people who don't understand either. I actually consider it seriously unethical to market cryptos as an investment to retail investors - they just do not understand the insane l…

There is only one word suitable for describing bitcoin: scam The vested interest has been very successful in obscuring this basic fact, usually by conflating it with a bunch of other unrelated matters (decentralized infrastructure, fee-less money transfer, easy international trade...etc) I penned a tongue-in-cheek layman description of bitcoin that alludes to the basic scaminess of it: http://blog.codesolvent.com/201…

Of course the problem is that major parts of your argument apply to the Federal Reserve system also, as well as nearly all other fiat currencies such as the Euro, Pound, Yuan etc.

So exchanging fiat Euros for fiat Bitcoin means what, exactly?

Re: Why you can’t cash out part 1: Bitcoin’s “price” is largely fictional

#26

Post by nabla9 »

andr wrote: post #14

What the article dances around is the Efficient Market Hypothesis, which, in short, claims that there is one true price for every financial asset. No market is truly efficient, but some are more efficient than others. Low spreads and lack of arbitrage opportunities (the ability to buy an asset on one exchange and immediately sell it on another for a profit) are signs of a more efficient market. Bitcoin, clearly, is f…

You are confusing terms. Efficient Market Hypothesis and Market Efficiency are not relevant here.

Operational efficiency in the investment market (trading exchanges) is the issue. Transaction costs, manipulation, spreads, unfairness etc. add cost for doing transactions.

Re: Why you can’t cash out part 1: Bitcoin’s “price” is largely fictional

#27

Post by michaelbuckbee »

baddox wrote: post #5

Don’t all of the complaints about exchange rate and market cap apply to virtually any other item that is traded? Spread exists in forex and stock markets. Market cap is extremely commonly cited for stock markets. Sure, the effects may be stronger in Bitcoin due to its higher volatility, lower volume, etc., but that should be the author’s argument, instead of “if you don’t know the basic Finance 101 definitions of som…

Here's what "thin" means in practice. Imagine two different sets of digital objects: AlphaCoins and BetaCoins - they're identical in the say way physics professors say "imagine an infinite frictionless plane".

Both have a 1000 in circulation.

Both are worth $10 each.

Both have a market cap of $10,000 US Dollars.

But the market for AlphaCoins is "thin" (small changes in supply and demand make for really big price swings).

There's a run on the market and everybody wants to sell off their coins.

After a day's trading:

AlphaCoins price is $3 / coin.

BetaCoins price is $9 / coin.

For goods and services you'd call this the price elasticity of demand (You can change the price of medicine and people will keep paying it b/c without it they'd die - it's inelastic - the same can't be said for a snack bag of cheetos).

To me, this is the article's argument. That while these terms describe the same things across markets there are some big differences not captured in simple "market cap" comparisons.

Maybe a better analogy is two all you can eat restaurants (identical, yadda yadda) but at one you can use your full set of dining implements and at the other you can only use a fragile toothpick to eat your food with - and all anyone can write about is how the quantity of food in both places is the same.

Re: Why you can’t cash out part 1: Bitcoin’s “price” is largely fictional

#28

Post by dragonwriter »

bagacrap wrote: post #4

Why is the fact that arbitrage is harder with btc a disadvantage? And the fact that the "price" reflects recent sales rather than future sales seems, well, obvious, and identical to other securities/commodities.

> Why is the fact that arbitrage is harder with btc a disadvantage

Arbitrage is the method by which segregated markets are aggregated into a single market with a common price; if that is harder you have segregated markets.

> And the fact that the "price" reflects recent sales rather than future sales seems, well, obvious, and identical to other securities/commodities.

The same issue is raised with commodity/security markets in general, but it's practically more significant when the market(s) for a product have significant liquidity issues.

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