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Professional Traders Show Interest in Bitcoin

reuters.com

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Re: Professional Traders Show Interest in Bitcoin

#51

Post by alexmat »

lwat wrote: post #29
3pt14159 wrote: post #18

Earlier quoted context omitted.

It isn't a majority attack. Infact, today, it would probably be cheaper since bitcoins are a third of what they were when I found it. All you need to do is crash the market and buy put options against it, you don't need to create nonvalid transactions.

Who exactly will sell me put options on BTC?

Producers and merchants trying to hedge their cash flow.

It would actually be very useful to have a liquid options market to help producers and merchants overcome the current volatility.

Re: Professional Traders Show Interest in Bitcoin

#52

Post by jarek »

qixxiq wrote: post #50
jarek wrote: post #38

Earlier quoted context omitted.

> But you're also ignoring another useful characteristic of bitcoin: coins cannot be counterfeited, unlike any other currency. They are crytographically ensured. That's not a useful feature for me. Receiving counterfeit currency is very low on my list of concerns in life. It is a useful feature for governments, who would no longer need to ensure its currency isn't being counterfeited, but governments don't like this…

Counterfeit currency is only low on your list because the governments are working hard to prevent it. If it was possible to print notes that could not be easily detected as counterfeit -- millions would be printed and it would devalue the entire currency.

It's possible to print notes not easily detected as counterfeit in the field with a lot of today's currencies. It's not very practical on a large scale in the long term because the government is intent on preventing introduction of meaningfully large amounts of fakes and has teams tracking these bills.

So bitcoin can't be devalued by "printing" fake "bills." That's a good prerequisite, but it's not a practical improvement for me over the current currencies.

Re: Professional Traders Show Interest in Bitcoin

#53

Post by keen »

javert wrote: post #6
keen wrote: post #3

Earlier quoted context omitted.

Agreed. It will be interesting to see what happens at the end of this year when the block reward halves.

What do you expect to happen? What are the possibilities?

I don't really have any expectations; there are so many variables to consider.

My guess, however, is that the price will be more stable, given that the effect of any bad news won't be so amplified by the minting of new coins. Currently, the supply of coins is growing rapidly (just over 30% per annum). After the block reward halves, that rate will be below 13% per annum.

As others have mentioned, I'm also curious to see how the halve will affect the network's hashing rate (and therefore, security).

Re: Professional Traders Show Interest in Bitcoin

#54

Post by keen »

3pt14159 wrote: post #16
sgornick wrote: post #12

Earlier quoted context omitted.

Care to describe further this attack vector? A 50% + 1 attack is about in the $10+ million range, but still doesn't "override the code".

You don't need majority. And the attack isn't about stealing money, its about taking down the system and making people lose faith in it. Remember: to make money all you need is some unlikely put options and for knowledge of market instability.

It sounds like you're talking about market manipulation.

So, please enlighten us: how is Bitcoin "mathematically flawed"?

Re: Professional Traders Show Interest in Bitcoin

#55

Post by jerguismi »

nandemo wrote: post #20
gfodor wrote: post #5

It would be interesting to hear a real quants take on the utility of having bitcoin as a (small) asset class in your portfolio. How much correlation does bitcoin have to any other asset class? I'd wager very, very little, making it a strong candidate for diversification. That said, it's overall volatility might offset the reduced expected volatility you'd see in your portfolio by holding some.

I'm not a quant, but you also have to consider the operational and regulatory risk of dealing in bitcoins. The people who are currently trading bitcoins don't necessarily have to follow the same regulations that banks and trading houses do. Also, consider that over 80% of the foreign exchange market is accounted by 6 currencies or so: US dollar, yen, euro, British pound, Swiss franc and Australian dollar. Traders bar…

> even though these currencies are much more likely than bitcoin to be around in 5 years.

How so? As bitcoin is a p2p network, it is likely to be around whatever happens. The only thing that could happen would be that internet breaks down - pretty unlikely, I think. Even when internet breaks in several pieces, each "local internet" will just use their own bitcoin - the block chain will be split in to several. After the two "local internets merge", the blockchain which has more computation behind it, will win.

In discussion, you should separate two things a) bitcoin's economic value/utility b) bitcoin network itself. I'm pretty sure that bitcoin itself will be here about forever, however it is pretty unclear if anyone will use it.

Re: Professional Traders Show Interest in Bitcoin

#56

Post by apowers »

jakejake wrote: post #49
Animus7 wrote: post #46

Earlier quoted context omitted.

Mining is peculiar in that is serves multiple goals. On the one hand, it solves the problem of seeding the network with coins. Otherwise, how could you kick this off in a fair way? Secondly, mining "solidifies" transaction blocks, which acts as transaction verification for the network. Mining basically acts as prevention of "double spending" of coins. Finally, mining keeps the money supply scarce (necessary for any c…

thanks for the info, i guess i was wondering if all the computational power was being used for some purpose like the SETI project. It sounds like at least part of it is used for maintaining the bitcoin network itself.

To answer that question, none of the computing power is used towards anything but verifying transactions and - the real work here - solving hashes to generate more bitcoins.

There's plenty of discussion on what this cloud-supercomputer could be doing in addition to its current task. Problem is, the nature of mining introduces several limits on the types of computational problems miners try to crack.

https://bitcointalk.org/index.php?topic=203.msg3669#msg3669

Here's a post describing the qualities a bitcoin-appropriate computational problem would have.

Re: Professional Traders Show Interest in Bitcoin

#57

Post by morsch »

jerguismi wrote: post #55
nandemo wrote: post #20

Earlier quoted context omitted.

I'm not a quant, but you also have to consider the operational and regulatory risk of dealing in bitcoins. The people who are currently trading bitcoins don't necessarily have to follow the same regulations that banks and trading houses do. Also, consider that over 80% of the foreign exchange market is accounted by 6 currencies or so: US dollar, yen, euro, British pound, Swiss franc and Australian dollar. Traders bar…

> even though these currencies are much more likely than bitcoin to be around in 5 years. How so? As bitcoin is a p2p network, it is likely to be around whatever happens. The only thing that could happen would be that internet breaks down - pretty unlikely, I think. Even when internet breaks in several pieces, each "local internet" will just use their own bitcoin - the block chain will be split in to several. After t…

BTC will be around but a fluid market for BTCUSD or BTCEUR -- ie. a plentiful amount of people interested in buying or selling bitcoin for other currencies -- won't necessarily be.

Re: Professional Traders Show Interest in Bitcoin

#58

Post by jerguismi »

jarek wrote: post #52
qixxiq wrote: post #50

Earlier quoted context omitted.

Counterfeit currency is only low on your list because the governments are working hard to prevent it. If it was possible to print notes that could not be easily detected as counterfeit -- millions would be printed and it would devalue the entire currency.

It's possible to print notes not easily detected as counterfeit in the field with a lot of today's currencies. It's not very practical on a large scale in the long term because the government is intent on preventing introduction of meaningfully large amounts of fakes and has teams tracking these bills. So bitcoin can't be devalued by "printing" fake "bills." That's a good prerequisite, but it's not a practical improv…

> So bitcoin can't be devalued by "printing" fake "bills." That's a good prerequisite, but it's not a practical improvement for me over the current currencies.

Well, the value in bitcoin is that it can't be printed by anyone, even the goverments, uncontrollably - there will be only specific amount at max in circulation at specific time.

This might not be valuable to you, but it certainly will be for many else. Many people don't like the thing that goverments keep devaluing their fiat currencies.

Re: Professional Traders Show Interest in Bitcoin

#59

Post by JumpCrisscross »

gfodor wrote: post #5

It would be interesting to hear a real quants take on the utility of having bitcoin as a (small) asset class in your portfolio. How much correlation does bitcoin have to any other asset class? I'd wager very, very little, making it a strong candidate for diversification. That said, it's overall volatility might offset the reduced expected volatility you'd see in your portfolio by holding some.

I was a quant prop derivatives trader at an investment bank.

The correlation between MtGox/USD [1] and GLD daily returns over 12 April 2011 - 30 March 2012 is 0.02; a linear regression produces a 0.151 beta (GLD daily returns independent) with a coefficient of determination of 0.0004. GLD had a period return of 14% with an average daily return (standard deviation) of 1.4% (0.1 percentage points); MtGox/USD had 531% with 10.2% (1.3 percentage points). It thus seems like it could have a place in a portfolio above (in terms of risk) small cap and emerging market stocks (on your worst day in GLD you lost 5.5%; in MtGox/USD 35.8%. Also, GLD delivered 2.7 times the return per unit of risk). Methodology note: since MtGox trades every day and GLD only on trading days, I used closing prices for trading days.

Bitcoin takes the monetary system back essentially a hundred years. We know how to beat that system. In fact, we know how to nuke it for profit. Bitcoin is volatile, inherently deflationary and has no lender of last resort. Cornering and squeezing would work well - they use mass in a finite trading space. Modern predatory algos like bandsaw (testing markets by raising and suddenly dropping prices), sharktooth (electronically front-running orders), and band-burst (creating self-perpetuating volatile equilibria in a leverage-sensitive trading space, e.g. an inherently deflationary one), would rapidly wreak havoc. There is also a part of me that figures regulators will turn a blind eye to Bitcoin shenanigans.

[1] http://bitcoincharts.com/charts/mtgoxUSD#rg60ztgSzm1g10zm2g2...

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