It is good hedge only after the excess leverage is squeezed out of it. Saylor and his buddies have been promoting leverage a lot, and now we see the results.
It failed as digital cash (outside of some very limited niches), so they moved the goal post to "store of value." It's failed at that, and at being "digital gold" or an inflation hedge.
It has also failed as a medium for digital assets now that the NFT craze is showing itself to be hollow and is collapsing. It's failed as a medium for decentralized organizations (DAOs) since they've all either been hacked to death or revealed to not actually be decentralized.
Where do they find a new well of hype now?
I still believe that the concept of decentralized cryptocurrency is technically viable, but the entire current cryptocurrency ecosystem would probably have to be burned to the ground for anything honest and well built and not structurally a hyperdeflationary decentralized Ponzi/pyramid scheme to get traction.
Putting aside the questionable idea that it's a hedge, people weren't using that way, they were borrowing money at near zero interest rates and buying it up on margin.
Now the music has stopped and people are scrambling for the exits.
Could this be because of wall street’s increasing investment in crypto? It just seems like every time there’s an investment that offers shelter from a crashing market that becomes accessible to joe investor, it ceases to be a good place to hide.
I keep saying this and recently was told by someone that "during a crash all asset correlations tend to 1". Not sure how much there is behind that, but I'm skeptical: Bitcoin is finally proving more and more to be at worst a scam and at best a far too over-valued currency.
This probably seems trivial, but real hedges, i.e. shorts, puts, credit default swaps, and insurance policies against whatever is crashing, will go up in value during a crash.
1. The crowd that bids up bitcoin and tech stocks do so with leverage.
2. Leverage becomes more expensive with higher rates.
3. The same crowd owns both assets (e.g. Bitcoin and Tesla)
4. Qs are low yield assets with high projected future cashflows. Low rates bring those cash flows to the present, high rates discount them more aggressively. Bitcoin has 0 cash flow, so the effect is worse.
Bitcoin proponents have no financial education. Bitcoin is not a hedge for anything (including inflation). Crypto is a high beta asset with an inelastic supply which makes it even more volatile in periods when everyone wants/needs to liquidate simultaneously.
I can’t even imagine the state of mind that would lead someone to borrow real money in order to buy crypto. I mean that’s Joker on crystal meth level crazy.
Speculative debt fueled bubble enabled by low interest rates. One of many. Higher interest rates drive up the opportunity cost of speculation which pops the bubble. Bitcoin is pure speculation and very liquid so it’ll pop sooner and faster than other investments such as stocks and housing.
As far as I can tell, even gold tends to go down in the early stages of recessions as people use its liquidity to cover losses elsewhere.
The theory was it was "uncorrelated" with traditional assets because the inputs to their price movement (economic performance, monetary and fiscal policy) were in theory isolated from the purely digital asset of BTC.
With hindsight it's pretty easy to see that's false, since the common tie is the same investors investing in both asset classes, with dollars they get from economic performance and monetary and fiscal policy.
OP here - Yes, and they were talking nonsense. You should assume that literally every claim a hodler makes is just marketing. Bitcoin was uncorrelated right up until you need it to be.
When NASDAQ sneezes, bitcoin catches COVID. The sort of tech stock buyer who also gets a bit of crypto will tend to be easily squeezed (because they are the sort of person who buys crypto). So when there's a stock market dip, do they sell their stocks? No, they sell the frivolous crap first.
So NASDAQ goes down 3%, bitcoin goes down 10%.
Mostly though, bitcoin is unregulated, illiquid and tiny. So the main force on the market is internal shenanigans - not outside forces at all. There's a paper to this effect (which I can't find right now), showing that BTC and ETH hardly respond to outside events.
Organisations borrowed fiat cash to keep the crypto show going. This all started to unravel when borrowing costs went up. Many crypto businesses used their coins as collateral for loans, as the market collapses their counterparties force liquidation which forces the price downward which forces even more liquidation. And now we are learning how much leverage went into crypto. It's like the GFC except that (1) it seems [mostly] contained in the crypto world and (2) there will be no government backstop.
Wrt to QQQ this is a combination of inreased borrowing costs makes the ongoing game of share buy-backs more expensive; the increased in treasury yield increases the discount rate which reduces the net present value of future cashflows which reduces valuation; increased inflation greatly reduces value of money in the future; and we are very likely going to enter a recession which will reduce earnings and growth.
The good thing is that the banks have mostly held the line against the traders who wanted to get into it. Some places have some exposure, but almost everyone was pretty skeptical. GFC memory is still in place, thank god.
I believe the thinking behind Bitcoins being a good hedge is that there are some similarities between it and gold. I'm not saying that's true but I believe that's where the idea started from. They're both rare (arguably hard capped at some point) assets that have no (or little) inherent value and their price are based on the value people assign to them.
There are gold critics like Warren Buffet who've argued that gold investing is pointless because, to paraphrase him, "You pay people to dig it out of the ground and refine it and then you pay more people to guard it and let it sit there." Despite critics like Buffet, gold has held its value and often goes up during a downturn. So I can see how Bitcoin proponents might draw the parallels between the two, including the same sort of critics, and thus reasoned if gold works as a hedge then Bitcoin might as well.
There are also some overlap between gold people and Bitcoin proponents, especially in the early days of Bitcoins. My friends who were interested in Bitcoins in the early days were the same types who would buy gold as a store of value. Maybe it's from this early origin that the idea was passed down.
I think the key thing missing is that gold has a few thousand years of cultural inertia behind is since humans have used it as a store of value, show of ostentatious wealth, and cross-jurisdiction medium of exchange for about as long as we have records. It may not still be well-suited to that purpose, making Buffett right on the fundamentals, but it could take centuries for current practices to reconcile with that reality. Bitcoin, on the other hand, has none of that historical advantage working in its favor. It's more like discovering some new kind of volcanic rock that only exists in one place, can't be artificially manufactured, has no industrial applications, and isn't pretty when made into jewelry, but is guaranteed to stay rare, and trying to convince people they should treat it like gold.
If Saylor is forced to liquidate, it could create a lot of pain. Hopefully his cashflows remain stable enough. Of course, we'll see what happens when the next recession hits.
Bitcoin should trade in the 4 digits, greed and manipulation created the crazy 5 digit trading we've seen over the past 4 years. Shake out the scammers and build things. Earn 100k.
There is some value, there are some use cases. Ukraine demonstrated use cases for a variety of crypto assets recently. I used Monero to buy drugs a few months ago, etc.
Bitcoins are a tool to transfer and store value. There are transactions that are more expensive in the traditional banking system. Determine their value and the time they need to stay in Bitcoin, and you know the minimum market capitalization of Bitcoin. On top of that, you have people who want to diversify their investment portfolio. They keep some of their value in Bitcoins and thus reduce the supply of available coins for transactions which increases the market capitalization because you have to transfer the same amount of value with less coins.
> Bitcoins are a tool to transfer and store value.
They're way too volatile to be any useful kind of store of value, as this month's ~33% drop in value has just proven. Nobody wants their stored value to depreciate that quickly and unexpectedly. That's simply not a good store of value — arguably it's not a store of value at all by most definitions.
Hopefully it means more people sober up about the shell game that is crypto, and we get some common sense regulation to stop the proliferation of get rich quick schemes and outright scams.
I don’t think there’s a silver bullet, but common sense regulation should be able to stop things like the Stablegains fiasco, where VCs pay to promote an obviously fraudulent 15% earnings guarantee backed by investing in a Ponzi scheme. Impose disclosure requirements when crypto companies make income promises or something.
And those laws do help. It is harder to commit such schemes due to disclosure laws. Scams like Bernie Madoff's would be more difficult today due to more stringent auditing and reporting requirements that allow regulators to check up on trades and balances in accounts.
Such laws don't really apply to crypto schemes. And they definitely should.
I agree with you - except for the legislation part, government is hardly ever the answer. But you could say the same about the Ponzi scheme of VCs investing in startups that they know make no sense economically except with the hope that they can pawn the companies off to retail investors in the public market.
Thank you! It's incredible how once BTC lost the $20k support, it fell down to the next nice round significant-ish number, ~$19k. The psychology of this seems to be very powerful.
OP here. Per the article, it's not "psychology" - it's a whole lot of borrowing on the defi markets that will automatically be liquidated if the number goes too low. You could actually watch these guys in real time, pumping scarce actual-dollars into the market to pump the price. And then sellers dumping directly into the pump. "Thanks for the exit liquidity!"
I don’t understand why the dumpers need the pumpers’ actual-dollars to dump. I thought, when you sell on an exchange, the exchange is obligated to give you actual-dollars no matter what?
People set up automatic sell orders for when a thing falls below X. And people generally prefer round numbers, for reasons that are not very mysterious.
Maybe something like thresholditis. People would say "If it hits 20K I'll sell" and a set of other people think "If it hits 20K I'll buy" so it fluctuates around 20K...
Would love to know because all instruments behave this way. There's tons of action in S&P 500 options at, say, 3650, but there's no action at 3640 and 3660 even though those strikes technically exist.
Assets don't prefer anything. The people placing orders have a bias for round numbers. Why? For one, it's just human psychology to round. Second, liquidity is good at those levels, amplifying the effect.
That's not the only thing going on here. There was a strong belief amongst the bitcoin faithful that Bitcoin's price could not fall below the peak of the previous bubble (this made no sense, of course, and required selective viewing of the price history to believe in the first place...)
I hope someone at Archive.org saves the Bitcoin, Etherium, DogeCoin and other blockchains. It would be nice to have all of the transactions saved saved somewhere, along with their source code, white papers, and other documents.
[Edit] Are there archives of the various forks of Bitcoin? What about all the "shitcoins"? Unless there's an active effort to save them, the blockchains aren't native to the web, and will get lost to history.
There's 15.000 computers in the Bitcoin swarm right now, and I bet there's many more that have it downloaded that aren't running the client right now. I doubt the blockchain itself needs an archiving effort any time soon.
Somewhere in the back of my brain, a little "someone should save it" bell went off. The rest of my brain went "Ha ha, funny!".... then went on to... hmmm... there's a kernel of truth there, and what about blockchains in general.
This it went from passing snark, not worthy of anything but a rant/downvote, into the thread you see before you.
It's a weird thought to have an archive of a currency. Imagine being able to explore the history of all the tally sticks that were used, then deliberately destroyed in 1834[1]
Less than two years ago Bitcoin traded below $10k. It's a volatile asset so of course it's going to go down as fast as it goes up. This doesn't mean that this is the end of Bitcoin, just that yet another Bitcoin bubble is deflating.
> People have forgotten what unregulated markets are like. They assume a century of pretty good securities regulation, and the orderly markets and general prosperity that flowed from that, are normal — because it’s all they’ve ever known.
> But it’s not normal. It’s a lot of work to regulate a marketplace so that it’s free enough to work and innovate but not collapse, and the crooks are kept at least manageable.
> Crypto is almost entirely unregulated.
Daily reminder that the population at large has enough idiots (hard to quantify, maybe 20%?) and crooks (also maybe 20%?) that the rest of us folks in the middle need to accept regulation because otherwise all the idiots would starve and probably kill us all in desperation while the crooks would destroy everything in their path (look at Putin).
One takeaway I've gotten from cryptocurrency is the sense that money "wants" to misbehave. It "wants" to scam, pump and dump, make bubbles, and especially to gamble.
It's incredibly difficult to get money to do things that are constructive.
Of course money doesn't "want" anything. That's a metaphor. The real driver is human cognitive biases and the dopamine loop. Gambling and scams provide a Skinner box type environment that plugs right into our closed dopamine loop systems. Productive investments often do not. They take too long to mature, are too risky (individually but not necessarily in aggregate), and are too hard. The path of least resistance for economic activity is something like those casino-like loot box games but with markets and pseudo-investments.
Without heavy regulation money will just gamble and scam and gamble and scam. The only way to get it to do anything productive is to systematically block off the other avenues, which is an endless game of whack a mole against both the natural organic tendencies of human beings and the large number of hustlers and sociopaths who love to take advantage of them.
As the USA has demonstrated, this does not require a fully planned economy with a total loss of freedom. It just requires that there be barriers in place to prevent people from advertising casino chips and pyramid schemes as investments, and requiring that such things be gated at the very least by disclaimers that explain what they actually are. The term investment should be reserved for actual investments.
This is actually protecting people from fraud, which is a legitimate function of government in a free society.
Our execution of it has of course been flawed and sloppy, but that's real political systems for you. It's better than nothing. Absolute anarchy is not freedom. It's the rule of the nearest thug with the biggest stick... or the best grift in the case of markets. The "big stick" is a deceptive pitch that hooks your dopamine system and drains you.
Monica from Friends was right. Games are fun because of rules. If I can headbutt you during a game of table tennis, table tennis will never be fun for you.
There's a growing body of work that sees markets as state projects. The same way a game is defined by it's rules, markets are defined by the rules governing them. Without that, you basically have no market. Just crooks separating people from their resources.
There's a lot of interest, and emotion. Lotta people were eager to see "crypto" fulfill promised possibilities and disappointed when it became a re-run of every financial scam in the book. Many points of view to discuss.
I haven't yet seen the "phoenix" take; where the CBDC's are unveiled as the promised nirvana and there's going to be butterflies and unicorns again. I'm sure it is out there.
1. I’m incredibly glad this happened on a Friday night. That gives the actual market 2 days of relaxing before they really have to respond to this.
2. It’s interesting the author is saying the collapse already occurred (60k->20k) but also it will continue to crash. With stocks the company’s actual assets/etc create a price floor, but with Bitcoin the theoretical floor is zero?
3. All eyes on tether, it feels like that may be the final punch for crypto.
I would still be more focused on DeFi and maybe large leveraged positions like Saylor's over Tether, which is ultimately backed by Bitfinex, a highly profitable crypto exchange which is probably still doing decent volumes during this down wave. If Tether does fail it might very well come toward the tail end of crypto price declines, when trading volumes have dried up and the incentive to prop it up is gone.
Bitcoin has only just reached its marginal cost of production. The dynamics of Bitcoin are probably different (it doesn't take years to shut down or spin up a mine), but when they enter bear cycles, many commodities will trade below the marginal cost of production for years. The marginal cost of production itself could also fall if energy prices decline from here.
My favourite example is that authentic Zimbabwe $100 trillion notes go for >$100 these days on eBay. And I say "authentic," because there's enough of a market that there are forgeries in circulation. (Reproductions are much cheaper, $5-$10.)
Well, theoretically the value of Bitcoin would be a function of energy costs and mining difficulty, but that hasn’t happened in practice, and would still be volatile anyway.
The difficulty and energy cost is a function of price, not the other way around. If the price goes down, miners aren't profitable and some have to quit, which makes the difficulty adjust downwards.
This is a common misconception. It's the other way around: mining follows the price.
Miners can collectively earn a pre-determined flow of block rewards. If the price rices, then those block rewards become more valuable. So then miners can afford to spend more on hardware and electricity as they compete to get those block rewards.
Now that the price has dropped, the opposite will happen. Miners can no longer spend the same amount on electricity, so many will be shutting down their mining rigs. Only the miners with the lowest electricity cost can keep operating. The difficulty will drop until it is once again in equilibrium with the price.
For real world resource mining, it's different. E.g. if a metal used by industry can't be mined for less than 1 $/kg, then that must put a price floor on the price of that metal (in the long term, ignoring short term price volatility). This dynamic doesn't exist in Bitcoin, which confuses many people.
Yes, in practice mining mostly follows price, but it's still not quite that cut and dry.
Miners also need to sell bitcoin to recoup operational costs. They influence the value of bitcoin by being an active trader and setting limits to their sale price.
Current price influences future mining. Past mining influences current price.
This can be true if those applications carry some intrinsic value.
However whenever I go down this thought experiment, I tend to find that the applications themselves also don't carry intrinsic value e.g. some tie to the real world outside crypto.
Even if the applications are just weird forms of entertainment, that's still demand that people are paying real-world money for, since they have to spend their real money to buy the ETH. Non-blockchain gaming is a fairly big industry and all the money people spend on in-game purchases doesn't have any more connection to the "real world," but is still valid for financial valuations of the gaming companies.
There are people (especially at EY) working on using Ethereum as infrastructure for things like B2B transactions, but that's still in early stages. And here's a recent piece by Vitalik on non-financial applications of blockchains: https://vitalik.ca/general/2022/06/12/nonfin.html
Yes, plenty of games make money off in-game transactions, and generally they only remain profitable for a few years while they have a large user base, then fade into irrelevance.
Are there any non-speculative ethereum apps? The examples I’ve seen would all be better by just a distributed database with trusted authorities.
The computation and distribution is very expensive, so I’m not sure what I would run on ethereum until transaction costs get down to a penny or something.
GPU prices have been dropping steadily since January[0], which is nice to see. Still plenty of demand, but I hope my poor GeForce 960 can hang in there another 6 months before I have to upgrade.
Shouldn't very high inflation in US on goods priced with USD + rising global food prices actually bump up the price of BTC? I thought BTC has zero inflation baked in the algorithm, so it should actually move the opposite direction against any currency that experience high inflation right now. I want to be educated.
Likely explanation is that money used to buy Bitcoin came from the JPow's free money reflected from the 0 rate. When that stopped so does the Bitcoin purchasing.
> Shouldn't very high inflation in US on goods priced with USD + rising global food costs actually bump up the price of BTC?
Turns out 'commodities' (to use the term loosely) are worth whatever people think they are worth, and that includes 'currencies' (loose term) like Bitcoin. There is no "inherent" value to anything, only the value we humans put on them.
Strictly speaking, the only things that are probably "inherently" valuable to humans are: air/oxygen, shelter, water, food. Everything else is a psychological 'trick' we play on our selves to allow for functional socities.
The price of BTC is based on the bid-ask spread on BTC exchanges, which will move up and down based on the ratio of buyers to sellers. More buyers, the price goes up. More sellers, the price goes down. This is an oversimplification but good enough for these purposes.
So in order for the price to go up when inflation goes up, we would need more people to want to buy BTC in response to inflation. This does not appear to be the case, for a number of reasons. One reason is, when prices rise people spend more (even if they don't adjust what they buy, which they often do) so they will have less money available to buy BTC, even if they wanted to. Another reason is, the economic and financial systems (including crypto) are interconnected, so disruptions in one can cause actions in another. For example, if stocks go down 70% maybe I'll sell some BTC to buy some cheap stocks. Or maybe I'll get spooked and just stop buying anything.
The inflation hedge narrative never actually made economic or even logical sense. It’s true that Bitcoin itself will have a fixed supply some day in the future when mining new block rewards go to zero, but you would still have to overlook the fact that Bitcoin as a resource was arbitrarily willed into existence just like the 10,000+ other coins and more that are being created every day. If you look at the crypto space as a whole, coins and NFTs and mining rewards are being created at an unsustainable pace. The only thing driving prices up is inflows of speculative money to the space, and as soon as those inflows stop, prices across the board will crash exactly like we’re seeing.
Bitcoin proponents will try to push that argument that Bitcoin should be the only crypto considered and all other coins ignored, but it doesn’t really work that way in the real world. Even if we look at Bitcoin as the coin and a digital version of gold, a lot of people are surprised to learn that even actual gold hasn’t performed all that well as an investment.
If you want an inflation hedge, investing in actual things that are scarce, in demand, and hard to produce is key. A digital currency that was imagined into existence with computer code can be arbitrarily scarce enough, but that alone doesn’t make it valuable. It has to remain in demand to keep the price up, and Bitcoin’s demand is almost entirely driven by speculators hoping to get rich quickly. Once the coin stops being viewed as a way to get rich quickly, the demand dries up and prices start crashing.
Price is an extrinsic property assets, which means it cannot be "baked into" an asset. The whole idea that bitcoin is a deflationary asset is complete nonsense and propaganda.
> The link between deflation and adherence to the gold standard, shown in
table 2.2, seems quite clear. As noted by Choudhri and Kochin (1980),
Spain's abstention from the gold standard insulated that country from the gen-
eral deflation; New Zealand and Australia, presumably because they retained
links to sterling despite early abandonment of the strict gold standard, did
however experience some deflation. Among countries on the gold standard as
of 1931, there is a rather uniform experience of about a 13% deflation in both
1930 and 1931. But after 1931 there is a sharp divergence between those
countries on and those off the gold standard. Price levels in countries off the
gold standard have stabilized by 1933 (with one or two exceptions), and these
countries experience mild inflations in 1934-36. In contrast, the gold standard
countries continue to deflate, although at a slower rate, until the gold stan-
dard's dissolution in 1936.
Bernanke is talking about the deflationary period that started with the Great Depression in 1929. He does describe a "potential deflationary bias" of the gold standard during the interwar period (which was different from the gold standard that existed before 1914) that arose as a result of the sterilisation policies that some countries adopted:
> In theory, under the "rules of the game", central banks of countries experiencing gold inflows were supposed to assist the price-spice flow mechanism by expanding domestic money supplies and inflating, while deficit countries were supposed to reduce money supply and deflate. In practice, [...] no sanction prevented surplus countries from sterilizing gold inflows and accumulating reserves.
In other words, under the gold standard, surplus countries were expected to experience inflation, while deficit countries were supposed to experience deflation. Some surplus countries (e.g. France) conducted policies that prevented this mechanism from taking place by not letting the money supply grow with gold inflows. It was these policies, not the gold standard itself, what created a deflationary bias.
> I thought BTC has zero inflation baked in the algorithm
Only if it were the only currency in the world, and the amount of value in the world doesn’t decrease significantly.
As soon as there’s more than one currency, the market could decide the relative values of the two changed overnight.
Also, if the amount of value in the world were to decrease significantly, you still would see inflation (as, for example, one can see in times of war, when the amount of money doesn’t change much, but supply for some goods falls, while demand stays the same)
Reply to self: not even then. If the people lose trust in the only currency available (say because of a rumor that the maker of it keeps printing new money), there’s always the option of going back to a barter economy.
Another noob here, but I don't think you need to be a pro to understand really...
1) Price(t) = f(demand(t), supply(t))
2) Inflation hedges have consistent Price over time: Price(t) = f()
3) By the above two, this means that either:
a) demand and supply don't change at all over time
b) demand and supply both change by exactly the right amount given external factors
Realistically, a true inflation hedge does not exist because demand is almost never constant over time. BTC has constant supply, but obviously demand will drop hugely during a depression because people would rather have food than BTC. Same problem with gold. Same problem with land. The reality is simple really: you can't ignore the environment. If you want to properly allocate resources, you're just gonna need to actually speculate correctly about what future demand and supply will be.
The price of food(and likewise farmland) varies hugely though. A function of population, location, supply chains, shipping costs, import tariffs, flavors of the month, the amount of disposable income in the population etc...
Inflation is where the value of a dollar decreases and the cost of products increase(or inflates). You can see inflation as a monetary phenomenon where they increase the supply of dollars and you need more dollars to exchange for the same product. This can intersect with the other source of inflation where product prices increase due to supply constraints.
People thought that BTC would be treated like gold. Where it would act in opposition to the stock market. If you ignore all the terminology and equations, then you can focus on the behavior of the investors. If investors buy, sell, and perceive BTC as a type of stock, then it will behave as stock. As inflation occurs, it will project into the crypto market via speculative investment.
The "inflation proof" concept of bitcoin is that there is a fixed supply. So, monetary inflation cannot occur within the currency itself. However, in the context of the larger financial market, it will be affected by systemic inflation.
Bitcoin's value is derived from loads of people having excess money that they could use to speculate. It has no intrinsic utility. When the choice is to buy food and fuel or a token that only gets more valuable if you can find someone with even more money to burn, people start to get a lot more practical as the money gets tighter.
happening in 5 minutes means that bitcoin whales are still a bunch of market noobs. On the stock market when a whale wants to get out of a position, they eke out of it slowly, using an algorithm to sell 13 out of 20 bumps up.
You don't have a choice when you trigger an automated liquidation due to leverage position.
If you had $1M on loan (to pump some shitcoins of course), and your collateral is $2M of bitcoin at $40,000 - and the coin drops to $20,000, the system will automatically liquidate the bitcoin to cover the position. This, combined with automated stop losses and people getting out by selling (whale outs) leads to huge dives like this.
I don't know. If this was a margin call, doing it so quickly and at a time of relatively low liquidity (2:30 AM on Saturday) exposes them to a lot of risk. I mean they dropped the market over 6% instantly and as much as 8% once the market reacted. That's a great way to lose your capital. I guess it's possible, but extremely sloppy if it is a margin call.
What it means? It means people realized there is no inherent value in a tech the tries to solve already solved problems in am extremely inefficient way.
It's not decentralized. It's not free or self-sovereign. It's not honest money. It's not a store of value or an inflation hedge.
It's also not free of nation state influence. Any nation state that wanted to invest the money could 51% attack or more likely sabotage these systems in a more covert way. Nasty dictatorships like North Korea or Putinistan constantly scam and hack the cryptocurrency ecosystem to siphon off money to fund their regimes. Any state could place regulations in the way of the actual use of cryptocurrency and kill it even if the tech worked fine.
It might have been some of those things when it was small. Since then scaling problems inherent in this first generation of the tech led to all forms of hidden centralization, industrial economies of scale led to mining cartels, and perverse economic incentives (some built into the crypto system) led to it being dominated by scams, gambling, and pyramid schemes.
Its goals were not necessarily bad. It just failed to achieve them.
Edit: social media also failed to achieve many of its goals, becoming instead a cesspool of bullshit and a dragnet for surveillance. I think there's a lesson in here about how totally unique unknown unknown problems tend to manifest in interactive information systems at enormous scale. Systems behave very differently when you scale them out to millions, hundreds of millions, or billions of participants or nodes than they do at toy or early adopter scale. It's not just decentralized systems that are bitten by this. Centralized media are bitten too, just in different ways by different sorts of problems.
The Stock Market, S&P 500, is down 20% year-to-date (6-months).
BTC is down 33% *in a month*. Its not even remotely comparable. YTD, its below 60%.
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I got some buddies in Celsius right now. Has there ever been a circumstance in "the stock market" where you've been unable to access your funds for a week, with _NO_ contact from the CEO or an explanation of what the hell is going on?
EDIT: Whatever happened to "inflation hedge" and "store of value" promises from the community by the way? No one in the stock market promised those things. But as inflation ticked up to 9%, BTC completely collapsed.
Its not very surprising that Cryptocoins would be correlated to GBTC (literally a pile of bitcoin trading as a stock), Coinbase (literally the exchange that does better when more volume happens), and TSLA (who bought a pile of BTC sometime last year).
Tech companies were playing with blockchain this past year, and are now getting burned. You've got cause-and-effect backwards here.
People were making equivalent accusations of vaporware when the dot com bubble burst but 20 years later and many winners have emerged from that era in addition to new ones.
I lost all my paper money at that time trading Ask Jeeves. The Dot-com bubble was my "test run", when I was learning stocks, paper-trading, and getting into finance. I very much was alive during that time.
If you didn't live during that time, then you wouldn't know anything of that era. Yahoo was the #1 search engine. No one cared much about Google. Amazon was a book store.
Ebay was far bigger than Amazon for general purpose goods. Webvan was your hope at making the internet mainstream. Etc. etc.
The biggest "internet" company was either AOL or Netscape IMO. Neither of them really the winner over the next 20 years.
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If you lived in that era, you would know just how unlikely it was that you'd have picked Amazon or Google out of the ashes.
Chances are, you would have been caught up with Enron and Worldcom's schemes, just like everyone else was.
They're also correlated with other high-growth tech stocks like SNOW, TWLO, NET, DDOG, and other companies that don't have exposure to crypto. It's not necessary to engage in denial in order to trash crypto.
You can rest assured that I appropriately warned him. I personally took the Luna/UST situation to talk to him about fake APYs, risks, and why anyone offering more than the risk-free rate (~3% US Bonds) is making some kind of risk (just as the laws of physics prove that perpetual motion doesn't exist, the laws of finance prove that risk-free rates _above_ the risk free rate are non-existent).
In any case, Celsius has managed to convince a lot of people that their 10% or 20% APY stablecoins and "staking platform" was risk free. Sometimes, these people need to have their own money burned, before they believe in the potential of risk.
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I don't know anything about internet celebrity figures. But I do know a thing or two about risk-free rates and reasonable return rates.
It’s extremely comparable. Take a time-series of VTI (all US stock index) against BTC or ETH. It’s very highly correlated since November. Crypto prices have what is called “high beta”. Very similar daily trends just a few orders of magnitude larger.
The stock market is a place to buy shares of operating companies.
You can go to the stock market and buy shares and then actually get the thing. If you buy enough shares of Ford, for example, you can walk into the factory and drive off with any car you see, because you would literally own that car. If you buy enough shares of McDonalds you could rename it to McDowell’s if you wanted.
That’s pretty different to what would happen if you bought every Bitcoin in existence.
More importantly for real investors, the stocks on the stock market are shares of a company that generates profit (or at least revenue and growth, with expectation of future profit). The value comes from that. The only "value" in Bitcoin is that it can be used to transfer money between two parties, but that function can be easily replicated, as it often is with shitcoins.
Derivatives have underlyings. An option is the right to purchase or sell a stock (or something else); a future is the right/obligation to accept delivery of something at a future time. While the payout curve is more complicated than straightforward ownership, they derive their value from their relation to some underlying assets.
I thought the underlying of a crypto coin ledger entry is the heat generated from the electricity consumed to calculate the hash of a meaningless number?
What about the AMC ou GME stocks? And if as you seem to imply, crypto is useless, then why isn't everyone shorting it to 0? Obviously you'll concede the stock market is not solely rooted on the underlying assets or dividend, but also on hype and future promise. Same thing for cryptocurrencies, only less utility and more speculation.
Nope, not at all like that. Derivatives provide leverage to an underlying, real financial instrument. There is no real instrument behind your paid ledger entry.
All correct, but more important than ownership is the fact that buying stock infuses a company with cash which gives it fuel to grow the business, unlike trading crypto tokens which does nothing except register a notch in a ledger, buying stock is literally an investment.
I don't think so. The company makes money on the IPO, after which the shares are just changing hands between traders. The vast majority of trades are the latter type.
The company rarely issues all its shares at IPO and can trade them on the stock market like any other participant. It can sell them if it wants to raise more money, or buy them back if it has spare cash.
The stock market is buttressed by businesses which have real cash flows.
These days it is "quaint" to consider stock dividends, but in ye olde days they were supposed to be owning part of a capital machine to turn commodities inputs into widgets, selling those widgets at a profit and giving back dividends to the stock owners. If the stock was producing dividends at $1/share then the price would have a floor at around $10/share assuming those dividends held steady.
There's no floor under crypto because the incoming cash flow from people trying to get rich entirely funds the outgoing cash flow for people who are rich or who are running for the exits. Once the pool of actual money in the system goes to zero then you have more people running for the exits than are throwing cash into the system and the price discovery rapidly goes to zero.
There is some theoretical floor because if people are throwing thousands per day into the system while people are trying to extract millions per day, then if you cut the price down by 1,000 the flows are theoretically balanced. This is the proverbial "well if bitcoin goes to $50 then I'll buy a BTC every week so there must be a price floor". But at that point the exchanges have all gone bankrupt and your $50/week won't keep the lights on, so the owners of the exchanges have fled to sandy beaches with the remaining millions, or gotten arrested, or been assassinated.
This is also why you shouldn't try shorting the market. The exchange where you place those bets on may disappear.
Of course you could short Microstrategy on the actual stock market, but I suspect those options are going to be extraordinarily expensive at this point because everyone is thinking that (and BTC is not likely to go to zero tomorrow, its likely to keep shuffling on like a zombie for months[*]).
[*] I suppose I should more accurately assert that nobody knows when it'll go to zero and the problem is timing it accurately because shorting always has a time-cost, and I certainly don't know how to do that. But it does seem to be running pretty hard into a brick wall at the moment. My statement is less of a prediction and more of a rationale of why I'm not running out to short Microstrategy right now.
No, stocks have a book value. In the worst case shareholders can liquidate the company, sell off the tables and chairs, and split the money. There's no book value for crypto.
Obviously a sufficiently large number of people do view currencies that are controlled by a single centralized entity as a problem; whether current cryptocurrencies are a solution to that problem is a different debate.
> Obviously a sufficiently large number of people do view currencies that are controlled by a single centralized entity as a problem
Do they? If there were no magic 10x, 100x, and 1000x returns in crypto and it only solved the centralization problem, would even 1 out of 100 current crypto proponents still care about it?
If those lower returns were coupled with lower volatility, I think we'd see more people utilizing crypto, for specific use cases:
a. Instant, negligible-fee ledgers within social cohorts (eg. Algo, Nano, vs Paypal, Zello [a bit of that "anti-corporation" philosophy doesn't hurt here]).
b. Privacy-coins, which also happen to have low fees but are too slow or haven't developed the UX to play that quick social role, so they attract an alternative audience through privacy ideals (eg. Monero).
c. For donations, with the same trade-off between ease of use and privacy depending on the involved parties' preferences.
I'd argue it's the risk of volatility which both drives high returns and suppresses these uses, so a stabilization of market prices would eventually see growth in these use-cases as their potential audience puts proportionally less weight on the risk-factor.
One might not see 1 out of 100 current investors remain, but do think that these audiences could grow to equal or surpass such a small segment of the current interest.
They used to be close to 100% of the Bitcoin community. It's probably a lower percentage today as it has gained more mainstream adoption. But why does the exact number matter?
How can you ask that when we are seeing record inflation around the world? Are you really asking if people would prefer a currency that doesn't lose 90+% of its purchasing power over the years?
I agree, this is still a problem to solve. Current inflation levels are evidence of that.
The problem is bitcoin is being treated like an investment because of “greater fool theory” and no one is treating it like a currency in any meaningful way. It’s crashing because it’s not showing its value as an effective currency. At least not yet. Right now it’s a store for excess liquidity and that makes it too volatile to function as a currency.
Could mean people need to sell their shitcoins in exchange for 'real' money in order to afford rent, food, gas and student loan payments while they still can.
If you look closer you'll see that most HN commenters across all crypto threads are dancing in the grave if DeFi (aka illegal penny stocks), Tether, etc.
Most people on HN accept that there is some use for some cryotocurrencies.
This last cycle was supported by literal celebrities and a legion of Super Bowl commercials.
There's no one else to "grow" the audience anymore. Cryptocoins are 100% within the mainstream consciousness.
There are now three kinds of people out there:
1. People who know about Cryptocoins and never trusted them. (They saw the superbowl commercials and decided it was stupid).
2. People who bought in within the last 2 years (because of the big advertising spree) and only know what a 60% loss on their assets feels like.
3. People who bought in _before_ the last 2 years, a very, very small minority of people.
#3 is not enough to return BTC to $60,000+ heights. And with #1 and #2 distrusting the coin now, I dare say its over.
Type #4: "ignorant" people who haven't heard of BTC yet, are completely non-existent now. Superbowl commercials, Cable News, Facebook ads, and more have ensured that everyone has heard of this by now.
Care to tell me where in the world you think BTC has a chance?
El Salvador? Hong Kong with Three Arrow's Capital collapse? Russia with its collapsing economy?
I admit I'm ignorant about many parts of the world. But the parts of the world that "matter" with regards to propping up the price of BTC, are the parts that have money. That narrows the list significantly.
* In Asia, there's China, Singapore, Japan, Philippines and a few others. I'm watching anime make fun of Blockchain (Japan), Three Arrows Capital blow up in Hong Kong, and Axie Infinity completely screw over working class Filipinos.
* Europe largely knows English and are just adjacent to the Anglosphere. (I'd expect the French and Germans etc. etc. to know about this whole crypto-nonsense by now as well)
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I guess I'm ignorant about India and some other corners of the world (and Indians know a lot about English anyway and would be adjacent).
Who in the world do you think can be brought into this cryptocoin nonsense now? Where can the cryptocoin world find "new converts", who have enough money to make a difference?
It's about understanding bitcoin. As long as more people understand it, more people will buy it. I've never seen anyone who understands bitcoin, but doesn't buy it. Especially in bear markets, people will focus more on learning what's it about, rather than speculating on the price.
All the 'crypto' stuff can go. This is the opposite. When people understand them, they'll sell.
You've fundamentally mistaken what those large companies are. They're basically dividend stocks, not growth stocks. No one is expecting them to grow much.
Those companies make money with their customer base. Coca Cola has the ability to turn 40-cents worth of water, sugar, and flavors into $1 dollar worth of sales. Not only that, but customers are happy with this exchange (and will likely keep making this exchange... at least until people stop liking the taste of sugar).
Even without growth, those companies are insanely profitable. Because Coca Cola has a 3% dividend (and its assets are likely inflation-protected), they're a very safe bet.
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BTC makes no profits. In fact, the entire BTC system consumes tons of electricity constantly. So we can see that moving BTC around costs real resources, but no one seems to have explained to me where "money comes from", aside from a greater-fool.
Your argument is that at some point growth stops or stagnates. But most people in the world don't hold cryptocurrency -- yet they know about it. It's a huge market. And that market will be tapped by marketers and advertisers.
> BTC makes no profits. In fact, the entire BTC system consumes tons of electricity constantly. So we can see that moving BTC around costs real resources, but no one seems to have explained to me where "money comes from", aside from a greater-fool.
My point, is that all of my friends who have lost money as Celsius and/or Gemini locks up, are going to become distrusting of Bitcoin and cryptocoins in general.
You had your best shot at converting them last year, when they were ignorant, and hadn't lost $10,000+ on it yet. Today, they're going to be mad at their losses, the lies, and the fraud, and the outright stealing / locking of accounts.
The people in category #2 are almost certainly, permanently, lost. You can't just play with people's savings like this and expect them to trust you.
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This isn't like a "normal cryptocoin crash". Celsius, and now Gemini, account holders are unable to withdraw funds. Who knows how far this financial-contagion will spread?
What's going on right now is a fundamental loss-of-trust.
The price goes up, the price goes down. That's not the important bit. Locking down accounts and destroying goodwill is the problem with this crash.
Your friends sound like degenerate gamblers. What does that have to do with having a balanced portfolio with a percentage in crypto? More people are going to do this.
Investing in crypto doesn’t mean having all your wealth in it.
I said "locks up". Celsius is likely insolvent. Gemini is only at the stage where there are withdrawal issues.
BTC probably has to drop a bit more before Gemini collapses and/or becomes insolvent, but the issues have begun (like Binance). The other crypto-lenders all locked up like this as BTC dropped from $30k to $20k, it looks like Gemini is stronger but its beginning to have withdrawal issues now.
If BTC keeps crashing, other crypto-lenders (including Gemini) will be wrecked. Its just the nature of how those systems work.
Why would I be nervous? I don’t hold bitcoin and don’t have anything on exchanges. Are you projecting some of your nervous energy?
Gemini doesn’t have withdrawal issues. Misinformation only makes your position look weak.
Crypto exchanges always run into platform issues when volume is high. Everyone claims it’s a giant conspiracy because 10x engineers could never fuck up this bad. Well, they can and do.
Your claim Binance is going under is laughable as well. You have zero understanding of this market.
> Crypto exchanges always run into platform issues when volume is high.
They also seem to be running into platform issues when they're running out of money.
Volume was high on the way up. Volume on the way down is... much less than before. Coinbase (and others) have laid off thousands of workers because BTC volume has declined precipitously.
This ain't a volume problem. They're just pretending its volume.
Wasn't China a huge market for cryptocurrencies for most of the last 2 waves? My Indian coworkers indicate it's big back home too. So now with the west, india, and china, we're at 50% of the world.
"The West" has about a billion population also (370m USA+CA, 600m Europe minus Russia, 30m AUS/NZ). That's not inherently a reason for crypto have potential for another boom cycle here, nor is it inherently the same in India.
These comments assume that 1.3 billion people have made a decision on Bitcoin and they will hold this position until death. It also assumes the people that have invested already won't invest more as their careers progress.
Add in South Africa and Nigeria. Massive there, massive. There will be real pain as a result, a lot of kids are going to miss out on new shoes and birthday presents for quite a few years. Mention of crypto will likely precipitate a family fight - I do not see a way back from this.
A huge crash in crypto prices is a great thing for people working on regular old startup/Saas cash flow businesses. A lot of potential investment and a modest amount of talent has been siphoned out of the real productive economy into the crypto ponzi zone. I for one am excited that I will never need to think about some BS "tokenomics" story for my startup to sell to some investor and I am looking for a return to VCs that invest in businesses with solid growth, unit economics, and cashflow.
Difference is that, from the outside perspective, majority of the activity around crypto are just scams while at least other companies try to solve a real-world problem.
Let’s take DoorDash for instance. They couldn’t make a profit on food delivery during a world wide pandemic when everyone was ordering in and staying at home.
We can say the same about companies that made open source software and we’re going to make money via “services or supper contracts”. That hasn’t worked out well for mLabs or ElasticCo.
Elastic is a Ponzi because they make one of the most useful databases in the world, have hundreds of millions in revenue from satisfied customers, but haven’t completely figured out the monetization?
The crypto whataboutist apologies are something else.
1. Amazon had positive margins early on and was reinvesting money to build infrastructure and real assets. Most startups aren’t. All Bezos had to do to turn a profit at any time is stop building warehouses.
2. Amazon completely pivoted and almost all of its profit comes from AWS. And no Amazon did not use excess capacity to start AWS. It was built from the ground up as a separate service [1]. Every company likes to point to Amazon and say we can do it too. That’s just like a company claiming if they bring their former CEO back after 10 years they can become a three trillion dollar company.
And standard disclaimer since you brought up Amazon, I work at AWS.
Elastic is IMHO a weird pick for this argument. Annual revenue over $1 billion growing at >30%. The money comes from corporations whose most valuable data flows through the system created and provided by Elastic.
How is that a Ponzi in any sense? It’s not like Elastic makes money from selling its own stock on endless promises. The product exists, works, and generates a billion dollar in sales. The valuation may not be attractive, but it seems clear to me that this can be a profitable and stable business if they decided to stop buying growth.
I know it’s a thing for startups. Bragging about “revenue” and ignoring lack of “profits” makes no sense. The entire idea of a business is to make more than you spend. Anyone can sell dollars for 95 cents.
The usual things enterprise software companies do: spend on sales, marketing, and R&D on features that would be attractive to new leads.
If they stopped doing those things and just served the existing customers who bring in the $1B revenue today, I’m guessing they could be profitable fairly quickly and start paying dividends (or returning capital through stock buybacks).
But that kind of stable enterprise software company would be mostly attractive as a takeover target for a larger player or private equity; it’s not the story that investors in public markets want to hear. So Elastic’s valuation would be slashed.
This doesn’t make the company a Ponzi though. Seeking growth is a valid strategy and one that’s still sought out by many investors despite the valuation correction from last year.
How is it “stable”? It’s based on open source software and they are trying to make money on hosting and support. Unfortunately, the three large cloud providers (including the one I work for) are taking the open source distribution and hosting it, providing support and integrating it with other services.
"Ponzi scheme" has a specific meaning. Many cryptocurrency projects appear to fairly closely fit this meaning, while "for-profit business that's making year after year of losses and being propped up by VC funding" does not.
Not everything that's a very bad investment—or even outright fraud—is a Ponzi scheme.
That sounds more like purchasing an asset you expect to appreciate, because you're actually selling it on to someone else. That's not the case in a Ponzi scheme, where you're expecting ongoing returns from your investment (which only come from suckering more people in).
Most startups (in the tech sense) are ventures. They are attempts to generate new cash flows and create something new that didn't previously exist (or a new twist on something that already existed).
They are unproven. They are risks. But the vast majority are not Ponzi schemes.
1. Investors pour money in to companies not hoping that they become profitable. But hoping they can get their money back via an IPO while they are still not profitable.
2. The investment bankers dump their allocation at IPO and get to take advantage of the hype. Then sell the stock to retail investors.
3. The retail investors fall for the hype even though the company still isn’t profitable and the stock price drops?
That’s the definition of a “Ponzi scheme”. Everyone throws good money after bad hoping that there is a “bigger fool”.
No “just” about it; with those things in place, getting a business loan is far simpler than getting a VC to invest in you. To a (big) bank, your business is just an entity with a credit score. That credit score is based on those factors you listed. No weeks/months of glad-handing and human-factors evaluation like VCs do; hand a bank the data, they plug-and-chug, and you either get a loan or you don’t.
Yes, and? We're talking specifically about companies that have "solid growth, unit economics, and cashflow" — i.e. which have a stable business model + revenue engine. Businesses that have been de-risked. Businesses where the only reason they're not bigger already, is that they need money to throw into the coal furnace to power the train up the hockey-stick hill.
At that stage of a business, you wouldn't be taking seed-stage or series-A funding; it'd be series-B or series-C — where the type of investors who do those investments are just as risk-averse as banks, and are looking at essentially the same things banks look at.
At that stage of a business, you know there isn't anything on the horizon that'll kill your share price. Your market cap is stable (save for the growth you're trying to enable.) So you should be extremely wary to let go of any more equity. You should highly prefer debt-backed investment (i.e. loans) over equity-backed investment, because your equity value increase from the growth should be predictably paying off that debt, and then some, likely the same fiscal year you take on the loan. Selling any equity at that period in a company's growth is throwing earnings down the drain.
And it's going to be a good decade for those kind of startups, and a bad decade for the smoke & mirrors tell-a-starry-eyed-story VC-funded kind. Aside from funding or lack thereof, the changing relative prices that come with inflation dramatically change the structure of markets, which is going to make many old ways of doing business obsolete and open the door to new firms.
in india, banks give you working capital loan with floating charge on your stock/debtors at like 25% of your previous FY turnover... you could theoretically take up more loan but the interest would negate any "earning" considering the banks charge like 10-15% interest on the amount so if your turnover is 10 million rupees, you could get 2.5 Mil loan but the interest on it would be 325k inr which i am sure not many businesses can sustain normally.
While that does represent some modest drag on your business, in this hypothetical you have very good foundations and you could outperform that 10% interest without too much trouble. To wit in this scenario you're a software company, not a restaurant, you should scale far more easily than brick and mortar.
And 10% interest to preserve your cap table and board?
Solid growth, unit economics, and cashflow doesn't always imply low risk, so debt financing is not necessarily optimal.
For example, the company has been growing 2x per year for the last few years and there's a good chance this will continue for the next several years. But only if the company invests a massive sum of money with a substantial risk.
When evaluating engineering candidates, a résumé showing time spent in crypto in excess of six months is going to be a giant red flag and default no-hire for me.
I find myself working in the web3 space despite not being a fan of crypto (quite the contrary). What I have helped implement working in this space touches on distributed & decentralized systems, edge computing, cryptography and I could probably name a few more technically interesting areas. Actually made use of those trees, graphs and associated algorithms that you see popping up in coding interviews, after which you never hear about them again.
While I respect your decision, if we are talking about technical exposure to interesting challenges, I think you're leaving a lot on the table by defaulting to no-hire.
It’s probably not a culture fit if someone happily worked on products whose only purpose and outcome was to rip off users. Six months is enough time to figure that out and find other employment.
There’s a lot of cool infra that am engineer could have worked on, that by no means would mean they were complicit in or approving of scams: e.g polygon, starknet, testing infrastructure for the merge etc
It’s tough to raise for niche B2B SaaS right now. As a category these are businesses that aren’t productive enough for Microsoft/Google/Amazon’s time to enter. So there’s a ceiling.
It's been right around the corner for 2 years now. I have little faith in that date, but the actual real crypto market crash has at least contributed to the fact that GPU prices are back at normality.
I don't deny that the market crash is a factor. Regarding the merge, unlike two years ago:
- The proof-of-stake chain has been running for a year and a half.
- They've tested every combination of five execution clients and five staking clients, and they all work.
- They just migrated a large long-running public test network to pure proof-of-stake, and it went well enough to have been considered very successful if it had been the production network.
- There are two public test networks left, and if those go well too, there's nothing left to do besides the production migration.
The point of merging a public testnet is that it's a dry run for the entire ecosystem. Lots of entities use the testnets, from individuals to applications to exchanges. If they can pull off successful merges on testnets, they can probably do it on prod. And while this is the most complex upgrade so far, Ethereum has done a lot of other upgrades since launch.
At some point, you have to accept that you've done all you can, and ship.
Intreasting, I don't really understand crypto but i've been a little interested in it as I've started to invest in index funds.
But damn that is a huge drop, good time to buy? Or is this really going to now be a hard time for crypto? I think bitcoin is just too confusing to be mainstream and i don't see much need for it.
If you've been around bitcoin during all the other rallies and corresponding "crashes" and "bubble bursts" one thing rings true: It usually crashes to just below previous all-time-high to some extent, usually 15% below (ie: previous ATH $4000, ATH $22,000 in 2019, then retracted back to $3500 before climbing to latest ATH of $64,000. Some call it "crypto winter", it usually lasts for a good amount of time before gaining traction again and climbing past - usually after everyone has sold out and declared it dead, and media and the general public largely forget about it and stop talking about it for a year or two until it comes back into the news cycle as it picks up.
I would say it's not guaranteed to repeat exactly - but for reference $18,600 would be that point. It could go lower, due to other market factors (recession, defi time bombs, stablecoin insolvency, etc) but it seems to follow this path.
For the first several years of its existence, the bitcoin exchange rate was completely decoupled from the broader economy. It went up and down seemingly with no relationship to other markets. This attracted a lot of investors who were looking for an asset that didn't move in the same direction as everything else.
In late 2020, the bitcoin exchange rate began a meteoric rise. One hypothesis was that this steep rise was foreshadowing massive inflation ahead. It was, of course lambasted as ridiculous. Inflation was dead and everyone knew it.
Fast forward to 2022 and an inflationary spike is bearing down on the economy with its jaws wide open. It has taken central bankers everywhere by complete surprise.
Now the bitcoin exchange rate is collapsing. The article's take on "what this means" is something along the lines of a fool and his money are soon parted.
What the article never considers is the possibility that this collapse in exchange rate is the canary in the coalmine signaling that inflation is about to fall off a cliff. Money is being destroyed at rate that central bankers can't even fathom, at the same time they're raising short term interest rates and starting QT. This would have very ominous implications for the world economy if true.
The financial collapse starts with Bitcoin because it's the most highly-levered and least regulated market. It now feels the brunt of the global monetary ebb and flow first.
Only time will tell how accurate this interpretation is. But if it's true, there will be far more important things to worry about than the schadenfreude of scammers getting their comeuppance.
I don’t necessarily buy this analysis, but the world economy between WWI and WWII would be one possible parallel. There were stories in Germany of people taking a wheelbarrow full of cash to the store to buy a loaf of bread.
At the extremes, the billionaires will be able to escape to New Zealand or some island retreat; the rest of us, including the middle class, upper middle class, wealthy, and the independently wealthy — even double or triple digit millionaires, could be very screwed.
Sorry, what is this a parallel to? Hyper-inflation in Germany was due primarily to war debts denominated in foreign currency, and massive reparations imposed by the Treaty of Versailles, which forced Germany to purchase foreign currency at ever increasing prices.
I find it incredible that there are people out their who actually think the price of Bitcoin, Ether, NShitCoin, etc. are actually somehow predictive of something.
If someone is running a pump+dump scheme, it could be useful to produce a flurry of writing that pretends that those cryptocurrencies are somehow serious business. It might help lure more unsuspecting victims into the market.
What an absolutely insane narrative from a new account. The entire crypto expansion directly correlates with Tether printing $40,000,0000,000 in assets. Tether is used to move funds to and from unlicensed off shore exchanges. That's it. That's what is popping. Do your research.
Thousands of times this has been brought up and debunked. Tether is minted when there are new fiat deposits. It's the influx of fiat money that is creating new tether and raising crypt prices. That's how it is supposed to work. Nothing suspicious about it.
Note: I have no idea if Tether had and/or still has all the assets backing all the minted Tether, and maybe it will collapse in 5 minutes so I'm not here to defend them, but before you tell other people to do their reserach, maybe you should do some yourself, and go with some more educated criticism.
It hasn’t been debunked, if anything tether has been proven to be a scam by multiple usa government entities and having to pay fines explicitly that it’s a scam
But when tether goes up in smoke (or there's a perceived risk it's about to), there's a "bank run" on the exchanges, causing further disruption on tether, which is used as the go-between, fiat-equivalent by a whole lot of exchanges.
Fear is what's driving this slump right now, and tether is a big part of it.
I find it very strange to read that "inflation is coming" was seen as a fringe view in 2020? "Inflation later is better than a recession or depression now" was the thinking behind all the increased government spending in 2020. Maybe "future inflation will be worse than any consequences today" was fringe, but I think at least eg Larry Summers was saying that.
I don't understand macroeconomics but "government spending causes inflation" is a pretty mainstream ideological precept - the opposite opinion is fringe.
Edit: maybe I didn't put enough weight on "massive" when reading the above comment
Mainstream economics including people like the Fed have been substantially more worried about deflation than inflation for the last 5-10 years. Many thought that inflation was dead forever and that their biggest problem was that they couldn't print money fast enough over the longterm to avoid a deflationary bust.
It's hard to understate the degree to which fed economists didn't see this coming.
"government spending causes inflation is a pretty mainstream ideological precept - the opposite opinion is fringe."
Hoo boy.
"the current Fed chair, Jerome H. Powell, has dismissed claims that the Fed’s money-printing is fueling today’s price spiral, emphasizing instead the disruptions associated with reopening the economy. Like his most recent predecessors, dating to Alan Greenspan, Powell says that financial innovations mean there no longer is a link between the amount of money circulating in the economy and rising prices"
You're right that the idea government money printing doesn't cause inflation is fringe absurdity. Unfortunately the fringe that believes in it are central bankers.
Sure. We're well into "Hard to make a man understand something if his salary depends on him not understanding it" territory here.
The more interesting question is, if you incentives are strong enough to want to deny the nature of a system, do you become a liar or do you genuinely stop understanding it? Was Yellen's bafflement at the non-transitory inflation a mere act, or was it genuine confusion caused by a core corruption of her own understanding of basic economics?
Not to forget the semi-smart who had to use the money entrusted to them to produce some results... Taking the management fee of "investing" to cryptos was still easy and simple money to them...
I'm the CTO of a blockchain data analytics company. (I don't like appeals-to-authority, but I think it's necessary context for what I'm about to say.)
I feel like I'm almost alone in seeing no real purpose in the existence of cryptocurrencies per se; but nevertheless believing that there's value in the technology ecosystem of crypto/DeFi (e.g. in smart contracts as a substrate for security tokens; in NFTs as legal deeds; etc.) entirely independent of the existence of cryptocurrencies.
If Bitcoin and other "just a currency" ledger-platforms ceased to exist overnight; and the value of Ether and other "distributed-computer eStamp" currencies went to near-zero; and only stablecoins backed by governments continued to exist as representations of "stored value" on these platforms — these distributed-computer platforms would still be useful substrates for fin-tech innovation. They'd just be free of speculation + Ponzi schemes.
> value in the technology ecosystem of crypto/DeFi (e.g. in smart contracts as a substrate for security tokens; in NFTs as legal deeds; etc.)
Security tokens would need to follow the same securities laws as centralized solutions but I can see an advantage in having liquid shares. Price discovery would be pretty powerful. Although the founders might not like what happens to their valuation.
> Security tokens would need to follow the same securities laws as centralized solutions
Which securities laws? I'm imagining you are talking about the US as this site is very Silicon Valley centric but not every company is based in the US and there are over a hundred different jurisdictions in the world. US laws aren't the end all be all and the way things are going they might be even less relevant in the future.
We are living in an incredibly global society and there is currently no global governance layer that covers global public goods and digital-only projects. We'll likely develop something in the future but today there are entrepreneurs creating applications and projects at the species level that have no defined state owner and it wouldn't make sense to assign them one.
The difference is that the arpanet and later the internet were amazingly useful from day 1. In a sense we can applaud the cryptobros for funding basic research in cryptography and distributed systems, but as an investment or innovation, they are failures.
only as long as you have no interest in interfacing to actual money at either end. Then the bitcoin approach basically sucks.
If crypto was better and cheaper for remittances, then Western Union would already be using it - they've certainly been experimenting with it for most of a decade. Companies can be stick-in-the-muds, but not that much of stick-in-the-muds.
Some crypto are actually better but with the caveat that they are only better if you keep it in the crypto ecosystem. Trading in and out of fiat currency is probably the biggest hurdle for crypto. Going in and out of crypto comes with massive fees if using a trusted exchange, headaches in accounting (in two monetary systems) and calculating fiat taxes, it’s slow, and adds inefficiency. For example, you may accept bitcoin for your product but now you need to pay one of your suppliers who doesn’t accept bitcoin - convert what you received to dollars, calculate a gain/loss on the change in value of bitcoin from the time you sold your product to the time you are converting it to dollars, pay a fee on converting, and finally you need all the same fiat accounts, credit, etc to then pay your supplier. It’s completely inefficient. In a new country that only used bitcoin or another crypto, you eliminate internal volatility completely because everything is priced in crypto in a closed self sustaining economy. Cryptos are not as volatile against each other as they are against fiat, after established. All of the volatility problems crypto has are exactly because people view it as an investment vehicle, in theory a currency shouldn’t fluctuate itself, it should just measure value of other items in a consistent way. There are many reasons one of the feds two main goals is price stability, both the prices going up and down can hurt the economy in different ways. Had bitcoins and other prices been able to remain stable rather than deflating however many thousand percent then the ecosystem would have been much more robust by now. I know your thinking stable coins do that, but I’d argue stable coins are just an extension of fiat but allowing a non-government entity to print money, and the only stable coins worthwhile are those backed by fiat bank accounts holding ever single dollar and not allowing the company to use customer funds or accounts as collateral to make their own decisions but without the regulation of a typical bank.
Fees and taxes being too high are a social problem, not a technical one. "Peer to peer" currency exchange, aka buying currency from random people, is free, at least as long as you're not a business.
A very interesting argument I've read is that the value of bitcoin is it's volatility.
Meaning that you can trade billions on it's ups and downs, and make profit this way. Anything that can generate profit is valuable. Notice how the big exchanges, Binance, FTX are worth tens of billions of dollars, and their owners are deca-billionaires, thus kind of proving this thesis, because exchanges are first in the line to extract profit from volatility through transaction commissions.
The whole Eth blockchain has as much compute power as 1/5,000th of a raspberry pi.
It’s an insanely inefficient non-scalable tech. To sacrifice many orders of magnitude of performance, while pumping a whole countries worth of C02 into the atmosphere, just to have a system that is “decentralised” makes no sense.
None of the applications can be properly decentralised. Your house deed stuff needs to be enshrined in law, enforced by police etc., your NFT tickets need the venue to validate.
Just stop it. It’s junk. The planets future is perilous enough already.
> inefficient ... pumping a whole countries worth of C02
Proof-of-Work blockchains are a strawman. Nobody in or out of the ecosystem thinks they should exist. They're a legacy technology sticking around on inertia; the mainframes to Proof-of-Stake's microcomputers.
> None of the applications can be properly decentralised. Your house deed stuff needs to be enshrined in law, enforced by police etc.
So? I didn't say anything about decentralization. I believe that these distributed-compute platforms that use signed append-only ledgers as shared storage ("blockchains") are a better way to do regular old centralized fin-tech. (Like I said above: security tokens. Those are embedded in a specific nation's regulatory environment!)
However, there is a very specific case that blockchains enable that traditional finance doesn't — and that's "multilateral agreement with no shared legal framework." E.g. a person in the US making a contract with a citizen of North Korea. If these two people get into a dispute, there's nothing their governments will do to arbitrate that agreement. But they can at least rely on technological mechanisms to enforce certain rules about what they can and cannot do to screw one-another over (e.g. requiring 2-of-3 multi-signature validation to remove value from an escrow holding account.)
> your NFT tickets need the venue to validate
They need a venue to validate. If one supplier is willing to take another supplier's "tickets", so to speak, then you now have an economy.
Let's say these NFTs are game licenses — if the Epic Games Store went under, Steam could say "we'll accept Epic Game Store licenses to download+activate games on Steam" as a PR move. Do that a couple of times, and now you have an economy of transferrable game licenses, maybe with an industry body that governs their issuance acceptance.
I'm not saying that this happens by default; but rather that this end-state is the point of the technology; and anything else people do with it is basically noise.
> the rest can be done and is literally often done by email (sometimes even signed!) and spreadsheets
Well, yes; signed email sent through anonymous remailers hosted by a network of peers (e.g. Mixmaster) is the direct ancestor of blockchains. Designed by the same group of people (the "cypherpunks"), even!
Blockchains just add to Mixmaster-like networks a shared reputational-currency ledger with some inherent means of acquiring a balance on it, to facilitate the feature that spam-email-solution-proposers call "eStamps" — which prevents blockchain networks from being flooded with spam transactions, while also not requiring per-account identity verification. (Remailer networks had to deal with a lot of spam in their pursuit of anonymity.)
Essentially, blockchains are a formalization of "signed emails and spreadsheets."
However, there's a specific thing you get from blockchains' peer-to-peer distribution, that you don't get from "signed emails and spreadsheets" in this example use-case.
The problem is reconciling the state when the person in the US doesn't trust any computer hosted/set up by the North Korean, and vice-versa. They can pick a third party, but how do they collaborate to set up the escrow system to enable the third party to reliably send their third signature; when the future two of them now disagree and are actively trying to trick one-another into thinking that e.g. the third party cannot be reached?
Even if the third party hosts the escrow system themselves in some neutral country — the two of them probably would just DoS-attack that centralized system to prevent the third party from issuing their judgement.
Presuming a big-enough blockchain, and anonymity for the arbitrator (enabled by the "eStamp" ledger property), you can't effectively silence the third party from publishing to it.
> Blockchains just add to Mixmaster-like networks a shared reputational-currency ledger
They absolutely do not, at least not successfully so far.
Which blockchain has solved the Sybil attack (a precondition for establishing any kind of reputation/rating system)? Which blockchain has successfully bridged physical and digital trust?
Proponents keep coming up with the wildest use cases, like "decentralized carbon emission tracking" or "trustless logistics". I absolutely agree that these would be really nice things to have, but so far I've seen absolutely nothing that would convince me that there is a solution somewhere in there.
You game nft example absolutely does not need nfts to work. Heck even old school serial codes would work just fine for this scenario (steam accepting serial keys to allow access in their system). It also does nothing to solve the fact that NFTs hold no legal power and do nothing to resolve the issue of IP ownership (steam can't just start giving away access to Epic games because they feel like it, they need to negotiate and buy the rights or permissions from epic and their partners).
For the North Korea / US businessman case - I literally cannot come up with any scenario where legal jurisdiction or some external force (police, lawyers, asset seizure) is not needed to enforce the contract. How will the computer know the contract has been breached? Who's going to tell the system what the breach is? Give me an example and I'm happy to reconsider.
Meanwhile, in reality we have a system for this, where judges and lawyers make those calls, and enforce them with the help of police. There's a reason why cross-border deals are risky (enforcement), and no computer is going to solve that.
> It’s an insanely inefficient non-scalable tech. To sacrifice many orders of magnitude of performance, while pumping a whole countries worth of C02 into the atmosphere, just to have a system that is “decentralised” makes no sense.
especially when you have to go via Infura to get any work done on Ethereum - that's a glaring hard dependency that everyone pretends isn't one, as if anyone's going to telnet to port 30303. Approximately everyone just uses Infura, and Infura outages and sanctions enforcement affects the whole Ethereum ecosystem.
> only stablecoins backed by governments continued to exist as representations of "stored value" on these platforms
What would be the advantage over the government just running the databases for that as well? If there is a central trusted issuer, there is no need for a blockchain.
You say "the" government like there's only one. These platforms enable multilateral interoperation by default. In the fiat world, each government currency exists in its own central-bank database. In a crypto world, the US-gov-backed USD stablecoin and the EU-backed Euro stablecoin would exist on the same blockchain.
Also, you seem to be thinking like currencies (whether fiat securities, or decentralized autonomous securities) are the central point — or only point — of blockchains. This is true of "ledger-only" blockchains like Bitcoin — which is why I say those would be mostly irrelevant.
But in decentralized-computation platforms like Ethereum, there are lots of other things going on; and I'm not suggesting to limit any of that stuff to only fiat/regulated use-cases. My argument is against cryptocurrencies (decentralized autonomous securities) specifically; not against utility tokens, governance tokens, DAOs, virtual pets, or anything else people do with blockchains. All that stuff is inherently global — and it would make no sense to have to "shard" the state of any of it onto into separate ledgers per legal regime. The legal regimes can come to the distributed computer, not the other way around.
> Also, you seem to be thinking like currencies (whether fiat securities, or decentralized autonomous securities) are the central point — or only point — of blockchains. [...]
> But in decentralized-computation platforms like Ethereum, there are lots of other things going on
What are they? Please name one successful, trustless Ethereum use case beyond DeFi.
The blockchain isn't connected to anything; most importantly, it's not connected to a legal system capable of interpreting and adjudicating contracts and reliably passing judgement on real-world properties that are the subject of those contracts.
Yes, it would be absolutely great to have an "API for the legal system" (and by extension the financial one), but I doubt that blockchain brings anything of significance to the table here. (Distributed consensus might well be a component of such a system, but arguably not the most important one by a long shot.)
The interesting thing here which nobody seems to be discussing is the btc price fell by > 5% in one instant, not over the course of a day or even an hour. What kind of massive trade caused it?
A lot of people are getting burned right now from the big lie, the one that enables the rest. Read the original Bitcoin whitepaper folks, as well as the early Satoshi posts. Bitcoin was designed for "small casual payments" on the web, and it used to function for that. No longer. You needed low fees and big blocks. People invest in BTC now thinking it still has these properties, but BTC has not been Bitcoin since 2017. Then they propped up Lightning network to hide the failing narratives, but anyone who reads the LN whitepaper would see it would never work. I'm not angry about it anymore. It's just a damn shame and people are getting hurt.
368 comments
[ 4.6 ms ] story [ 320 ms ] threadJust like "instant payments" and "non-inflationary" those have sailed. "Store of value" is looking a little weak.
"Transfer funds to Russia" is holding out ok.
It has also failed as a medium for digital assets now that the NFT craze is showing itself to be hollow and is collapsing. It's failed as a medium for decentralized organizations (DAOs) since they've all either been hacked to death or revealed to not actually be decentralized.
Where do they find a new well of hype now?
I still believe that the concept of decentralized cryptocurrency is technically viable, but the entire current cryptocurrency ecosystem would probably have to be burned to the ground for anything honest and well built and not structurally a hyperdeflationary decentralized Ponzi/pyramid scheme to get traction.
Now the music has stopped and people are scrambling for the exits.
Please do elaborate.
2. Leverage becomes more expensive with higher rates.
3. The same crowd owns both assets (e.g. Bitcoin and Tesla)
4. Qs are low yield assets with high projected future cashflows. Low rates bring those cash flows to the present, high rates discount them more aggressively. Bitcoin has 0 cash flow, so the effect is worse.
Bitcoin proponents have no financial education. Bitcoin is not a hedge for anything (including inflation). Crypto is a high beta asset with an inelastic supply which makes it even more volatile in periods when everyone wants/needs to liquidate simultaneously.
As far as I can tell, even gold tends to go down in the early stages of recessions as people use its liquidity to cover losses elsewhere.
With hindsight it's pretty easy to see that's false, since the common tie is the same investors investing in both asset classes, with dollars they get from economic performance and monetary and fiscal policy.
When NASDAQ sneezes, bitcoin catches COVID. The sort of tech stock buyer who also gets a bit of crypto will tend to be easily squeezed (because they are the sort of person who buys crypto). So when there's a stock market dip, do they sell their stocks? No, they sell the frivolous crap first.
So NASDAQ goes down 3%, bitcoin goes down 10%.
Mostly though, bitcoin is unregulated, illiquid and tiny. So the main force on the market is internal shenanigans - not outside forces at all. There's a paper to this effect (which I can't find right now), showing that BTC and ETH hardly respond to outside events.
Organisations borrowed fiat cash to keep the crypto show going. This all started to unravel when borrowing costs went up. Many crypto businesses used their coins as collateral for loans, as the market collapses their counterparties force liquidation which forces the price downward which forces even more liquidation. And now we are learning how much leverage went into crypto. It's like the GFC except that (1) it seems [mostly] contained in the crypto world and (2) there will be no government backstop.
https://twitter.com/hodlKRYPTONITE/status/153760293205275852...
Wrt to QQQ this is a combination of inreased borrowing costs makes the ongoing game of share buy-backs more expensive; the increased in treasury yield increases the discount rate which reduces the net present value of future cashflows which reduces valuation; increased inflation greatly reduces value of money in the future; and we are very likely going to enter a recession which will reduce earnings and growth.
When there's no fundamental to support a price, it just moves on the whim of risk on/risk off
There are gold critics like Warren Buffet who've argued that gold investing is pointless because, to paraphrase him, "You pay people to dig it out of the ground and refine it and then you pay more people to guard it and let it sit there." Despite critics like Buffet, gold has held its value and often goes up during a downturn. So I can see how Bitcoin proponents might draw the parallels between the two, including the same sort of critics, and thus reasoned if gold works as a hedge then Bitcoin might as well.
There are also some overlap between gold people and Bitcoin proponents, especially in the early days of Bitcoins. My friends who were interested in Bitcoins in the early days were the same types who would buy gold as a store of value. Maybe it's from this early origin that the idea was passed down.
- electronics - decoration/ornamentation - if you give it to some people, they will have sex with you
This is 3 more uses than bitcoin.
Large miners didn't sell the coins and borrowed real money to fund their new mining operations.
Since the rates are going up, they have no choice but to sell.
And that is not to mention the poor folks who borrowed money to buy bitcoins.
Like good ol' Warren Buffet has said, bitcoin has no intrinsic useful value, unlike gold or even lead.
It's tulips all the way down.
you can technically eat a tulip. It's less useful than tulips
Bitcoins are a tool to transfer and store value. There are transactions that are more expensive in the traditional banking system. Determine their value and the time they need to stay in Bitcoin, and you know the minimum market capitalization of Bitcoin. On top of that, you have people who want to diversify their investment portfolio. They keep some of their value in Bitcoins and thus reduce the supply of available coins for transactions which increases the market capitalization because you have to transfer the same amount of value with less coins.
They're way too volatile to be any useful kind of store of value, as this month's ~33% drop in value has just proven. Nobody wants their stored value to depreciate that quickly and unexpectedly. That's simply not a good store of value — arguably it's not a store of value at all by most definitions.
Such laws don't really apply to crypto schemes. And they definitely should.
https://www.investopedia.com/trading/support-and-resistance-...
[Edit] Are there archives of the various forks of Bitcoin? What about all the "shitcoins"? Unless there's an active effort to save them, the blockchains aren't native to the web, and will get lost to history.
This it went from passing snark, not worthy of anything but a rant/downvote, into the thread you see before you.
It's a weird thought to have an archive of a currency. Imagine being able to explore the history of all the tally sticks that were used, then deliberately destroyed in 1834[1]
[1] - https://en.wikipedia.org/wiki/Burning_of_Parliament
https://cloud.google.com/blog/products/data-analytics/introd...
> But it’s not normal. It’s a lot of work to regulate a marketplace so that it’s free enough to work and innovate but not collapse, and the crooks are kept at least manageable.
> Crypto is almost entirely unregulated.
Daily reminder that the population at large has enough idiots (hard to quantify, maybe 20%?) and crooks (also maybe 20%?) that the rest of us folks in the middle need to accept regulation because otherwise all the idiots would starve and probably kill us all in desperation while the crooks would destroy everything in their path (look at Putin).
It's incredibly difficult to get money to do things that are constructive.
Of course money doesn't "want" anything. That's a metaphor. The real driver is human cognitive biases and the dopamine loop. Gambling and scams provide a Skinner box type environment that plugs right into our closed dopamine loop systems. Productive investments often do not. They take too long to mature, are too risky (individually but not necessarily in aggregate), and are too hard. The path of least resistance for economic activity is something like those casino-like loot box games but with markets and pseudo-investments.
Without heavy regulation money will just gamble and scam and gamble and scam. The only way to get it to do anything productive is to systematically block off the other avenues, which is an endless game of whack a mole against both the natural organic tendencies of human beings and the large number of hustlers and sociopaths who love to take advantage of them.
As the USA has demonstrated, this does not require a fully planned economy with a total loss of freedom. It just requires that there be barriers in place to prevent people from advertising casino chips and pyramid schemes as investments, and requiring that such things be gated at the very least by disclaimers that explain what they actually are. The term investment should be reserved for actual investments.
This is actually protecting people from fraud, which is a legitimate function of government in a free society.
Our execution of it has of course been flawed and sloppy, but that's real political systems for you. It's better than nothing. Absolute anarchy is not freedom. It's the rule of the nearest thug with the biggest stick... or the best grift in the case of markets. The "big stick" is a deceptive pitch that hooks your dopamine system and drains you.
Same principle for markets.
I haven't yet seen the "phoenix" take; where the CBDC's are unveiled as the promised nirvana and there's going to be butterflies and unicorns again. I'm sure it is out there.
2. It’s interesting the author is saying the collapse already occurred (60k->20k) but also it will continue to crash. With stocks the company’s actual assets/etc create a price floor, but with Bitcoin the theoretical floor is zero?
3. All eyes on tether, it feels like that may be the final punch for crypto.
Bitcoin has only just reached its marginal cost of production. The dynamics of Bitcoin are probably different (it doesn't take years to shut down or spin up a mine), but when they enter bear cycles, many commodities will trade below the marginal cost of production for years. The marginal cost of production itself could also fall if energy prices decline from here.
So yes, no fundamental/mathematical reasoning for why it should be 10k vs 20k vs 0.
You can assume there will always be some level of interest, so 0 is probably impossible, but can trend towards it.
Miners can collectively earn a pre-determined flow of block rewards. If the price rices, then those block rewards become more valuable. So then miners can afford to spend more on hardware and electricity as they compete to get those block rewards.
Now that the price has dropped, the opposite will happen. Miners can no longer spend the same amount on electricity, so many will be shutting down their mining rigs. Only the miners with the lowest electricity cost can keep operating. The difficulty will drop until it is once again in equilibrium with the price.
For real world resource mining, it's different. E.g. if a metal used by industry can't be mined for less than 1 $/kg, then that must put a price floor on the price of that metal (in the long term, ignoring short term price volatility). This dynamic doesn't exist in Bitcoin, which confuses many people.
Miners also need to sell bitcoin to recoup operational costs. They influence the value of bitcoin by being an active trader and setting limits to their sale price.
Current price influences future mining. Past mining influences current price.
https://en.wikipedia.org/wiki/Second_law_of_thermodynamics
This says those energy costs are lost to the universe, forever
https://en.wikipedia.org/wiki/Third_law_of_thermodynamics
And this says the underlying value is zero
However whenever I go down this thought experiment, I tend to find that the applications themselves also don't carry intrinsic value e.g. some tie to the real world outside crypto.
Are there exceptions?
There are people (especially at EY) working on using Ethereum as infrastructure for things like B2B transactions, but that's still in early stages. And here's a recent piece by Vitalik on non-financial applications of blockchains: https://vitalik.ca/general/2022/06/12/nonfin.html
The computation and distribution is very expensive, so I’m not sure what I would run on ethereum until transaction costs get down to a penny or something.
Yes, because there is no intrinsic value with Bitcoin. If a company has real estate and machinery or whatever, there will always be some value there.
[0] - https://www.tomshardware.com/news/gpu-pricing-index
Shouldn't very high inflation in US on goods priced with USD + rising global food prices actually bump up the price of BTC? I thought BTC has zero inflation baked in the algorithm, so it should actually move the opposite direction against any currency that experience high inflation right now. I want to be educated.
Turns out 'commodities' (to use the term loosely) are worth whatever people think they are worth, and that includes 'currencies' (loose term) like Bitcoin. There is no "inherent" value to anything, only the value we humans put on them.
Strictly speaking, the only things that are probably "inherently" valuable to humans are: air/oxygen, shelter, water, food. Everything else is a psychological 'trick' we play on our selves to allow for functional socities.
So in order for the price to go up when inflation goes up, we would need more people to want to buy BTC in response to inflation. This does not appear to be the case, for a number of reasons. One reason is, when prices rise people spend more (even if they don't adjust what they buy, which they often do) so they will have less money available to buy BTC, even if they wanted to. Another reason is, the economic and financial systems (including crypto) are interconnected, so disruptions in one can cause actions in another. For example, if stocks go down 70% maybe I'll sell some BTC to buy some cheap stocks. Or maybe I'll get spooked and just stop buying anything.
There's more but that's my read on it.
Bitcoin proponents will try to push that argument that Bitcoin should be the only crypto considered and all other coins ignored, but it doesn’t really work that way in the real world. Even if we look at Bitcoin as the coin and a digital version of gold, a lot of people are surprised to learn that even actual gold hasn’t performed all that well as an investment.
If you want an inflation hedge, investing in actual things that are scarce, in demand, and hard to produce is key. A digital currency that was imagined into existence with computer code can be arbitrarily scarce enough, but that alone doesn’t make it valuable. It has to remain in demand to keep the price up, and Bitcoin’s demand is almost entirely driven by speculators hoping to get rich quickly. Once the coin stops being viewed as a way to get rich quickly, the demand dries up and prices start crashing.
> The link between deflation and adherence to the gold standard, shown in table 2.2, seems quite clear. As noted by Choudhri and Kochin (1980), Spain's abstention from the gold standard insulated that country from the gen- eral deflation; New Zealand and Australia, presumably because they retained links to sterling despite early abandonment of the strict gold standard, did however experience some deflation. Among countries on the gold standard as of 1931, there is a rather uniform experience of about a 13% deflation in both 1930 and 1931. But after 1931 there is a sharp divergence between those countries on and those off the gold standard. Price levels in countries off the gold standard have stabilized by 1933 (with one or two exceptions), and these countries experience mild inflations in 1934-36. In contrast, the gold standard countries continue to deflate, although at a slower rate, until the gold stan- dard's dissolution in 1936.
> In theory, under the "rules of the game", central banks of countries experiencing gold inflows were supposed to assist the price-spice flow mechanism by expanding domestic money supplies and inflating, while deficit countries were supposed to reduce money supply and deflate. In practice, [...] no sanction prevented surplus countries from sterilizing gold inflows and accumulating reserves.
In other words, under the gold standard, surplus countries were expected to experience inflation, while deficit countries were supposed to experience deflation. Some surplus countries (e.g. France) conducted policies that prevented this mechanism from taking place by not letting the money supply grow with gold inflows. It was these policies, not the gold standard itself, what created a deflationary bias.
there is a reason people are still calling for the $400k price soon
Only if it were the only currency in the world, and the amount of value in the world doesn’t decrease significantly.
As soon as there’s more than one currency, the market could decide the relative values of the two changed overnight.
Also, if the amount of value in the world were to decrease significantly, you still would see inflation (as, for example, one can see in times of war, when the amount of money doesn’t change much, but supply for some goods falls, while demand stays the same)
Reply to self: not even then. If the people lose trust in the only currency available (say because of a rumor that the maker of it keeps printing new money), there’s always the option of going back to a barter economy.
1) Price(t) = f(demand(t), supply(t))
2) Inflation hedges have consistent Price over time: Price(t) = f()
3) By the above two, this means that either:
a) demand and supply don't change at all over time
b) demand and supply both change by exactly the right amount given external factors
Realistically, a true inflation hedge does not exist because demand is almost never constant over time. BTC has constant supply, but obviously demand will drop hugely during a depression because people would rather have food than BTC. Same problem with gold. Same problem with land. The reality is simple really: you can't ignore the environment. If you want to properly allocate resources, you're just gonna need to actually speculate correctly about what future demand and supply will be.
ahh - that's where we differ; land == food. farmland is pretty good vs inflation.
People thought that BTC would be treated like gold. Where it would act in opposition to the stock market. If you ignore all the terminology and equations, then you can focus on the behavior of the investors. If investors buy, sell, and perceive BTC as a type of stock, then it will behave as stock. As inflation occurs, it will project into the crypto market via speculative investment.
The "inflation proof" concept of bitcoin is that there is a fixed supply. So, monetary inflation cannot occur within the currency itself. However, in the context of the larger financial market, it will be affected by systemic inflation.
If you had $1M on loan (to pump some shitcoins of course), and your collateral is $2M of bitcoin at $40,000 - and the coin drops to $20,000, the system will automatically liquidate the bitcoin to cover the position. This, combined with automated stop losses and people getting out by selling (whale outs) leads to huge dives like this.
It's not decentralized. It's not free or self-sovereign. It's not honest money. It's not a store of value or an inflation hedge.
It's also not free of nation state influence. Any nation state that wanted to invest the money could 51% attack or more likely sabotage these systems in a more covert way. Nasty dictatorships like North Korea or Putinistan constantly scam and hack the cryptocurrency ecosystem to siphon off money to fund their regimes. Any state could place regulations in the way of the actual use of cryptocurrency and kill it even if the tech worked fine.
It might have been some of those things when it was small. Since then scaling problems inherent in this first generation of the tech led to all forms of hidden centralization, industrial economies of scale led to mining cartels, and perverse economic incentives (some built into the crypto system) led to it being dominated by scams, gambling, and pyramid schemes.
Its goals were not necessarily bad. It just failed to achieve them.
Edit: social media also failed to achieve many of its goals, becoming instead a cesspool of bullshit and a dragnet for surveillance. I think there's a lesson in here about how totally unique unknown unknown problems tend to manifest in interactive information systems at enormous scale. Systems behave very differently when you scale them out to millions, hundreds of millions, or billions of participants or nodes than they do at toy or early adopter scale. It's not just decentralized systems that are bitten by this. Centralized media are bitten too, just in different ways by different sorts of problems.
Do you have any evidence of which chains this happened to?
* North Korea: Missile programme funded through stolen crypto, UN report says https://www.bbc.com/news/world-asia-60281129
* North Korea’s Crypto Operations Are Supporting Its Nuclear Program https://thediplomat.com/2022/04/north-koreas-crypto-operatio...
* Could Putin be exploring cryptocurrencies to bypass western sanctions? https://www.theguardian.com/business/2022/mar/01/could-putin...
BTC is down 33% *in a month*. Its not even remotely comparable. YTD, its below 60%.
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I got some buddies in Celsius right now. Has there ever been a circumstance in "the stock market" where you've been unable to access your funds for a week, with _NO_ contact from the CEO or an explanation of what the hell is going on?
EDIT: Whatever happened to "inflation hedge" and "store of value" promises from the community by the way? No one in the stock market promised those things. But as inflation ticked up to 9%, BTC completely collapsed.
A more apples to apples comparison would be comparing crypto market to tech stocks. In which case yes there are valid comparisons.
Tech companies were playing with blockchain this past year, and are now getting burned. You've got cause-and-effect backwards here.
If you didn't live during that time, then you wouldn't know anything of that era. Yahoo was the #1 search engine. No one cared much about Google. Amazon was a book store.
Ebay was far bigger than Amazon for general purpose goods. Webvan was your hope at making the internet mainstream. Etc. etc.
The biggest "internet" company was either AOL or Netscape IMO. Neither of them really the winner over the next 20 years.
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If you lived in that era, you would know just how unlikely it was that you'd have picked Amazon or Google out of the ashes.
Chances are, you would have been caught up with Enron and Worldcom's schemes, just like everyone else was.
In any case, Celsius has managed to convince a lot of people that their 10% or 20% APY stablecoins and "staking platform" was risk free. Sometimes, these people need to have their own money burned, before they believe in the potential of risk.
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I don't know anything about internet celebrity figures. But I do know a thing or two about risk-free rates and reasonable return rates.
Celsius locked everyone's accounts on Monday, _BEFORE_ hiring those bankruptcy law firms.
By the time you heard the news of the bankruptcy lawyers, it was already too late. Your funds were locked.
The swings in crypto are just bigger, just like swings are bigger in stock market than in bonds.
You can go to the stock market and buy shares and then actually get the thing. If you buy enough shares of Ford, for example, you can walk into the factory and drive off with any car you see, because you would literally own that car. If you buy enough shares of McDonalds you could rename it to McDowell’s if you wanted.
That’s pretty different to what would happen if you bought every Bitcoin in existence.
But it’s not true. With crypto you’re buying an entry in a ledger and the hope that other people will want to buy that entry from you later.
With stocks you’re buying actual shares of an actual company with actual assets, and you now have an ownership claim on those.
Crypto is like taking the stock market and removing the only thing that actually gives stocks value, then selling the stock anyway.
Because shorting isn‘t free, and as the old saying goes, the market can remain irrational longer than you can remain solvent.
These days it is "quaint" to consider stock dividends, but in ye olde days they were supposed to be owning part of a capital machine to turn commodities inputs into widgets, selling those widgets at a profit and giving back dividends to the stock owners. If the stock was producing dividends at $1/share then the price would have a floor at around $10/share assuming those dividends held steady.
There's no floor under crypto because the incoming cash flow from people trying to get rich entirely funds the outgoing cash flow for people who are rich or who are running for the exits. Once the pool of actual money in the system goes to zero then you have more people running for the exits than are throwing cash into the system and the price discovery rapidly goes to zero.
There is some theoretical floor because if people are throwing thousands per day into the system while people are trying to extract millions per day, then if you cut the price down by 1,000 the flows are theoretically balanced. This is the proverbial "well if bitcoin goes to $50 then I'll buy a BTC every week so there must be a price floor". But at that point the exchanges have all gone bankrupt and your $50/week won't keep the lights on, so the owners of the exchanges have fled to sandy beaches with the remaining millions, or gotten arrested, or been assassinated.
This is also why you shouldn't try shorting the market. The exchange where you place those bets on may disappear.
Of course you could short Microstrategy on the actual stock market, but I suspect those options are going to be extraordinarily expensive at this point because everyone is thinking that (and BTC is not likely to go to zero tomorrow, its likely to keep shuffling on like a zombie for months[*]).
[*] I suppose I should more accurately assert that nobody knows when it'll go to zero and the problem is timing it accurately because shorting always has a time-cost, and I certainly don't know how to do that. But it does seem to be running pretty hard into a brick wall at the moment. My statement is less of a prediction and more of a rationale of why I'm not running out to short Microstrategy right now.
Do they? If there were no magic 10x, 100x, and 1000x returns in crypto and it only solved the centralization problem, would even 1 out of 100 current crypto proponents still care about it?
I'd argue it's the risk of volatility which both drives high returns and suppresses these uses, so a stabilization of market prices would eventually see growth in these use-cases as their potential audience puts proportionally less weight on the risk-factor.
One might not see 1 out of 100 current investors remain, but do think that these audiences could grow to equal or surpass such a small segment of the current interest.
Right now the belief of most bitcoin/crypto adopters is that it’s a way to get rich quick
Like most macroeconomic forces, it matters more what the majority believe to be true than what the vision is for something, whether it’s true or not.
But that's besides the point, croins failed as currencies and are closer to investment vehicles (without fundamentally valuable assets underneath).
The problem is bitcoin is being treated like an investment because of “greater fool theory” and no one is treating it like a currency in any meaningful way. It’s crashing because it’s not showing its value as an effective currency. At least not yet. Right now it’s a store for excess liquidity and that makes it too volatile to function as a currency.
A bit tired of these “Bitcoin is dead” articles. They almost never adds anything to the discussion.
Most people on HN accept that there is some use for some cryotocurrencies.
I would say the opposite. It's rare to see anything positive or even neutral.
I expect that's a false-consensus bias. But without some kind of survey we can't be sure.
There's no one else to "grow" the audience anymore. Cryptocoins are 100% within the mainstream consciousness.
There are now three kinds of people out there:
1. People who know about Cryptocoins and never trusted them. (They saw the superbowl commercials and decided it was stupid).
2. People who bought in within the last 2 years (because of the big advertising spree) and only know what a 60% loss on their assets feels like.
3. People who bought in _before_ the last 2 years, a very, very small minority of people.
#3 is not enough to return BTC to $60,000+ heights. And with #1 and #2 distrusting the coin now, I dare say its over.
Type #4: "ignorant" people who haven't heard of BTC yet, are completely non-existent now. Superbowl commercials, Cable News, Facebook ads, and more have ensured that everyone has heard of this by now.
El Salvador? Hong Kong with Three Arrow's Capital collapse? Russia with its collapsing economy?
I admit I'm ignorant about many parts of the world. But the parts of the world that "matter" with regards to propping up the price of BTC, are the parts that have money. That narrows the list significantly.
* In Asia, there's China, Singapore, Japan, Philippines and a few others. I'm watching anime make fun of Blockchain (Japan), Three Arrows Capital blow up in Hong Kong, and Axie Infinity completely screw over working class Filipinos.
* Europe largely knows English and are just adjacent to the Anglosphere. (I'd expect the French and Germans etc. etc. to know about this whole crypto-nonsense by now as well)
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I guess I'm ignorant about India and some other corners of the world (and Indians know a lot about English anyway and would be adjacent).
Who in the world do you think can be brought into this cryptocoin nonsense now? Where can the cryptocoin world find "new converts", who have enough money to make a difference?
All the 'crypto' stuff can go. This is the opposite. When people understand them, they'll sell.
But, if you're a trader and know what you're doing, taking advantage of bear markets is fine of course.
I think I've figured out why you've never met one of these people.
Majority of people who would want to invest in Bitcoin has already done so.
How do you know that? Why can't the market grow as time passes?
In the USA, you cannot get "more popular" than a superbowl advertisement. And there were dozens of Superbowl ads on cryptocoin this past year.
Those companies make money with their customer base. Coca Cola has the ability to turn 40-cents worth of water, sugar, and flavors into $1 dollar worth of sales. Not only that, but customers are happy with this exchange (and will likely keep making this exchange... at least until people stop liking the taste of sugar).
Even without growth, those companies are insanely profitable. Because Coca Cola has a 3% dividend (and its assets are likely inflation-protected), they're a very safe bet.
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BTC makes no profits. In fact, the entire BTC system consumes tons of electricity constantly. So we can see that moving BTC around costs real resources, but no one seems to have explained to me where "money comes from", aside from a greater-fool.
> BTC makes no profits. In fact, the entire BTC system consumes tons of electricity constantly. So we can see that moving BTC around costs real resources, but no one seems to have explained to me where "money comes from", aside from a greater-fool.
Transaction fees.
You had your best shot at converting them last year, when they were ignorant, and hadn't lost $10,000+ on it yet. Today, they're going to be mad at their losses, the lies, and the fraud, and the outright stealing / locking of accounts.
The people in category #2 are almost certainly, permanently, lost. You can't just play with people's savings like this and expect them to trust you.
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This isn't like a "normal cryptocoin crash". Celsius, and now Gemini, account holders are unable to withdraw funds. Who knows how far this financial-contagion will spread?
What's going on right now is a fundamental loss-of-trust.
The price goes up, the price goes down. That's not the important bit. Locking down accounts and destroying goodwill is the problem with this crash.
Your friends sound like degenerate gamblers. What does that have to do with having a balanced portfolio with a percentage in crypto? More people are going to do this.
Investing in crypto doesn’t mean having all your wealth in it.
I said "locks up". Celsius is likely insolvent. Gemini is only at the stage where there are withdrawal issues.
BTC probably has to drop a bit more before Gemini collapses and/or becomes insolvent, but the issues have begun (like Binance). The other crypto-lenders all locked up like this as BTC dropped from $30k to $20k, it looks like Gemini is stronger but its beginning to have withdrawal issues now.
If BTC keeps crashing, other crypto-lenders (including Gemini) will be wrecked. Its just the nature of how those systems work.
Gemini doesn’t have withdrawal issues. Misinformation only makes your position look weak.
Crypto exchanges always run into platform issues when volume is high. Everyone claims it’s a giant conspiracy because 10x engineers could never fuck up this bad. Well, they can and do.
Your claim Binance is going under is laughable as well. You have zero understanding of this market.
Sure thing bud.
https://www.reddit.com/r/CryptoCurrency/comments/vf6spv/gemi...
> Crypto exchanges always run into platform issues when volume is high.
They also seem to be running into platform issues when they're running out of money.
Volume was high on the way up. Volume on the way down is... much less than before. Coinbase (and others) have laid off thousands of workers because BTC volume has declined precipitously.
This ain't a volume problem. They're just pretending its volume.
Cashed our 7 figures last year. I’m good.
e.g. it's not like Indian celebrities haven't been hyping crypto like western celebrities: https://www.ndtv.com/business/bollywood-stars-endorse-crypto...
"The West" has about a billion population also (370m USA+CA, 600m Europe minus Russia, 30m AUS/NZ). That's not inherently a reason for crypto have potential for another boom cycle here, nor is it inherently the same in India.
https://www.theguardian.com/technology/2021/jul/31/out-of-co...
This is the biggest problem for crypto skeptics.
They surely add to the list:
https://99bitcoins.com/bitcoin-obituaries/
I'd like a pony while you're at it.
Most of the non crypto companies were not profitable when they IPOd the last few years and many still are barely profitable.
We can say the same about companies that made open source software and we’re going to make money via “services or supper contracts”. That hasn’t worked out well for mLabs or ElasticCo.
Most startups are just Ponzi schemes.
The crypto whataboutist apologies are something else.
Sounds like a good investment to me.
1. Amazon had positive margins early on and was reinvesting money to build infrastructure and real assets. Most startups aren’t. All Bezos had to do to turn a profit at any time is stop building warehouses.
2. Amazon completely pivoted and almost all of its profit comes from AWS. And no Amazon did not use excess capacity to start AWS. It was built from the ground up as a separate service [1]. Every company likes to point to Amazon and say we can do it too. That’s just like a company claiming if they bring their former CEO back after 10 years they can become a three trillion dollar company.
And standard disclaimer since you brought up Amazon, I work at AWS.
[1] https://readwrite.com/popping-the-amazon-web-services-capaci...
How is that a Ponzi in any sense? It’s not like Elastic makes money from selling its own stock on endless promises. The product exists, works, and generates a billion dollar in sales. The valuation may not be attractive, but it seems clear to me that this can be a profitable and stable business if they decided to stop buying growth.
https://www.elastic.co/about/press/elastic-reports-strong-se...
What is Elastic doing to “buy growth”?
If they stopped doing those things and just served the existing customers who bring in the $1B revenue today, I’m guessing they could be profitable fairly quickly and start paying dividends (or returning capital through stock buybacks).
But that kind of stable enterprise software company would be mostly attractive as a takeover target for a larger player or private equity; it’s not the story that investors in public markets want to hear. So Elastic’s valuation would be slashed.
This doesn’t make the company a Ponzi though. Seeking growth is a valid strategy and one that’s still sought out by many investors despite the valuation correction from last year.
"Ponzi scheme" has a specific meaning. Many cryptocurrency projects appear to fairly closely fit this meaning, while "for-profit business that's making year after year of losses and being propped up by VC funding" does not.
Not everything that's a very bad investment—or even outright fraud—is a Ponzi scheme.
BTW, the party has stopped for non profitable companies.
Most startups (in the tech sense) are ventures. They are attempts to generate new cash flows and create something new that didn't previously exist (or a new twist on something that already existed).
They are unproven. They are risks. But the vast majority are not Ponzi schemes.
1. Investors pour money in to companies not hoping that they become profitable. But hoping they can get their money back via an IPO while they are still not profitable.
2. The investment bankers dump their allocation at IPO and get to take advantage of the hype. Then sell the stock to retail investors.
3. The retail investors fall for the hype even though the company still isn’t profitable and the stock price drops?
That’s the definition of a “Ponzi scheme”. Everyone throws good money after bad hoping that there is a “bigger fool”.
At that stage of a business, you wouldn't be taking seed-stage or series-A funding; it'd be series-B or series-C — where the type of investors who do those investments are just as risk-averse as banks, and are looking at essentially the same things banks look at.
At that stage of a business, you know there isn't anything on the horizon that'll kill your share price. Your market cap is stable (save for the growth you're trying to enable.) So you should be extremely wary to let go of any more equity. You should highly prefer debt-backed investment (i.e. loans) over equity-backed investment, because your equity value increase from the growth should be predictably paying off that debt, and then some, likely the same fiscal year you take on the loan. Selling any equity at that period in a company's growth is throwing earnings down the drain.
You can't. Be serious.
Most startups have no revenue. What bank would lend you money?
And 10% interest to preserve your cap table and board?
For example, the company has been growing 2x per year for the last few years and there's a good chance this will continue for the next several years. But only if the company invests a massive sum of money with a substantial risk.
While I respect your decision, if we are talking about technical exposure to interesting challenges, I think you're leaving a lot on the table by defaulting to no-hire.
I kid.
For me it means that I can finally buy a GPU at a reasonable price.
- The proof-of-stake chain has been running for a year and a half.
- They've tested every combination of five execution clients and five staking clients, and they all work.
- They just migrated a large long-running public test network to pure proof-of-stake, and it went well enough to have been considered very successful if it had been the production network.
- There are two public test networks left, and if those go well too, there's nothing left to do besides the production migration.
And this is considered easy/low-risk?
It seems like the most frightening part, although perhaps less frightening as the crash continues.
At some point, you have to accept that you've done all you can, and ship.
https://mobile.twitter.com/martybent/status/8967755346586869...
But damn that is a huge drop, good time to buy? Or is this really going to now be a hard time for crypto? I think bitcoin is just too confusing to be mainstream and i don't see much need for it.
I would say it's not guaranteed to repeat exactly - but for reference $18,600 would be that point. It could go lower, due to other market factors (recession, defi time bombs, stablecoin insolvency, etc) but it seems to follow this path.
In late 2020, the bitcoin exchange rate began a meteoric rise. One hypothesis was that this steep rise was foreshadowing massive inflation ahead. It was, of course lambasted as ridiculous. Inflation was dead and everyone knew it.
Fast forward to 2022 and an inflationary spike is bearing down on the economy with its jaws wide open. It has taken central bankers everywhere by complete surprise.
Now the bitcoin exchange rate is collapsing. The article's take on "what this means" is something along the lines of a fool and his money are soon parted.
What the article never considers is the possibility that this collapse in exchange rate is the canary in the coalmine signaling that inflation is about to fall off a cliff. Money is being destroyed at rate that central bankers can't even fathom, at the same time they're raising short term interest rates and starting QT. This would have very ominous implications for the world economy if true.
The financial collapse starts with Bitcoin because it's the most highly-levered and least regulated market. It now feels the brunt of the global monetary ebb and flow first.
Only time will tell how accurate this interpretation is. But if it's true, there will be far more important things to worry about than the schadenfreude of scammers getting their comeuppance.
Thanks for the analysis. Could you please elaborate on this last point?
At the extremes, the billionaires will be able to escape to New Zealand or some island retreat; the rest of us, including the middle class, upper middle class, wealthy, and the independently wealthy — even double or triple digit millionaires, could be very screwed.
Correlation does not ...
> Do your research.
Thousands of times this has been brought up and debunked. Tether is minted when there are new fiat deposits. It's the influx of fiat money that is creating new tether and raising crypt prices. That's how it is supposed to work. Nothing suspicious about it.
Note: I have no idea if Tether had and/or still has all the assets backing all the minted Tether, and maybe it will collapse in 5 minutes so I'm not here to defend them, but before you tell other people to do their reserach, maybe you should do some yourself, and go with some more educated criticism.
Fear is what's driving this slump right now, and tether is a big part of it.
I don't understand macroeconomics but "government spending causes inflation" is a pretty mainstream ideological precept - the opposite opinion is fringe.
Edit: maybe I didn't put enough weight on "massive" when reading the above comment
https://www.wsj.com/articles/on-inflation-economics-has-some...
It's hard to understate the degree to which fed economists didn't see this coming.
It was pretty obvious what was about to happen!
Hoo boy.
"the current Fed chair, Jerome H. Powell, has dismissed claims that the Fed’s money-printing is fueling today’s price spiral, emphasizing instead the disruptions associated with reopening the economy. Like his most recent predecessors, dating to Alan Greenspan, Powell says that financial innovations mean there no longer is a link between the amount of money circulating in the economy and rising prices"
https://www.washingtonpost.com/business/2022/02/06/federal-r...
You're right that the idea government money printing doesn't cause inflation is fringe absurdity. Unfortunately the fringe that believes in it are central bankers.
What seems more likely?
- Central bankers who control the economy do not understand the basic principles of the system they manage.
- They lie about their motivations for political reasons.
The more interesting question is, if you incentives are strong enough to want to deny the nature of a system, do you become a liar or do you genuinely stop understanding it? Was Yellen's bafflement at the non-transitory inflation a mere act, or was it genuine confusion caused by a core corruption of her own understanding of basic economics?
The argument of dumbest meaning is just to say that the BTC bull run was just because of a bunch of bored people speculating.
I feel like I'm almost alone in seeing no real purpose in the existence of cryptocurrencies per se; but nevertheless believing that there's value in the technology ecosystem of crypto/DeFi (e.g. in smart contracts as a substrate for security tokens; in NFTs as legal deeds; etc.) entirely independent of the existence of cryptocurrencies.
If Bitcoin and other "just a currency" ledger-platforms ceased to exist overnight; and the value of Ether and other "distributed-computer eStamp" currencies went to near-zero; and only stablecoins backed by governments continued to exist as representations of "stored value" on these platforms — these distributed-computer platforms would still be useful substrates for fin-tech innovation. They'd just be free of speculation + Ponzi schemes.
Security tokens would need to follow the same securities laws as centralized solutions but I can see an advantage in having liquid shares. Price discovery would be pretty powerful. Although the founders might not like what happens to their valuation.
Which securities laws? I'm imagining you are talking about the US as this site is very Silicon Valley centric but not every company is based in the US and there are over a hundred different jurisdictions in the world. US laws aren't the end all be all and the way things are going they might be even less relevant in the future.
We are living in an incredibly global society and there is currently no global governance layer that covers global public goods and digital-only projects. We'll likely develop something in the future but today there are entrepreneurs creating applications and projects at the species level that have no defined state owner and it wouldn't make sense to assign them one.
It’s a shitty way to do it. No criminal would ever use crypto if <insert legal payment frameworks> were accessible to them.
Of course you also need to go through p2p on both sides and the volatility is a problem, but both of these are tolerable depending on circumstances.
If crypto was better and cheaper for remittances, then Western Union would already be using it - they've certainly been experimenting with it for most of a decade. Companies can be stick-in-the-muds, but not that much of stick-in-the-muds.
Give it a rest.
Meaning that you can trade billions on it's ups and downs, and make profit this way. Anything that can generate profit is valuable. Notice how the big exchanges, Binance, FTX are worth tens of billions of dollars, and their owners are deca-billionaires, thus kind of proving this thesis, because exchanges are first in the line to extract profit from volatility through transaction commissions.
TL;DR: bitcoin is backed by it's crazy volatility
The whole Eth blockchain has as much compute power as 1/5,000th of a raspberry pi.
It’s an insanely inefficient non-scalable tech. To sacrifice many orders of magnitude of performance, while pumping a whole countries worth of C02 into the atmosphere, just to have a system that is “decentralised” makes no sense.
None of the applications can be properly decentralised. Your house deed stuff needs to be enshrined in law, enforced by police etc., your NFT tickets need the venue to validate.
Just stop it. It’s junk. The planets future is perilous enough already.
Proof-of-Work blockchains are a strawman. Nobody in or out of the ecosystem thinks they should exist. They're a legacy technology sticking around on inertia; the mainframes to Proof-of-Stake's microcomputers.
> None of the applications can be properly decentralised. Your house deed stuff needs to be enshrined in law, enforced by police etc.
So? I didn't say anything about decentralization. I believe that these distributed-compute platforms that use signed append-only ledgers as shared storage ("blockchains") are a better way to do regular old centralized fin-tech. (Like I said above: security tokens. Those are embedded in a specific nation's regulatory environment!)
(See also: https://www.bankofcanada.ca/research/digital-currencies-and-...)
However, there is a very specific case that blockchains enable that traditional finance doesn't — and that's "multilateral agreement with no shared legal framework." E.g. a person in the US making a contract with a citizen of North Korea. If these two people get into a dispute, there's nothing their governments will do to arbitrate that agreement. But they can at least rely on technological mechanisms to enforce certain rules about what they can and cannot do to screw one-another over (e.g. requiring 2-of-3 multi-signature validation to remove value from an escrow holding account.)
> your NFT tickets need the venue to validate
They need a venue to validate. If one supplier is willing to take another supplier's "tickets", so to speak, then you now have an economy.
Let's say these NFTs are game licenses — if the Epic Games Store went under, Steam could say "we'll accept Epic Game Store licenses to download+activate games on Steam" as a PR move. Do that a couple of times, and now you have an economy of transferrable game licenses, maybe with an industry body that governs their issuance acceptance.
I'm not saying that this happens by default; but rather that this end-state is the point of the technology; and anything else people do with it is basically noise.
If you have a trusted counter- or third party, the rest can be done and is literally often done by email (sometimes even signed!) and spreadsheets.
Well, yes; signed email sent through anonymous remailers hosted by a network of peers (e.g. Mixmaster) is the direct ancestor of blockchains. Designed by the same group of people (the "cypherpunks"), even!
Blockchains just add to Mixmaster-like networks a shared reputational-currency ledger with some inherent means of acquiring a balance on it, to facilitate the feature that spam-email-solution-proposers call "eStamps" — which prevents blockchain networks from being flooded with spam transactions, while also not requiring per-account identity verification. (Remailer networks had to deal with a lot of spam in their pursuit of anonymity.)
Essentially, blockchains are a formalization of "signed emails and spreadsheets."
However, there's a specific thing you get from blockchains' peer-to-peer distribution, that you don't get from "signed emails and spreadsheets" in this example use-case.
The problem is reconciling the state when the person in the US doesn't trust any computer hosted/set up by the North Korean, and vice-versa. They can pick a third party, but how do they collaborate to set up the escrow system to enable the third party to reliably send their third signature; when the future two of them now disagree and are actively trying to trick one-another into thinking that e.g. the third party cannot be reached?
Even if the third party hosts the escrow system themselves in some neutral country — the two of them probably would just DoS-attack that centralized system to prevent the third party from issuing their judgement.
Presuming a big-enough blockchain, and anonymity for the arbitrator (enabled by the "eStamp" ledger property), you can't effectively silence the third party from publishing to it.
They absolutely do not, at least not successfully so far.
Which blockchain has solved the Sybil attack (a precondition for establishing any kind of reputation/rating system)? Which blockchain has successfully bridged physical and digital trust?
Proponents keep coming up with the wildest use cases, like "decentralized carbon emission tracking" or "trustless logistics". I absolutely agree that these would be really nice things to have, but so far I've seen absolutely nothing that would convince me that there is a solution somewhere in there.
For the North Korea / US businessman case - I literally cannot come up with any scenario where legal jurisdiction or some external force (police, lawyers, asset seizure) is not needed to enforce the contract. How will the computer know the contract has been breached? Who's going to tell the system what the breach is? Give me an example and I'm happy to reconsider.
Meanwhile, in reality we have a system for this, where judges and lawyers make those calls, and enforce them with the help of police. There's a reason why cross-border deals are risky (enforcement), and no computer is going to solve that.
especially when you have to go via Infura to get any work done on Ethereum - that's a glaring hard dependency that everyone pretends isn't one, as if anyone's going to telnet to port 30303. Approximately everyone just uses Infura, and Infura outages and sanctions enforcement affects the whole Ethereum ecosystem.
What would be the advantage over the government just running the databases for that as well? If there is a central trusted issuer, there is no need for a blockchain.
Also, you seem to be thinking like currencies (whether fiat securities, or decentralized autonomous securities) are the central point — or only point — of blockchains. This is true of "ledger-only" blockchains like Bitcoin — which is why I say those would be mostly irrelevant.
But in decentralized-computation platforms like Ethereum, there are lots of other things going on; and I'm not suggesting to limit any of that stuff to only fiat/regulated use-cases. My argument is against cryptocurrencies (decentralized autonomous securities) specifically; not against utility tokens, governance tokens, DAOs, virtual pets, or anything else people do with blockchains. All that stuff is inherently global — and it would make no sense to have to "shard" the state of any of it onto into separate ledgers per legal regime. The legal regimes can come to the distributed computer, not the other way around.
> But in decentralized-computation platforms like Ethereum, there are lots of other things going on
What are they? Please name one successful, trustless Ethereum use case beyond DeFi.
The blockchain isn't connected to anything; most importantly, it's not connected to a legal system capable of interpreting and adjudicating contracts and reliably passing judgement on real-world properties that are the subject of those contracts.
Yes, it would be absolutely great to have an "API for the legal system" (and by extension the financial one), but I doubt that blockchain brings anything of significance to the table here. (Distributed consensus might well be a component of such a system, but arguably not the most important one by a long shot.)
(Also: still massively overpriced)