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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

#61

Post by rgoldade »

rgoldade wrote: post #55
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.

Of course.. if you could take a short position against the coin, you could hedge and eliminate your risk.

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

#62

Post by inimino »

log_base_login wrote: post #59
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…

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…

The "crypto" in bitcoin is about being able to know that the copy of the blockchain you have is indeed the "authentic", consensus blockchain. It has nothing to do with keeping anything secret, as the entire blockchain is literally as public as it is possible for data to get.

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

#63

Post by baddox »

icc97 wrote: post #45
scott00 wrote: post #40

Earlier quoted context omitted.

Crypto market cap doesn't mean the same thing as the market cap of a stock, but that doesn't mean it's meaningless. It approximates the total amount of wealth currently held in the form of a particular crypto, which is interesting to know in comparison to more traditional asset classes (stocks, bonds, gold, etc) as well as to other cryptos. If you also have some knowledge or an assumption about the velocity of money…

'approximate' is the key word as it's averaged over exchanges which is a big difference to standard market prices, as mentioned in the article: > 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 li…

I don’t think the “average over multiple exchanges” thing really matters that much when we’re talking about the usefulness of market cap. The reason market cap isn’t a great measure of “total value at the moment” is because there certainly aren’t enough buyers willing and able to buy all Bitcoins or all Apple shares at the current market price.

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

#64

Post by cosarara97 »

thisisit wrote: post #58

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…

> 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?

No, neither the price at which they actually allow you to buy or sell BTC matches the price they display. They set the price for you, which is different in both operations (and on top they charge a fee). GDAX on the other hand (same company as coinbase, different service) is an actual market where you can place orders at whatever price you want, and somebody will take them if your price matches theirs.

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

#65

Post by alasdair_ »

The article states "The singular “price” of Bitcoin doesn’t exist — it’s a made-up number."

This is the same for every stock traded on any stock exchange in the world. The "singular price" is, in most cases, just the mean of the closest bid and offer listed on the exchange and is thus a "made-up number"

On top of this, it obviously doesn't take into account everything from transaction costs to the fact that attempts to purchase substantial volume at this price would not be possible.

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

#66

Post by sathackr »

imo this is basic supply and demand.

Bitcoin comes into this world at a fixed supply rate. Demand is currently exceeding supply, so the price goes up. With bitcoin so far, the higher the price, the more press is generated, which increases demand, so we have a feedback loop.

The only difference is, demand can change very quickly, causing drastic swings in price. Which then generates press, which generates demand.

Most every crypto currency will follow the same model. As long as enough demand outpaces supply, the price will rise.

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

#67

Post by voidmain »

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 ... ?"

I'm not able to find any reference to such a move, which I would think would be widely reported in English. So I suspect you may have your facts wrong. I read that Japan no longer collects sales tax on digital currency transactions, but that is not at all the same.

If, hypothetically, a major government accepted all tax payments and equivalents in XBT as well as their own currency, and credibly promised to keep doing so no matter what, they wouldn't so much be backing Bitcoin as "unbacking" their own currency. It would leave their citizens free to stop using fiat currency if they wanted, and if enough were eager to do that the value could go to zero. (In principle, that could be fine. In practice, contracts and other nominal rigidities would probably make the transition period... problematic)

If a major government decided to accept tax payments only in Bitcoin, they would be backing it in the sense intended.

(I'm not necessarily taking a bearish position on Bitcoin. Rather, I'm arguing that fiat currencies are not the right model for understanding its economics)

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

#68

Post by AznHisoka »

cdoxsey wrote: post #53
twelve40 wrote: post #17

Earlier quoted context omitted.

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 m…

1. the stock market, other than the IPO is a secondary market. You are not providing capital to the company but just paying another trader for his shares.

2. The majority of stocks do not provide (and will never) dividends and the majority of buyers have no voting rights.

but you are right. For practical purposes, the stock market is not pure gambling. There are institutions that make it legitimate. Such as the SEC, pensions, 401ks and brokerage firms. And the fact the government cares so much about it going up (because it funds so many pensions and social security might go away)

But lets not fool ourselves in thinking the stock market is a virtuous piece of infrastructure. The vast majority of stock holders dont know anything about the conpanies they invest nor how stocks even work. They invest blindly in it through mutual funds or 401ks.

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

#69

Post by grandalf »

Any price is just the amount someone is willing to pay. This is why prices change even for things that do have intrinsic value like food commodities, oil, etc.

More specifically, price is a function of supply and demand. Bitcoin was created with a very specific bootstrapping plan baked into the design.

What people are missing is that the bootstrapping plan is well known and obvious to investors, and is meant to incentivize a speculative motivation for mining, which it has done successfully.

But think about it this way, the price of a currency is only loosely linked to supply and demand. Nobody really knows how many dollars exist, yet the currency has characteristics that make it trustworthy.

Bitcoin is the same phenomenon. The price is based on the success of the governance model and the appealing characteristics of the ecosystem.

Based on these appealing characteristics, there is the widespread expectation that Bitcoin will win market share from other currencies over the long term.

We know there will be a finite number of Bitcoin mined, what we don't know is how much market share Bitcoin will have in comparison to other currencies.

Market share is not a function of money supply as much as it is a function of the holders of the currency that rely on the currency because of its governance mechanism, fungibility, etc. Many countries hold USD in reserve because they find the governance characteristics of the USD appealing. Bitcoin is just a novel way of doing currency governance.

For all uses of currency other than holding inventory, the governance mechanism matters very little, since there is little risk exposure to price fluctuations or the risks associated with bad governance.

Critiques of Bitcoin get mired in an imprecise understanding of all of the above, but the most notable blind spot is that Bitcoin is a governance mechanism first and a currency second, and investors are pleased because the governance mechanism has been tested a few times and has (thus far) performed admirably.

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