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The Bit Short: Inside Crypto’s Doomsday Machine

crypto-anonymous-2021.medium.com

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Re: The Bit Short: Inside Crypto’s Doomsday Machine

#161

Post by huitzitziltzin »

Infinitesimus wrote: post #143
not2b wrote: post #110

It seems that this guy decided to go heavily into Bitcoin because of a mistaken belief that seems all too common: "At the time, I saw a market dislocation and the likelihood of significant dollar inflation due to the US Government’s likely response to the unfolding pandemic." He thought that government responses to severe crises that inject lots of money into the economy will cause "significant dollar inflation". In…

CPI is a very distorted view of actual living costs over time. House prices aren't included and we've seen prices balloon over the last decade. Sure, your apples cost the same but good luck trying to buy property . Yes we have the usual supply constraints, etc.

>House prices aren't included and we've seen prices balloon over the last decade

Depending on exactly what you mean, this is not a great criticism of the CPI.

House prices are excluded on purpose. Housing costs are included (including for housing equivalent to what an owner owns).

CPI does include housing expenses: "The CPI represents all goods and services purchased for consumption by the reference population (U or W). BLS has classified all expenditure items into more than 200 categories, arranged into eight major groups (food and beverages, *housing*, apparel, transportation, medical care, recreation, education and communication, and other goods and services)." [1]

Furthermore, it includes housing expenses for owner-occupied housing as follows: "The [owners' equivalent rent] index is designed to measure the change in the rental value of owner occupied housing change. In essence, OER measures the changes in the amount a homeowner would pay to rent, or would earn from renting, his or her home in a competitive market." [see p. 107 of [2]]

As the BLS notes, the primary service provided by houses is to shelter the inhabitants. The house itself may be held as an investment. See [3]

So the CPI explicitly captures the cost of providing shelter, though it excludes the investment value of the property.

[1] https://www.bls.gov/cpi/questions-and-answers.htm#:~:text=BL...).

[2] https://www.bls.gov/opub/hom/pdf/cpi-20180214.pdf

[3] https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...

Re: The Bit Short: Inside Crypto’s Doomsday Machine

#162

Post by dragonwriter »

jlmorton wrote: post #158
Infinitesimus wrote: post #143

Earlier quoted context omitted.

CPI is a very distorted view of actual living costs over time. House prices aren't included and we've seen prices balloon over the last decade. Sure, your apples cost the same but good luck trying to buy property . Yes we have the usual supply constraints, etc.

House prices are absolutely included and are the single largest item in CPI. It's Owner's Equivalent Rent. Overall, shelter represents 33% of CPI.

To the extent that purchase prices vary independently of rental prices in the same market, the CPI inclusion of equivalent rents will not reflect home purchase prices.

Then again, I don’t see why it should, unless it is some measure based on the lower of rents (actual or equivalent) or amortized purchase and ownership costs (as you need shelter one way or the other), but that could only drive the CPI down compared to just considering rents as is done now.

Re: The Bit Short: Inside Crypto’s Doomsday Machine

#163

Post by dragonwriter »

SilasX wrote: post #149
Infinitesimus wrote: post #143

Earlier quoted context omitted.

CPI is a very distorted view of actual living costs over time. House prices aren't included and we've seen prices balloon over the last decade. Sure, your apples cost the same but good luck trying to buy property . Yes we have the usual supply constraints, etc.

Yep, the new money has flowed into capital assets rather than consumption goods. But inflated, prices have. It would be like saying there’s no inflation because milk prices are steady, ignoring that cows cost three times as much.

> Yep, the new money has flowed into capital assets rather than consumption goods.

Yes, because the wealth has flowed to people who primarily relate to the economy as capitalists, rather than laborer/consumers.

> It would be like saying there’s no inflation because milk prices are steady, ignoring that cows cost three times as much.

So, it would be true, for the purpose for which we have and measure general inflation. It would not be true for certain other inflation measures which are also used, but which aren’t part of (and aren’t relevant to the purposes of) general inflation measures like the CPI

Re: The Bit Short: Inside Crypto’s Doomsday Machine

#164

Post by doggosphere »

dannyw wrote: post #18

This is nothing more than FUD designed to benefit a short position. The reason why exchanges like Binance and Bybit have their inflows from Tether... is because (as the author explains) they only take Tether! Why do they only take Tether? Because US banking is incredibly expensive and a regulatory nightmare. Why do people use Tether exchanges, over Coinbase? Not just because of leverage, but also because many do not…

How about Tether's refusal to do an open audit of its books?

Or when they had some funds seized and loaned funds between Bitfinex and Tether, breaking the 1:1 peg?

Re: The Bit Short: Inside Crypto’s Doomsday Machine

#165

Post by dragonwriter »

qeternity wrote: post #118
mountainb wrote: post #114

Earlier quoted context omitted.

People often don't understand the implications of an elastic monetary system that is also decentralized because of the way that the Fed and member banks are structured. There are things the Fed or the government could do to frogmarch devaluation (like, for example, encouraging banks to pay people to carry credit card balances through negative interest rate policy or encouraging no-doc/no-credit check loans of all kin…

People also don’t realize that moderate inflation is a good thing. You want a gentle inbuilt mechanism to encourage consumption. And we have good tools to combat inflation whereas we don’t really have any tools to combat deflation. There’s a reason nobody spends Bitcoin and it’s mostly not about fees or block size.

> People also don’t realize that moderate inflation is a good thing.

Price stability is a good thing, and moderate deflation (which discourages productive investment) is worse than moderate inflation, so policy targeting moderate inflation is a good thing. This isn’t because moderate inflation is a good thing in and of itself, its because you can’t perfectly target price level outcomes with policy, so you want to bias missing on the less harmful side.

> You want a gentle inbuilt mechanism to encourage consumption.

The utility of consumption encourages consumption. To the extent that inflation is good its more as gentle inbuilt mechanism to discourage nonproductive saving of cash in favor of productive investment.

> There’s a reason nobody spends Bitcoin

Right. You definitely don’t want deflation, which encourages hoarding currency that is surplus to immediate consumption desires and thereby sucks money out of productive investment.

Re: The Bit Short: Inside Crypto’s Doomsday Machine

#166

Post by cryptoanonymous »

csomar wrote: post #50

I'd be very careful to take advice from this guy. 1. He's definitively bad at investing. He doesn't have an investment strategy, and probably never heard of portfolio re-balancing. 2. He got in lucky and made some good returns. Now he thinks he is a genius because of that, and as a result can predict the next market move. 3. He didn't do good market research. For example, most of the volume in USDT is faked by the ex…

Hi, I'm the author.

> He doesn't have an investment strategy, and probably never heard of portfolio re-balancing.

This is perhaps a reasonable inference to draw based only on the information in the article, but it is incorrect. Without going into too much detail, the missing context is that I have effective long exposure to certain markets through my ownership of founder stock in a startup that operates in those markets. And while I place a high expectation value on that stock, it's also illiquid and can't be easily hedged. For reasons I didn't go into in the piece, I believed Bitcoin would also serve as a partial hedge for that market exposure, which justified a higher allocation than one might naively expect.

(I'll also observe that portfolio rebalancing isn't the right decision in all situations. Startup founders rationally concentrate their net worths into their companies, which is justified by their overwhelming informational advantage.)

> He got in lucky and made some good returns. Now he thinks he is a genius because of that, and as a result can predict the next market move.

I agree with the first sentence. I would strongly dispute the second. It's precisely because I don't think I can predict what will happen next that I've zeroed my exposure to this entire ecosystem.

> He didn't do good market research. For example, most of the volume in USDT is faked by the exchanges. Coinbase, GBTC, and CME each one of these is are probably bigger than USDT in size and volume. Unregulated derivatives are an alternative to USDT for more sophisticated traders and they are also huge.

I'm aware of these claims — there are rumors of wash trading by the big unbanked exchanges that I consider quite credible. I didn't include those in the piece because I wasn't able to find confirmatory evidence in the time I'd allocated to research it. I would be extremely interested if you could share any evidence you may have collected about these claims.

Re: The Bit Short: Inside Crypto’s Doomsday Machine

#167

Post by cameldrv »

jcfrei wrote: post #154
qeternity wrote: post #123

Earlier quoted context omitted.

No, it doesn’t. In fact it’s exactly what you’d expect if Tether is fraudulent. Stablecoins are a great way to transact in dollars that you otherwise wouldn’t be able to, for instance the proceeds of illegal activity. The author notes the exact mechanism: print USDT, buy BTC on sham exchanges, send BTC to Coinbase, sell for USDC. You would expect them to increase in lock step if this is happening. If it were legitima…

> print USDT, buy BTC on sham exchanges, send BTC to Coinbase, sell for USDC. The steps you described don't result in new USDC being minted. That happens only when people send dollars to Coinbase and change them to USDC. > If it were legitimate flows, you would actually expect USDC to far outpace USDT given the much greater ease of conversion and trust in the sponsors. No, USDT has been around for a lot longer and lo…

I think it does. People send USD to Coinbase to buy Bitcoin. Coinbase maintains the stable value of USDC by creating new USDC and selling it to people for BTC. The cash to back USDC comes from people depositing USD to buy BTC.

You can think of it virtually as three balanced flows:

USD -> USDC -> BTC (Retail BTC Investors)

BTC -> USDC (Tether refugees)

USDC -> USD (Coinbase)

Re: The Bit Short: Inside Crypto’s Doomsday Machine

#169

Post by qeternity »

jcfrei wrote: post #154
qeternity wrote: post #123

Earlier quoted context omitted.

No, it doesn’t. In fact it’s exactly what you’d expect if Tether is fraudulent. Stablecoins are a great way to transact in dollars that you otherwise wouldn’t be able to, for instance the proceeds of illegal activity. The author notes the exact mechanism: print USDT, buy BTC on sham exchanges, send BTC to Coinbase, sell for USDC. You would expect them to increase in lock step if this is happening. If it were legitima…

> print USDT, buy BTC on sham exchanges, send BTC to Coinbase, sell for USDC. The steps you described don't result in new USDC being minted. That happens only when people send dollars to Coinbase and change them to USDC. > If it were legitimate flows, you would actually expect USDC to far outpace USDT given the much greater ease of conversion and trust in the sponsors. No, USDT has been around for a lot longer and lo…

I should have added an implicit step: sell for USD, convert to USDC. It’s a lot easier to launder and move illicit USDC funds than it is USD.

Re: The Bit Short: Inside Crypto’s Doomsday Machine

#170

Post by SilasX »

dragonwriter wrote: post #163
SilasX wrote: post #149

Earlier quoted context omitted.

Yep, the new money has flowed into capital assets rather than consumption goods. But inflated, prices have. It would be like saying there’s no inflation because milk prices are steady, ignoring that cows cost three times as much.

> Yep, the new money has flowed into capital assets rather than consumption goods. Yes, because the wealth has flowed to people who primarily relate to the economy as capitalists, rather than laborer/consumers. > It would be like saying there’s no inflation because milk prices are steady, ignoring that cows cost three times as much. So, it would be true, for the purpose for which we have and measure general inflation…

Depends on who the “we” is there. Certain agencies don’t care that new money is flowing into capital assets but probably should care.
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