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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

#231

Post by ForHackernews »

ric2b wrote: post #216
ForHackernews wrote: post #113

Earlier quoted context omitted.

This is only relevant because if the price of BTC drops below this, many miners may shut down their hardware. The amount of money & electricty wasted to generate a BTC is otherwise unrelated to the price of BTC in dollars or other assets.

> The amount of money & electricty wasted to generate a BTC is otherwise unrelated to the price of BTC in dollars or other assets. Isn't it _directly_ related? If I'm a miner and the BTC I'm mining doubles in value I can afford to spend 2x as much money on hardware/energy and still make a profit.

You've reversed the directionality: price drives mining activity, but mining activity doesn't determine the price. Miners spending more on hardware & energy won't produce more bitcoins (it just means the difficulty will increase and more CO2 will be released).

I'm saying the fact that you have to waste $10,000 worth of electricity calculating redundant hashes in order to make a bitcoin doesn't mean that bitcoin somehow contains $10k worth of "value" or that the cost of production sets a floor on the price.

People sometimes get confused about this, perhaps reasoning by way of analogy with real-world goods that will (typically) never be sold for less than the cost of their inputs, or they imagine some computerized form of the labor theory of value applies[0], but this is not true. The only factors determining the price of bitcoin are supply (fixed) and demand (driven by speculation).

[0] https://en.wikipedia.org/wiki/Labor_theory_of_value

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

#232

Post by nmlnn »

leppr wrote: post #26
nmlnn wrote: post #22

Earlier quoted context omitted.

If people want to short bitcoin or tether, they should do so. However, I don't really get all the internet whining. If they're right they'll make a lot of money. I don't buy these concerned citizen FUD posts though, they reek of manipulation. If there's one thing I've learned over the last 25 years it's.. don't trust random people on the internet.

Taking a position and then publicizing the position and the thesis behind it is standard procedure everywhere in finance. It's a way of accelerating pricing-in of the information. You can indeed just short an artificially inflated asset, but if the sham is only revealed long after you're insolvent, you lose your money. BTW, your bull case for Bitcoin wasn't built from trusting random people on the internet?

Nope, that's why I'm so confident. The entire point of Bitcoin is to remove the need for trust and replace it with network consensus rules and proof-of-work, both of which you validate yourself. Since, to me, that's far superior to the current system - I just see it as an inevitable transition.

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

#234

Post by wcoenen »

ad31mar wrote: post #187
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…

> In the real world, over the full year of 2020 inflation was 1.4% in the US (food costs went up a bit more, energy costs went down). Are you sure about that? https://chapwoodindex.com

The Chapwood index looks a bit weird. It's based on only 500 items (compare to CPI which uses 94,000 according to [1]). And those 500 items[2] include things like "cat grooming", "horseback riding lessons" and "first class airfare" (but not economy class airfare?). Tennis is apparently very important because there's "tennis lessons", "tennis racquet" and "tennis ball" in there separately. Something similar is going on for golf: we find "golf shoe", "round of golf" and "golf lessons". I could not find information on how these items are weighted.

[1] https://www.bls.gov/opub/hom/cpi/pdf/cpi.pdf

[2] https://chapwoodindex.com/chapwood-index-items/

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

#235

Post by owenversteeg »

thorwasdfasdf wrote: post #213
owenversteeg wrote: post #207

Earlier quoted context omitted.

Sorry, but this comment is wrong on every level. First: that is very much not how prices work. If everyone else stayed on the sidelines and did not sell or buy any Bitcoin, the price could be set by two people - one buyer and one seller. Second: you have no way to know who bought BTC. You can get a guess from various media, but you can never truly know. Large amounts of Bitcoin frequently change hands in entirely pri…

What you're saying is only partially correct. Imagine if everyone stayed on the sidelines and did not sell any bitcoin (the HODLRS), as the number of sellers continues to diminish more and more and more, this puts upward pressure on bitcoin as the percentage of buyers outnumber the selllers more and more. It's like trying to buy a house in the bay area. there's very few people who can afford to buy a bay area house b…

No, what I said was entirely correct. I did not say "if everyone did not sell any Bitcoin", I said "if everyone did not sell or buy any Bitcoin".

I'd also like to point out that you do not need to own Bitcoin to sell Bitcoin. If you believe the price of Bitcoin will be lower in the future, you can borrow Bitcoin and sell it now, also know as "selling short", or "shorting". You can, of course, also borrow Bitcoin and not sell it.

I would also like to mention - if you truly believe that you can forecast future prices based on the psychology of recent buyers, you can make lots of money. There are a number of regulated markets where the buyers (or at least a decent portion of them) -are- known, so if you feel that you can do this, be my guest and become the next Warren Buffett.

Finally, Bitcoin is entirely unlike Bay Area property. You cannot generate Bay Area property out of thin air using computers, there are no schemes being investigated for printing billions of fake dollars to buy up Bay Area property, and it is far less liquid than Bitcoin. The price of Bay Area property also does not double in a month.

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

#236

Post by SilasX »

dragonwriter wrote: post #228
SilasX wrote: post #185

Earlier quoted context omitted.

That was the purpose of comparing to cows and milk. For all the same reasons you should worry about cows being expensive (even if milk is still cheap), you should worry about real estate being expensive (even if rents are low). In the case of a household, those mean that you can't take some of your production, and save it for the future in capital goods -- the same kind of thing that happens when more of your income…

> For all the same reasons you should worry about cows being expensive (even if milk is still cheap), you should worry about real estate being expensive (even if rents are low). I would argue that the only reason you should consider cows being an expensive an issue if milk is cheap is in regard to it making some other bovine product expensive; cows aren’t important in and of themselves, but as instrumentalities in th…

>No, asset inflation absolutely does not mean that. Increasing the minimum buy in for asset investments would do that, but we’ve got mature enough financial markets that a general increase in asset prices doesn’t increase the minimum needed to enter productive investments.

Yes, "can't", taken literally (and uncharitably), is incorrect. I was exaggerating. The point is it becomes much more difficult with lower yields, just as it becomes so with cows. To produce the same X units of milk tomorrow, you have to save more milk now (to buy the cow) -- the same effect as if you had less to save due to your consumption goods being more expensive.

So, no, "mature financial markets" don't really solve this.

>No, it doesn’t; driving money into productive investments and out of cash (which, as an expected side effect, produces asset price inflation) is part of the mechanism by which loose monetary policy is expected to stimulate economic activity. Asset price inflation does not indicate that that is not working, it is what you expect if it is working.

Money going into productive investments is only good if it also translates into productive economic activity. You can't just say, "we gave it the old college try, so that's a win". We're seeing P/E ratios go up (earnings yields down), which means that the higher asset prices aren't translating into that productive use of assets. And even by your own standard, the flows into gold, bitcoin, and idle real estate indicate a failure.

>What would indicate that it is not working is if output figures did not exceed what was expected without the policy.

So, non-falsifiable, then.

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

#237

Post by mac01021 »

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 may not have gone up, but it sure seems like the prices of a lot of corporate stocks are pretty inflated...

I don't know if that is related to a change in money supply.

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

#238

Post by owenversteeg »

thorwasdfasdf wrote: post #220
dpiers wrote: post #215

Earlier quoted context omitted.

There are issues with almost every assertion and conclusion in this post, but I will limit my critique to the idea that the downward movement of BTC is capped at the % of BTC people are willing to sell. It's simply not true. The spot price of BTC is a function of what people are currently willing to pay and what people are willing to accept. If the primary source of demand and liquidity in the BTC trading markets col…

Ok, you make a good point about the possibility of collapsing demand. but, even after tether collapses, as long as bitcoin has sufficient buying demand, then there's no problem. (assuming there's a fixed set of HODLRS). As bitcoin sells off, the number of sellers decreases, correct? Assume on a given day, 10K buyers and 10k sellers. As the number of sellers decreases, the ratio of buyers to sellers increases, correct…

Ah, I see. Your problem is a fundamental lack of understanding of financial markets. I'd recommend Investopedia as an easy way to get into understanding things.

First of all, in financial markets there is almost never a "fixed number" of buyers for anything, and especially not for something like Bitcoin. If you want to see something with (as good as you can get) to a fixed number of buyers, look at uranium. It's almost entirely used as fuel for nuclear reactors, which take years to build and to be shut down, so not only is the demand very stable, the future demand (for the next few years) can be pretty easily predicted. You'll be surprised to see that yes, sharp price drops can occur, even in such conditions.

Next, of course, the market of sellers for Bitcoin, "HODLR" or not, certainly does not behave how you imagine. Some sellers are forced to exit large Bitcoin positions every day, with reasons ranging from tax liabilities not payable in Bitcoin, businesses that accept Bitcoin that do not wish to maintain a Bitcoin position, divorces, governments that seize Bitcoin, etc etc. Then of course you have people exiting Bitcoin because they're people and life happens: their partner told them Bitcoin was stupid, or their government added rules to holding Bitcoin that scare them, or they read that a shady entity was printing billions of fake dollars to buy Bitcoin, or they bought in years ago and wow, they can buy a car with the profit! or they bought in yesterday and the drop in price spooked them.

None of this is to say anything about the price of Bitcoin or if you should buy Bitcoin - I'm just saying that your _reasons_ are deeply flawed.

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

#239

Post by drusklo »

TomSwirly wrote: post #209
qeternity wrote: post #118

Earlier quoted context omitted.

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.

> You want a gentle inbuilt mechanism to encourage consumption. This kills the planet.

This kills the environment, planet doesn't care, after we are gone, it starts over

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

#240

Post by wcoenen »

soneca wrote: post #68
BelenusMordred wrote: post #54

Earlier quoted context omitted.

Why on Earth would $100 billion worth of Tether rushing for a conversion into anything else drag _down_ the price of BTC? Or any other coin for that matter? Have you actually sat down and thought about this, even if 99% waited and cashed out over weeks, that 1% is still a huge injection into the ecosystem. People have been shown time and time again that the money is there, the peg can hold, the underlying company is…

> ” you can hold a bitcoin future going short for the next year less than a coffee per / $1k” Genuinely curious about how could I do that. I am not that much into cryptocurrencies, so I appreciate if you have the time and will to be specific in the operationals. I do have a (currently empty) account at Kraken, if that helps. How can I short BTC?

Kraken has margin trading, which allows you to hold negative positions in BTC. However, this means you are borrowing the BTC that you're selling, and the interest on that is rather high (0.01% per 4 hours). You also need to keep EUR or USD as collateral in the account to cover potential losses when the price goes up.
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