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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

#51

Post by bdamm »

Alex3917 wrote: post #42
michaelbuckbee wrote: post #27

Earlier quoted context omitted.

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 swin…

To give a real life example, the other day I bought about $2,000 worth of a crypto asset, which caused a ~20% spike in price and raised the market cap by ~$5M. I'd say what the asset is, but I can't because if literally only one other person reading this decided to buy some then I effectively wouldn't have the option to buy more of it.

Depending on the secrecy of an asset to retain its value and your ability to buy it sounds like a very fragile position to be in.

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

#52

Post by smokeyj »

dehrmann wrote: post #7
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…

> Don’t all of the complaints about exchange rate and market cap apply to virtually any other item that is traded? > Market cap is extremely commonly cited for stock markets. Yes. Spreads usually depend on volume--high-volume securities tend to have a lower spread because there's a lot of market participants. More established markets often have market makers (entities with simultaneous bids and asks) and arbitrageurs…

Is it a solved issue for equities? How do you know the shares you purchased are valid?

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

#53

Post by cdoxsey »

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…

Investing actually achieves something.

When I make an investment in a company I'm providing capital that that company can use in various ways.

In return I become an (very small) owner of the company. I get a say in how it's run (voting rights), and I get a share of the profit (in dividends).

If you hold on to a stock like coca cola for 30 years, never looking at the stock price, and never sell, you'll actually make money.

Yes there's risk, coca cola could go out of business. But that's pretty unlikely, and if you're not willing to take that risk, consider using a diversification strategy. Buy some passively managed ETFs.

Even with the crisis, in the long run, you would've made money. Investing is not gambling, it's not a zero sum game and the fundamentals of it have some basis in reality.

Whatever is happening with Bitcoin right now makes no sense. Eventually things like this have to realign with reality.

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

#54

Post by Alex3917 »

bognition wrote: post #46
Alex3917 wrote: post #42

Earlier quoted context omitted.

To give a real life example, the other day I bought about $2,000 worth of a crypto asset, which caused a ~20% spike in price and raised the market cap by ~$5M. I'd say what the asset is, but I can't because if literally only one other person reading this decided to buy some then I effectively wouldn't have the option to buy more of it.

Why are you buying something that can't support multiple simultaneous buyers?

I only buy things where I won't be unhappy about the price I bought them even if crypto prices decline by 80%. Mostly things with market caps under $20M. The lack of liquidity doesn't bother me. Either the technologies will get real world use and the tokens will get listed on major exchanges, or else they'll go out of business, just like any other tech startup.

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

#55

Post by rgoldade »

rlpb wrote: post #23

> 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. W…

You could do that. It's not really zero risk though because the coin could drop in value. Usually (real) traders who find arbs on (real) exchanges will submit simultaneous bid/ask orders without holding the actual product. They can clear the trades later.

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

#56

Post by Alex3917 »

bdamm wrote: post #51
Alex3917 wrote: post #42

Earlier quoted context omitted.

To give a real life example, the other day I bought about $2,000 worth of a crypto asset, which caused a ~20% spike in price and raised the market cap by ~$5M. I'd say what the asset is, but I can't because if literally only one other person reading this decided to buy some then I effectively wouldn't have the option to buy more of it.

Depending on the secrecy of an asset to retain its value and your ability to buy it sounds like a very fragile position to be in.

If the price goes up it should be because the technology has become part of the backbone of the Internet, not because people are promoting it on social media when there is zero volume.

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

#58

Post by thisisit »

I am not going to defend bitcoin's thin markets but here are couple of things I noted:

First, Quoting a number like “$19699.46” to seven significant figures when your data’s got a 5% spread would get your high school physics teacher slapping you upside the head. It’s entirely deceptive. It should say something like “$19,700 plus or minus $500 depending,” and that line graph should be a thick grey bar.

The question is does the 5% spread change my buying price? I need to buy a bitcoin. Will coinbase honor the price when order is placed ie if it shows $19700 then will it let me buy 0.1 BTC at this price? Similarly, will it allow me to sell them back at whatever price they show on screen? If yes, how does it matter?

Sure, if coinbase cannot honor the price and let's in a huge slippage [1], then that is a concern. Though in most cases where they see markets moving too fast for them, they have routinely shut down trading.

Second, in stock markets it is not about smart order routing but NBBO or nation best bid and offer. Brokers need to route orders to best price available else they are liable for damages. There are no such rules in bitcoin. And as the article notes, there are issues in getting the best price available due to transaction times. In which case, coinbase can set whatever price they want. But if they honor it, there is not much to talk about.

[1] https://www.investopedia.com/terms/s/slippage.asp

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

#59

Post by log_base_login »

michaelbuckbee wrote: post #27
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 swin…

Thank you for the explanation.

What I find interesting, in addition to your description of the price elasticity being at issue, is precisely _what_ a bitcoin represents.

In fact, what _all_ cryptocurrency represent, to my knowledge...and that is, some increasingly unbreakable cryptographical mechanism by which information may be passed at ever more secret rates.

The question I have is: precisely who is in the market for such things, and are they not, in fact, what is holding these currencies together?

It also begs the question: if the person who can afford to 'buy' the cryptographical information is the one "funding" the market, are we not at the beck and call of the deepest pockets in terms of securing what may ultimately be state-secret level data?

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

#60

Post by patrickg_zill »

voidmain wrote: post #44
Edmond wrote: post #32

Earlier quoted context omitted.

No it doesn't apply to them. This is a popular argument from libertarians but unfortunately it is a purely ideological argument that has no basis in reality. The aforementioned currencies are backed by the value of their issuer's economies, those economies are real.

@patrick Every American participating in that economy must pay taxes every year on their income. The taxes must be paid in US dollars, even if the economic activity uses a different currency or barter. Therefore Americans must come up with a quantity of USD proportional to the size of the American economy every year (or "go to prison"), and provided that the total amount of USD in existence is bounded (this part is t…

So when Japan said they would accept Bitcoin for payment of taxes ... ?
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