
Professional Traders Show Interest in Bitcoin - mrb
http://www.reuters.com/article/2012/04/01/traders-bitcoin-idUSL6E8ET5K620120401
======
ScottBurson
There's a great punch line if you read all the way to the end. But I'll save
you the trouble. The set up:

 _Banking and payment expert Simon Lelieveldt believes [Bitcoin users] are
living on borrowed time. "There is always a power base underlying a currency,"
he said, speaking at the Digital Money Forum in London in March. "Bitcoin is
not going to fly because there is no central bank or power base. It's doomed
to fail."_

And then, at the end:

 _"To be clear, I would say the same about the euro," said payment expert
Lelieveldt._

~~~
otoburb
I thought this link was a Reuter's April Fool's joke.

~~~
stuhood
Dated April 2nd.

------
user0398
Bitcoin has already served it's purpose anyway. It already is a currency that
people exchange for goods and other government issued currencies. It doesn't
really metter what anyone thinks. Bitcoin has already succeeded. The only
question that you need to ask is; Is it something you should invest in?

My personal answer? No. But who cares what I think. It's simply non
productive, and frankly non-scientific, to stand up and say "Here's why
bitcion is going to fail..." because it doesn't matter, it has already served
its purpose.

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

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

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

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

[1]
[http://bitcoincharts.com/charts/mtgoxUSD#rg60ztgSzm1g10zm2g2...](http://bitcoincharts.com/charts/mtgoxUSD#rg60ztgSzm1g10zm2g25zv)

~~~
Estragon
Your post raises a couple of questions for me:

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

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

~~~
cube13
Re: 1:

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

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

Re: 2:

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

------
api
Bitcoin's "demise" is greatly exaggerated. I still think it's a big thing.

~~~
keen
Agreed.

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

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

~~~
stuhood
Since the block reward is the only source of 'new' bitcoin, the rate of
bitcoin creation will be halving as well. So there will be two competing
effects:

1) 'monetary' inflation will decrease, because the rate of bitcoin creation
will drop from 7200BTC/day to 3600BTC/day

2) miners will be earning half as much when denominated in BTC

If the decrease in inflation doesn't cause a large enough corresponding
increase in price, mining would be less profitable, causing some fraction of
miners to drop out, and meaning longer transaction confirmation times (for at
most 2 weeks, while the network adjusts to the change in capacity).

My guess is that the huge change in inflation will adequately compensate both
miners and investors, and cause a significant enough increase in price to
avoid lengthening confirmation time.

<https://en.bitcoin.it/wiki/Controlled_Currency_Supply>

EDIT: by inflation, I mean 'monetary' inflation, rather than price inflation.

~~~
maaku
> ...and meaning longer transaction confirmation times (for at most 2 weeks,
> while the network adjusts to the change in capacity)

To be clear, it wouldn't be two weeks. The network adjusts every 2016 blocks,
which under normal circumstances would be approx. 2 weeks. Typically it's a
little less as new hash power comes online, but in the case of a drastic loss
of hash power, it could be much much longer than two weeks. We saw that with
namecoin where it took almost half a year between adjustments (or would have,
if developers hadn't intervened with merge mining).

------
Iv
To be fair, everything that has a price vraying in time will interest traders.

------
adrianwaj
I have a gut feeling that the bitcoin price will eventually explode. I don't
know when, how or why, nor am I putting my money where my mouth is, so I don't
say it. But unless some other substitute system is devised, I suppose the
crash of fiat currencies would cause it. But in this case I think gold would
be better.. or would it?

add: I heard someone talk about India buying oil from Iran using gold now - if
gold replaces the petrodollar, that might trigger something. The sanctions on
Iran could ultimately affect bitcoin by way of new oil trade with Iran in gold
that doesn't include the Western bloc of nations. Oil4bitcoin might make an
interesting website.

------
sgornick
"A spokeswoman for the German Bundesbank told Reuters it was not classifying
Bitcoins as e-currency.

She said EU law required only euros to be accepted as legal tender, but this
was superseded by German law that allows those involved in a contract to
determine its content. So Bitcoin is at least not illegal there."

It wasn't even a year ago when the German organization BVDW (The Federal
Association of Digital Economy) put out an alert: "We assume that, on
substitute currencies' like Bitcoins sooner or later be banned by
legislation,"

\-
[http://bitcointalk.org/index.php?topic=11061.msg158226#msg15...](http://bitcointalk.org/index.php?topic=11061.msg158226#msg158226)

------
3pt14159
Bitcoin is mathematically flawed. There are at least two attack vectors that
someone with a million bucks or less could pull that would require manual
overrides on the code, which, as nobody likes to talk about, is possible.

edit: Disclosure: I made a bunch of money getting in on bitcoin early and then
selling out at around $22. It was at that point where I looked at the whole
system and determined the attack vector.

Also the only way to get bitcoins securely is to buy and sell them for cash.
And even then there are ways of figuring out who is who.

The next thing will be the right thing, but this isn't it. The long term
picture for bitcoin, unless completely overhauled, is bleak.

~~~
unimpressive
The cost of such attacks will go down as bitcoin ages.

As I understand it the bitcoin rewards of mining go down over time. If the
rewards go down over time, eventually it won't be profitable to mine bitcoin.
So the speed of transactions goes down and the network becomes weaker because
theres less cooperating computer time on it.

Maybe I just don't get bitcoin. But if true that seems like a fundamental
problem.

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

~~~
unimpressive
This is the answer I was looking for. Thank you.

------
dsrguru
"The Royal Canadian Mint ... said Bitcoin's biggest problem was that it is not
backed by anything."

I don't think that's why consumers would fear it being unstable. It's probably
more that they're afraid most of the current users aren't using it for its
intrinsic advantages over regular currencies, but are rather investing in it
as speculators (and will, therefore, eventually pull out). Since it was
designed in a way that made early adopters super rich, it lends the appearance
of being the very kind of investment bubble that Bitcoin advocates criticize
the banking industry for creating.

~~~
kylebrown
> _it lends the appearance of being the very kind of investment bubble that
> Bitcoin advocates criticize the banking industry for creating._

The quote encoded in the genesis block by Satoshi (creator of bitcoin) was
probably a criticism of fractional reserve banking rather than investment
bubbles per se. _"The Times 03/Jan/2009 Chancellor on brink of second bailout
for banks"_

But there are plenty of bitcoin advocates who tirelessly criticize bitcoin
speculators for causing its price volatility. Not that price volatility is
unique to the bitcoin market (its the same with oil, stocks, gold/silver,
commodities in general, real estate, bonds, etc. etc.).

------
patrickk
A GitHub project for trading bitcoin:

<https://github.com/viorels/mtgox-trader>

I've no interest in trading bitcoin, but I am interested in learning about
making Python bots (in order to hack web games for fun and profit), which is
how I found this project.

A quick google search turned up this blog about bitcoin trading for those who
are interested:

<http://btctrading.wordpress.com/>

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

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

------
jakejake
I've read about Bitcoin various times and I'm confused about what "mining" is.
Maybe somebody could set me straight? Are Bitcoins currently generated by
anybody who wants by solving difficult math problems? If so, is this CPU power
being used for something, or just a way to tie the value of the currency to
something tangible?

~~~
Animus7
Mining is peculiar in that is serves multiple goals.

On the one hand, it solves the problem of seeding the network with coins.
Otherwise, how could you kick this off in a fair way?

Secondly, mining "solidifies" transaction blocks, which acts as transaction
verification for the network. Mining basically acts as prevention of "double
spending" of coins.

Finally, mining keeps the money supply scarce (necessary for any currency)
because despite everything just being bits, you can't just fake new coins
without expending enormous amounts of computing power -- you need to prove
you've done the work by solving hashes.

The bitcoin wiki has pretty good technical explanations of all of this.

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

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

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

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

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

------
wisty
That's great news, as they are sure to stabilize it, right?

------
soup10
Bitcoin has several huge flaws that make it just a toy. The first is that it
is insecure. As seen by the constant incidents of stolen and lost bitcoin's.
Physical currency is much more secure than a string of bits sitting on a hard
drive, the solution to this is having bitcoin banks that assume responsibility
for the bits, but that defeats the purpose. The second is that it's much less
convenient than cash. The third is that the distribution system is set up as
ponzi scheme where early adopters reap enormous amounts of wealth if they
recruit more bitcoin users(which is why the bitcoin astroturfing is so
persistent), people generally don't like participating in ponzi schemes.

In addition to this the implementation is known to be technically flawed and
vulnerable to attack. The system is easily disrupted by a sufficiently
interested and funded party.

~~~
ewillbefull
I don't know if this is a troll post, but I'll humor it anyway.

> The first is that it is insecure. As seen by the constant incidents of
> stolen and lost bitcoin's.

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

> Physical currency is much more secure than a string of bits sitting on a
> hard drive

This isn't really substantiated by anything, and I implore you to read about
paper wallets. But you're also ignoring another useful characteristic of
bitcoin: coins cannot be counterfeited, unlike any other currency. They are
crytographically ensured.

The security of your funds is not inherently endangered by the network by any
means. I can accept bitcoin donations anonymously and there is no _way_ they
can be targeted without additional context. With physical transactions, there
is always location.

> The second is that it's much less convenient than cash.

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

> The third is that the distribution system is set up as ponzi scheme where
> early adopters reap enormous amounts of wealth if they recruit more bitcoin
> users(which is why the bitcoin astroturfing is so persistent), people
> generally don't like participating in ponzi schemes.

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

~~~
politician
You'll admit, though, that a bitcoin lost is lost forever, and that at some
point the rate of lost bitcoins will exceed the rate of newly minted bitcoins.
Even if it attains 100% adoption, the current system will simply dissipate.

In that sense, if not insecure, it certainly isn't resilient.

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

~~~
politician
> There is no requirement for any number of coins to be in the system.

The math works out such that there are a precise number of bitcoins in the
system, ~21M IIRC.

> The amounts are infinitely divisible.

8 decimal places.

Is that alot? Yes, but my point was that the current system is leaky. The rate
of leakage may not be too bad now, but as the adoption rate goes up more
careless nontechnical folks will get involved. _Those_ people _will_ fail to
backup their wallets; that BTC will evaporate is an inevitable consequence of
success.

~~~
Anderkent
>8 decimal places

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

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

