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Professional Traders Show Interest in Bitcoin

reuters.com

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Re: Professional Traders Show Interest in Bitcoin

#71

Post by wmf »

_k wrote: post #70

Two questions: 1. When a country limits capital flow, it sometimes becomes impossible to move your money out of that country. Doesn't Bitcoin solve that problem? 2. I have very little knowledge about how it actually works and how secure it is. How secure is Bitcoin ? Are governments via ISPs able to recognize packets that contain Bitcoins ? Or do you need to use ssh ?

OK, so you want to give cash to some guy who will give you Bitcoins in exchange. But then he's stuck with cash that he can't move out of the country, so he has to charge very high fees if he's willing to deal at all.

Re: Professional Traders Show Interest in Bitcoin

#72

Post by wmf »

Animus7 wrote: post #48
skylan_q wrote: post #23

Earlier quoted context omitted.

"If the rewards go down over time, eventually it won't be profitable to mine bitcoin." Yes. The idea is the following: If the amount that can be mined per unit of computation is decreased, then fewer will be created. And if there are less of them being created and more of them demanded, then their value increases. So this balances out. Also, computational power gets cheaper with the passage of time. The largest cavea…

I detect confusion here, and I'd recommend you take some time on the bitcoin wiki to clarify: > "If the rewards go down over time, eventually it won't be profitable to mine bitcoin." > Yes. No. Because the other part of mining is that you get transaction fees for it. Mining isn't a luxury, it's necessary for the network to function (otherwise double-spending isn't prevented). So as time goes on and less coins can be…

I haven't seen any evidence that transaction fees will increase. It looks more likely that both block rewards and transaction fees will approach zero, mining will become unprofitable for everyone, and then difficulty will drop.

Re: Professional Traders Show Interest in Bitcoin

#73

Post by Anderkent »

politician wrote: post #67
stevenwagner wrote: post #39

Earlier quoted context omitted.

There is no requirement for any number of coins to be in the system. The amounts are infinitely divisible. You could start the economy with 1 bitcoin, and break it into 7 billion fractions for everyone to share..and if all those are lost, you could do the same with the last 1 bitcoin again.

> There is no requirement for any number of coins to be in the system. The math works out such that there are a precise number of bitcoins in the system, ~21M IIRC. > The amounts are infinitely divisible. 8 decimal places. Is that alot? Yes, but my point was that the current system is leaky. The rate of leakage may not be too bad now, but as the adoption rate goes up more careless nontechnical folks will get involved…

>8 decimal places

This is a client-specific value, and not a necessary property of the protocol. They can become arbitrarily divisible by simply modifying the client code.

Of course new clients will not be compatible with old clients.

Re: Professional Traders Show Interest in Bitcoin

#74

Post by MrMan »

MrMan wrote: post #68
JumpCrisscross wrote: post #59

Earlier quoted context omitted.

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% w…

/bitcoin let's move on to something else

No - seriously - bitcoin has nothing to recommend it! How many times must people who know what they are talking about poke holes in the bitcoin fantasy? Why are self-identified "tech" people clinging to bitcoin? If one is really hell-bent on designing an alternative currency learn from the problems that bitcoin has, and move on to something else. Ignoring the analyses offered by experienced traders, economists, and their like will result in more bitcoin-related mishaps.

Re: Professional Traders Show Interest in Bitcoin

#75

Post by Estragon »

JumpCrisscross wrote: post #59
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% w…

Your post raises a couple of questions for me:

1) If you know how to nuke the bitcoin system for profit, are you doing so? It's not clear to me that you personally would be able to corner and squeeze as easily as you think, because I believe most bitcoins are held by a small group of people with a long term interest in a viable bitcoin economy.

2) HFT is usually justified by its practitioners as improving the stability and liquidity of the market, but here you characterize it as a fundamentally predatory tool if applied to bitcoin. What do you think about it in general?

Re: Professional Traders Show Interest in Bitcoin

#76

Post by cube13 »

Estragon wrote: post #75
JumpCrisscross wrote: post #59

Earlier quoted context omitted.

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% w…

Your post raises a couple of questions for me: 1) If you know how to nuke the bitcoin system for profit, are you doing so? It's not clear to me that you personally would be able to corner and squeeze as easily as you think, because I believe most bitcoins are held by a small group of people with a long term interest in a viable bitcoin economy. 2) HFT is usually justified by its practitioners as improving the stabili…

Re: 1:

That actually makes the actions of a serious predatory trader even more dangerous, since the total pool of available bitcoins is smaller due to the number of people just sitting on their bitcoins. In fact, it could be worse, especially if the trader causes the market to drop, which could make the investors bail out of the market, lowering the price of bitcoins even further. The trader then buys up the bitcoins for a song and a dance.

Now, if people weren't hoarding bitcoins, it would be much less of a problem. If the majority of the currency was liquid and actually flowing, it's much harder to corner the market on it.

Re: 2:

This isn't necessarily HFT-specific. HFT is constrained by a lot of rules-both regulatory and exchange-specific-that attempt to stop this kind of damage(for example, NASDAQ has the right to void any trade chain that takes place if they deem it necessary), as well as a massive amount of competition from other players in the market. With Bitcoins, there aren't any of these rules, either on the exchange level or regulatory. There is not anything to stop a trader, either using HFT algorithms or just manually executing the trades, from applying these techniques.

Re: Professional Traders Show Interest in Bitcoin

#77

Post by kylebrown »

MrMan wrote: post #74
MrMan wrote: post #68

Earlier quoted context omitted.

/bitcoin let's move on to something else

No - seriously - bitcoin has nothing to recommend it! How many times must people who know what they are talking about poke holes in the bitcoin fantasy? Why are self-identified "tech" people clinging to bitcoin? If one is really hell-bent on designing an alternative currency learn from the problems that bitcoin has, and move on to something else. Ignoring the analyses offered by experienced traders, economists, and t…

There's no other decentralized e-currency. This means bitcoin is the only electronic payments and storage system where your funds are not subject to seizure by a central authority. You won't wake up one day and find your account frozen (cf paypal, bitcoins are safe in the blockchain as long as you have your wallet) or be totally helpless if the domain name of some fly-by-night startup goes down (cf e-gold, bitcoins are safe as long as there are nodes in the network).

As for the economic critiques, of course bitcoins are no panacea. These critiques are relevant to any market; the punchline of the article was even "I'd say the same about the Euro"

Re: Professional Traders Show Interest in Bitcoin

#78

Post by lordgilman »

ewillbefull wrote: post #22
unimpressive wrote: post #17

Earlier quoted context omitted.

The cost of such attacks will go down as bitcoin ages. As I understand it the bitcoin rewards of mining go down over time. If the rewards go down over time, eventually it won't be profitable to mine bitcoin. So the speed of transactions goes down and the network becomes weaker because theres less cooperating computer time on it. Maybe I just don't get bitcoin. But if true that seems like a fundamental problem.

Block rewards are not the only way to earn from mining bitcoins. You also earn transaction fees of processed transactions. As block rewards dissipate, transaction fees will naturally increase to compensate.

Fees won't naturally increase. If I can mine profitably at the minimum amount of transactions enforced by the protocol I'll raise the difficulty as I bring on more miners and squeeze out people relying on transactions to profit. Eventually someone will come along who does mining as a loss leader (a bank?) and will offer transaction fee-less transactions to customers which will squeeze out the last of the profitable miners. Competition will only push the mining profit lower and lower.

Alternatively, a really busy Bitcoin network will be limited by the maximum block size and people will pay for priority inclusion in a block. However, this limitation is totally artificial and doesn't scale with the increasing amounts of bandwidth and disk space available. Miners have an incentive to "suck up" to Bitcoin users - without them their mining has no point. If the Bitcoin users demand bigger block sizes so they don't have to pay transaction fees I think miners will have to take the partial hit from bigger blocks rather than the total hit of lack of blockchain use.

Re: Professional Traders Show Interest in Bitcoin

#79

Post by soup10 »

ewillbefull wrote: post #25
soup10 wrote: post #15

Bitcoin has several huge flaws that make it just a toy. The first is that it is insecure. As seen by the constant incidents of stolen and lost bitcoin's. Physical currency is much more secure than a string of bits sitting on a hard drive, the solution to this is having bitcoin banks that assume responsibility for the bits, but that defeats the purpose. The second is that it's much less convenient than cash. The third…

I don't know if this is a troll post, but I'll humor it anyway. > The first is that it is insecure. As seen by the constant incidents of stolen and lost bitcoin's. If this is the standard by which you deem a currency insecure, you may want to be more specific. Physical goods are also susceptible to theft. > Physical currency is much more secure than a string of bits sitting on a hard drive This isn't really substanti…

> If this is the standard by which you deem a currency insecure, you may want to be more specific. Physical goods are also susceptible to theft.

Theft and loss of bitcoin is much much more common than theft and loss of any normal currency. Insecure.

Bitcoins are data, and data is very easily lost. What if the hard drive with your wallet on it fails? When a hard drive fails at a bank your money is still secure. Storing bitcoin on a home computer is not even close to as secure as storing money in a bank.

>Cash is much less convenient than digital transactions. Have you heard of a credit card? Cash is only useful for anonymity.

Bitcoin is much less convenient than cash and credit cards. Nobody accepts bitcoin as payment. And as far as I know there is no existing way to link a bitcoin account with a credit card. I'm not saying the flaws are unfixable just that they are huge flaws with bitcoin. I'm criticizing bitcoin for what it is, not what it could be.

>The currency incentivizes its own operation, yes, but this is not even close to a ponzi scheme -- you should look that term up. The technology does not distinguish early adopters from other participants.

The bitcoin distribution system is a big problem. Whatever you call it, it is an unfair and unstable system where early adopters profit when more people adopt the currency, and late adopters end up holding a risky asset with unstable value. Without a backing authority stabilizing the price, alternative currencies are just toys and far too risky for normal people to get involved in.

Re: Professional Traders Show Interest in Bitcoin

#80

Post by ewillbefull »

soup10 wrote: post #79
ewillbefull wrote: post #25

Earlier quoted context omitted.

I don't know if this is a troll post, but I'll humor it anyway. > The first is that it is insecure. As seen by the constant incidents of stolen and lost bitcoin's. If this is the standard by which you deem a currency insecure, you may want to be more specific. Physical goods are also susceptible to theft. > Physical currency is much more secure than a string of bits sitting on a hard drive This isn't really substanti…

> If this is the standard by which you deem a currency insecure, you may want to be more specific. Physical goods are also susceptible to theft. Theft and loss of bitcoin is much much more common than theft and loss of any normal currency. Insecure. Bitcoins are data, and data is very easily lost. What if the hard drive with your wallet on it fails? When a hard drive fails at a bank your money is still secure. Storin…

> Theft and loss of bitcoin is much much more common than theft and loss of any normal currency. Insecure.

That's a pretty big conclusion to jump to. People using the currency have more of a burden to protect their bitcoins from hackers, I'll admit, but it is not fair to blanket describe the currency as insecure because of the practices of some lousy companies.

> Bitcoins are data, and data is very easily lost. What if the hard drive with your wallet on it fails?

Did you read about "paper wallets" like I mentioned? It's not a problem for most people, but if it's a problem for you, there are ways to avoid it.

> Bitcoin is much less convenient than cash and credit cards. Nobody accepts bitcoin as payment.

Is this really your argument against bitcoin individually? What you described applies to pretty much any currency in its infancy. Either way, my defense of bitcoin's convenience is of the mechanisms of exchanging them, not something as arbitrary as acceptance. You seem to be clasping to straws.

> The bitcoin distribution system is a big problem. Whatever you call it, it is an unfair and unstable system where early adopters profit when more people adopt the currency, and late adopters end up holding a risky asset with unstable value.

Hilarious. Can you give me one reason your last sentence didn't just describe an investment? Do you realize any other stock, commodity or currency will also naturally favor early adopters, because they can buy something when it's low and sell when it's high? What drawbacks could there possibly be for a system like that anyway?

I also don't understand what you mean by "bitcoin distribution system", would you like to clarify?

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