
Why you can’t cash out part 1: Bitcoin’s “price” is largely fictional - davidgerard
https://davidgerard.co.uk/blockchain/2017/12/17/why-you-cant-cash-out-pt-1-why-bitcoins-price-is-largely-fictional/
======
josephagoss
You can cash out Bitcoin and the price is actually very accurate. The money I
see in my bank account is real I can assure you of that. Also I know friends
that cash out six figures at a time and the price they get is within less than
1% difference to the last sell price.

The number is accurate enough for most orders under $10,000,000. Has this
person actually traded Bitcoin?

You might not be able to sell a large order to the cent, but with Bitcoin you
are certainly able to cash out within less than 1% of the listed price. I move
orders around a lot and I see real money, so I know it's not fictional. In
addition I frequently use an exchange with about 100 times less volume than
the USA exchanges.

Also shares have a spread too.

The Bitcoin order book is not razor thin, unless you are trying to sell
$10,000,000 in one go. Then you just need to spread out the sell over about 5
hours.

Also the issue with arbitrage isn't the Bitcoin side of the transactions, it's
often the USD or AUD side.

But arbitrage does work and the price is much closer worldwide than it used to
be.

These little islands that the author talks about range from $1,000,000 24 hour
volume for the smallest exchanges to $200,000,000 24 hour volume for a mid -
high size exchange.

TL:DR I can assure you the price is real, cashing out is easy and viable. If
you want to cash in $10 million just expect your limit order to execute
gradually over about 5 hours.

~~~
sytelus
Article author actually makes a great point and it stands regardless of your
ability to cash out within 1%. Big investors on current markets can whip out
huge profits for themselves by using techniques such as front running, wash
trades, willybot, spoofing etc. Exchanges are not even prohibited from doing
their own secret trades and using their own internal database and full
knowledge of all other players.

If you are a trader with deep pockets, you should immediately realize all
above established techniques (which is illegal on stock market) can generate
you huge profits in no time in crypto market. Big players would literally have
all the strings to play the market according to their will. Currently prices
are 100X higher and 1% difference seems irrelevant but in mature markets 1%
move is news worthy event.

I think its also worth pointing out that less than 1000 entities owns 40% of
the bitcoins. I wouldn't be surprised if set of entities are willing to burn
short term cash to inflate the prices just to attract other large scale
investors in the game. This is like burning tinder to start the fire. The end
game usually is massive cash outs as soon as fire has started. Typically this
would kill the fire but in some cases it may keep going. In any case, the bad
news to small investors is that expect to get killed at any point in time when
your big brother decides to cash out. Until then, party on.

~~~
wegschmeiss
> Until then, party on

Indeed. Earlier this year, mid-summer, I got curious about all this, so I
decided to start an experiment, uploaded $100 to an exchange and started
trading and programming against their API. Today, I am running fully automated
bots which are winning, got about $25k in exchanges and cashed out about $15
to my bank account (no problem cashing out btw). That's 40000% in 6 month.

So all of this is absolutely crazy. I don't believe this can go on forever.
But until then, yes, party on.

(I am using a throwaway for this - not being any careful, moderators should be
able to easily track my other account if they want. I just don't want to
associate my other account with this post.)

~~~
hellbanner
Care to share general outlines of how your bots work?

~~~
ceejayoz
"Buy Bitcoin, hold Bitcoin, buy some more Bitcoin."

It'll work until it suddenly doesn't.

------
baddox
Don’t all of the complaints about exchange rate and market cap apply to
virtually any other item that is traded? Spread exists in forex and stock
markets. Market cap is extremely commonly cited for stock markets.

Sure, the effects may be stronger in Bitcoin due to its higher volatility,
lower volume, etc., but that should be the author’s argument, instead of “if
you don’t know the basic Finance 101 definitions of some common terms, then
you might get confused.”

~~~
davidgerard
(author here) This is targeted to the general public, who do actually need
Finance 101, because they really don't know what they're getting lured into by
the mindlessly positive articles and headlines in the mainstream press. Mostly
written by people who don't understand either.

I actually consider it seriously unethical to market cryptos as an investment
to retail investors - they just _do not understand_ the insane levels of risk,
including the actual _exchange_ as a threat. And yes, I know what Bitcoin's
pitch is. I still think it's unethical in practice, and this bubble is going
to show why.

Market cap makes more sense for a stock, because it's in the range of the
value for a company, and a whole company is something that does get bought and
sold. This idea doesn't make any sense for a crypto.

~~~
twelve40
But at the end of the day, how is it different from the current equities
market? (aside from immature tools and imperfect infrastructure that is just
shaping up). Stock market can tank 50% like it did in 2009 (together with the
real estate market) and your average investor will be screwed just the same.
Even tech and fundamental analysis gurus cannot explain the endless bull
market we're on, how is getting lured into stock market with positive press
today is any different than BTC? Currently both are different forms of
gambling imho.

~~~
cdoxsey
Investing actually achieves something.

When I make an investment in a company I'm providing capital that that company
can use in various ways.

In return I become an (very small) owner of the company. I get a say in how
it's run (voting rights), and I get a share of the profit (in dividends).

If you hold on to a stock like coca cola for 30 years, never looking at the
stock price, and never sell, you'll actually make money.

Yes there's risk, coca cola could go out of business. But that's pretty
unlikely, and if you're not willing to take that risk, consider using a
diversification strategy. Buy some passively managed ETFs.

Even with the crisis, in the long run, you would've made money. Investing is
not gambling, it's not a zero sum game and the fundamentals of it have some
basis in reality.

Whatever is happening with Bitcoin right now makes no sense. Eventually things
like this have to realign with reality.

~~~
AznHisoka
1\. the stock market, other than the IPO is a secondary market. You are not
providing capital to the company but just paying another trader for his
shares.

2\. The majority of stocks do not provide (and will never) dividends and the
majority of buyers have no voting rights.

but you are right. For practical purposes, the stock market is not pure
gambling. There are institutions that make it legitimate. Such as the SEC,
pensions, 401ks and brokerage firms. And the fact the government cares so much
about it going up (because it funds so many pensions and social security might
go away)

But lets not fool ourselves in thinking the stock market is a virtuous piece
of infrastructure. The vast majority of stock holders dont know anything about
the conpanies they invest nor how stocks even work. They invest blindly in it
through mutual funds or 401ks.

~~~
hndamien
This isn't entirely true. If secondary market trades increase the value of the
stock then the company can sell some of their stock to get more funding, or
can borrow at better terms.

Similarly, buying and holding Bitcoin has a range of effects that help the
network and generate real wealth. Bitcoin is a services company, a payment
network, a bank, and investment vehicle, a reflection of wealth in that
economy, a notary, a liberated, sound money and a protest - all disguised as a
get rich quick scheme.

~~~
njarboe
Almost no companies today are selling stock to grow the company. Tesla is a
big exception. Somehow we have gotten to a place where there is lots of
capital wanting to invest in something that will make returns, but few
people/companies wanting to work with large sums of capital to try new
business ideas.

~~~
JumpCrisscross
> _Almost no companies today are selling stock to grow the company_

Public market performance influences IPO performance. IPO performance directly
knocks on future managements’ decisions around going public or raising a
private round. The performance of those moves influences early-stage capital
availability through multiple channels. Equity markets, broadly, are
complicated, but they are an essential component to fuelling firm creation and
growth.

------
alasdair_
The article states "The singular “price” of Bitcoin doesn’t exist — it’s a
made-up number."

This is the same for every stock traded on any stock exchange in the world.
The "singular price" is, in most cases, just the mean of the closest bid and
offer listed on the exchange and is thus a "made-up number"

On top of this, it obviously doesn't take into account everything from
transaction costs to the fact that attempts to purchase substantial volume at
this price would not be possible.

~~~
dredmorbius
No, it's the fact that the trading in Bitcoin is so thin. A modestly-large
trade can completely swamp the markets.

The NYSE sees on the order of a billion trades per day. The high over the past
year is about 1.9, the low about 0.46. The dollar trade was $16 - $107
billion/day.

I'm not finding transactional volume for bitcoin, but the dollar vollume has
_peaked_ at $2.5 billion, and until September, 2017, was under $500 million.

Before that date, roughly, more money moves through _one stock exchange_ in a
single _day_ than all of Bitcoin in a _year_.

Which gets to an interesting question of just what it is price is, and
represents. If you can control and regulate the supply of a good then price is
something of a fiction: it's the amount demanded, relative to the supply. But
for a fixed asset, the more you can restrict that supply, the higher the price
goes.

There's an analogy with electric circuits that I was kicking around with
Gerard some months back. Just as R = V/I, the higher the demand (V), and the
lower the supply (I), the greater the price. (This ... doesn't entirely hold
up, but it's an interesting parallel.)

[http://www.nyxdata.com/nysedata/asp/factbook/viewer_edition....](http://www.nyxdata.com/nysedata/asp/factbook/viewer_edition.asp?mode=table&key=3141&category=3)

[https://blockchain.info/charts/trade-
volume?timespan=1year&d...](https://blockchain.info/charts/trade-
volume?timespan=1year&daysAverageString=7)

~~~
sowbug
24-hour trading volume for Bitcoin is $4.86 billion
([https://www.coingecko.com/en/coins/bitcoin](https://www.coingecko.com/en/coins/bitcoin)).

Most active NYSE stock last Friday was Bank of America, trading about $3.1
billion ([http://www.wsj.com/mdc/public/page/2_3021-activnyse-
actives....](http://www.wsj.com/mdc/public/page/2_3021-activnyse-
actives.html)).

I don't understand why you'd compare a single security's trading volume to an
entire stock exchange's volume. It is not a meaningful comparison.

~~~
dredmorbius
If you wanted a fair comparison, we wouldn't be comparing exchanges at all,
but total financial transactions. That is if we're going to treat Bitcoin as a
currency and not some sort of asset transfer vehicle.

Visa International handles 300 million transactions/day, and $3 trillion/year.

Or you could look at total US GDP or GWP (gross world product), which are in
very rough numbers, $17 trillion and $70 trillion respectively.

Bitcoin at a $5 billion daily trade is 1/8 the US financial transactions
market, and roughly 1/40th that of total global trade.

Honestly, that's higher than I'd have expected, but it's also in vastly
greater trade blocks than most daily purchases.

~~~
sowbug
Yeah, I was thinking the same thing after leaving the prior comment. There is
exchange-to-other-currency volume (largely BTC as store of value), and then
there is exchange-as-money volume (BTC as currency).

In theory you subtract the former from the total transaction volume ($4.6B
over last 24 hours according to
[https://blockchain.info/stats](https://blockchain.info/stats)). Unfortunately
that gives me a negative number ($4.6B - $5.4B = negative), which at first
suggests the methodology is wrong, but then I remember that not all currency-
exchange transactions happen on-chain. Send BTC to GDAX, then
buy/sell/buy/sell/buy/sell, then receive $$$... all that could be as little as
a single blockchain transaction.

I'm sure someone has tried to determine how much of BTC traffic is closed-loop
within the BTC ecosystem. I doubt it's much. Anyway, I'm ratholing.

------
rlpb
> The delays — ten minutes to over an hour — and fees add enough friction to
> generate the spread between exchanges, even if you assume everyone’s using
> trading bots as quickly as possible.

Can an arbitrager not simply hold both BTC and cash on multiple exchanges at
once? When a price difference swings one way, sell on one exchange and buy on
the other, without worrying about transferring anything between exchanges.
When the price difference swings the other way, do it the other way round.

If price differences average in both directions over time, you shouldn't run
short of either BTC or cash but you will make a profit.

If price difference average in one particular direction, you can notice that
trend and transfer across in advance.

An initial investment is required, but that is true of any arbitraging
activity.

I had assumed that this is what arbitragers have always done.

~~~
rgoldade
You could do that. It's not really zero risk though because the coin could
drop in value. Usually (real) traders who find arbs on (real) exchanges will
submit simultaneous bid/ask orders without holding the actual product. They
can clear the trades later.

~~~
rgoldade
Of course.. if you could take a short position against the coin, you could
hedge and eliminate your risk.

~~~
JumpCrisscross
> _if you could take a short position against the coin_

How can you short it? CBOE futures only exist for one exchange. What if that
exchange’s price stays steady while others crash? Or that exchange goes up
while others crash, thereby triggering margin calls while you lose money?
Sure, the situation will eventually rectify itself. In the short term,
however, you’re broke.

~~~
rgoldade
Margin accounts? It seems like many crypto exchanges offer this. Isn't the
example you described the perfect arb situation where you would short sell on
the expensive exchange and buy on the cheap exchange?

------
andr
What the article dances around is the Efficient Market Hypothesis, which, in
short, claims that there is one true price for every financial asset. No
market is truly efficient, but some are more efficient than others. Low
spreads and lack of arbitrage opportunities (the ability to buy an asset on
one exchange and immediately sell it on another for a profit) are signs of a
more efficient market.

Bitcoin, clearly, is far from an efficient market. Everybody knows that. A lot
of people are profiting from that, although there is a significant risk
involved from the shoddy state of most exchanges.

As a nitpick, smart order routing is not something stock and futures exchanges
give you, it's a layer you can buy or build on top of the available exchanges.

~~~
nabla9
You are confusing terms. Efficient Market Hypothesis and Market Efficiency are
not relevant here.

Operational efficiency in the investment market (trading exchanges) is the
issue. Transaction costs, manipulation, spreads, unfairness etc. add cost for
doing transactions.

------
fernly
For all those posting variants of "It's no different from stocks", this is
answered in TFA but even more clearly in the Paulo Santos article linked from
it[1]. Editing it down a bit,

> ...overwhelmingly, bitcoin is traded on bitcoin exchanges... So here's the
> thing: Each of these markets does not communicate with the others. [That]
> ... means that buyers/sellers on each exchange are reliant on bids/asks
> exclusively from other members trading on the very same exchange.

> Now, that doesn't seem all that different from what happens with stocks in
> countries like the U.S., with all kinds of markets and ECNs, does it? But it
> really is massively different... because with stocks, a broker can quickly
> reroute his orders from one exchange to the other. The depositary/custodian
> of his stockholdings is not the exchange. With bitcoin, it's different. The
> exchange is also the depositary of one's bitcoin holdings ...[describes the
> difficulty and delay of moving BTC from one exchange to another, also
> discussed at length in TFA] ... The result of this highly inefficient market
> structure is that the same asset (Bitcoin) trades at significantly different
> prices from exchange to exchange...

So with stocks, if you want to buy or sell shares of AAPL, the price will be
essentially the same whether you talk to Schwab or to eTrade, and if it isn't
the same to within a penny, a script somewhere will take advantage of the
difference to make money by buying from one and selling at the other _in
seconds_ -- arbitrage which is not possible with bitcoin exchanges owing to
the transaction delay and fee.

TFA also makes the important point that there is no regulation whatever of
bitcoin exchanges, and that also makes them very different from the likes of
Schwab.

[1] [https://seekingalpha.com/article/4130380-bitcoin-series-
adde...](https://seekingalpha.com/article/4130380-bitcoin-series-addendum-
market-structure)

~~~
StanislavPetrov
>So with stocks, if you want to buy or sell shares of AAPL, the price will be
essentially the same whether you talk to Schwab or to eTrade, and if it isn't
the same to within a penny, a script somewhere will take advantage of the
difference to make money by buying from one and selling at the other _in
seconds_ -- arbitrage which is not possible with bitcoin exchanges owing to
the transaction delay and fee.

Partially true of the most largest and most liquid stocks and those that are
electronically traded. Not true for those trading massive blocks of stock or
those trading in 'dark pools'. Also not true for stocks, options, bonds and
other financial instruments with low liquidity or those that aren't traded
electronically (such as OTC stocks). Also not true in times of financial
distress (you know, the times when you really want to sell) when everyone is
running for the exits.

Anyone who doesn't understand the basics of how markets work (the people this
article is aimed at) shouldn't be trading anything.

~~~
davidgerard
> Anyone who doesn't understand the basics of how markets work (the people
> this article is aimed at) shouldn't be trading anything.

(author here) I'll second that. Unfortunately, they are ...

I've never personally felt so comfortable with "accredited investor" rules,
they feel too much like "only the rich can get richer" \- but junk-quality
assets like this being marketed to normal people, I can appreciate why this
sort of rule exists.

------
dandare
I don't know nearly enough to comment on the article but at this point I
started to think Bitcoin is an abomination that will ultimately hurt everyone
- not just the people who invested in it. I think Bitcoin is an abomination
because after 9 years of idealistic search for meaningful use case it is
almost evident there is none. Instead, Bitcoin becomes this no-face monster
swallowing more and more speculative investments. "If something cannot go on
forever, it will stop". Bitcoin investors know this and they all hope they
will be the ones to withdraw before the bubble bursts and that their gains
will be paid by the misfortune of those who are not as "smart" as them.

If pyramid scheme is all we want from cryptocurrencies, we could have done it
without the invention of the blockchain.

------
nerdponx
Fortunately, USD balances on GDAX are FDIC insured for US citizens [0]. I
accept that I might not be able to cash out of cryptos in an emergency, due to
liquidity or transaction times or something else, but I sure as hell will be
able to get out any USD I might have in GDAX, which is a big confidence boost
to me. They claim that all crypto deposits are "fully insured" as well, by a
"syndicate of insurers through Lloyd's of London".

[0]:
[https://support.gdax.com/customer/en/portal/articles/2689803...](https://support.gdax.com/customer/en/portal/articles/2689803-how-
deposits-are-insured-on-gdax)

~~~
canoebuilder
Can we all take a moment to appreciate the irony here?

You're enthused about dealing with cryptocurrencies for reasons of being
insured by a _centralized_ , _third-party_ , who you've placed your _trust_
in.

~~~
nerdponx
It's ironic, but I don't feel too bad about it.

1\. For all of the things we mistrust the US government for, the FDIC is, as
far as anyone can tell, rock-solid. If, by some catastrophe, the FDIC were no
longer able to ensure deposits, we would likely all have much bigger problems
than trying to get your cash out of GDAX.

2\. It spreads risk. GDAX itself is a centralized authority. Instead of
putting all my trust in one entity, I now only need one of GDAX _or_ the SEC
_or_ the FDIC to be functional.

3\. It brings legitimacy. For better or worse, your average person is not a
crypto cyber hippie, and neither are executives at most traditional companies.
If we are to start seeing crypto currency actually become useful as currency
in the USA, rather than just the speculation instrument, we need adoption by
both average people and business executives. When they see that one of the top
exchanges is based in the USA, and is fully certified and regulated by the US
government, it ought to help allay some fears about the safety and usefulness
of digital currency.

4\. Some things I don't trust the US government for any further than I can
throw it. Other things, I trust it pretty thoroughly. This falls in the latter
category.

------
Iv
Ok, I'll put my theory here.

We have seen weird spikes in the past that looked like a speculation bubble
and it has taken us a few days or weeks to understand their cause. They
usually crash a bit but stay at relatively high levels compared to where they
started.

One was caused by Russians discovering they could evade sanctions that way.
Another one was caused by people hiding money in Cyprus discovering that it
could be seized by the government.

For the current rise, my money is on the anti-corruption operation happening
in Saudi Arabia. Whatever you think about the crown prince's true goals, the
move is not just theater. Hundreds of billions of dollars are changing hands.

I suspect that what we see is half of the royal family's wealth being shuffled
around in a hope to escape being seized.

------
anonu
From the article: “Market cap” [...] is a bogus number that’s not actually
applicable to anything — it’s not money that was put into the crypto, it’s not
a realisable value like a company market cap.

I am not sure what the author means by "realizable". If their intention is to
say, "Ok, let's liquidate every single coin for fiat currency... and we expect
to have the market-cap equivalent in that currency" Well, whats going to
happen is the price is going to collapse. The same thing would happen with the
value of any publicly traded company. The market cap of Apple is $900bn - but
you can't just tell every shareholder to sell their stock for cash... you
would never be able to realize anywhere near that amount.

Article reads a bit weird. Here are my 2 cents - markets are a voting machine.
They are also about perception. If people perceive that there is value - then
they will vote with their dollars. If people lose faith in the system, the
market collapses. This is true in any market dynamic, including the one that
fiat currency operates in.

~~~
syllogism
What would you pay to own every single bitcoin? The answer should be nothing
--- if you owned all of them, they'd be completely worthless.

What would someone pay for all of Apple's stock? Suffice to say, a lot ---
because Apple has actual value.

~~~
anonu
> The answer should be nothing

I don't think the answer is nothing. And there's also a very different dynamic
you're proposing in your comment. If I were to go in and buy every BTC out
there - the price would probably double/quadruple/whatever... in a short time
('cause its bitcoin!).

If all BTC holders collectively decide to sell, however, the price would most
probably collapse. The "value" of bitcoin - or any security for that matter -
is determined by the marginal buyer or seller. He or she is the last person to
set the price.

There is inherent value in bitcoin. Just like Apple sells phones and other
things of value, bitcoin was created for some reasons that you can attach a
value to ... I think those initial reasons are not what bitcoin stands for
today - which is really a store of wealth. So maybe that is why people are
incredulous that this thing has any value at all.

~~~
syllogism
> I don't think the answer is nothing.

Seriously? Think about it. If you could pay, say, $100k to own all the bitcoin
in the world, would that be smart or would that be stupid?

Why would anybody buy bitcoin from you if you owned all of it? Everyone will
prefer to use a cryptocurrency that either: a) they already own some of; or b)
a merchant is requesting; or c) they expect to go up in value more than an
alternative. Now, in calculating c), everyone knows that everyone else is
looking at a) and b) as well. The expectation of Bitcoin if you're the only
holder is really bad.

If you like your chances at 100k, take the experiment out further. How about 1
million? 10 million? The ceiling here is super low relative to the "market
cap" people are talking about.

So it's not _just_ the buy/sell dynamics. Bitcoin doesn't have intrinsic
value, and that's actually weird --- most other securities do. The most
similar security is gold, which is like, 1% intrinsic value and 99% this type
of speculative logic. The difference is that gold is unique --- bitcoin isn't.

------
boh
That's one of the main caveats of the entire cryptocurrency effort: the
exchanges. Unfortunately for investors, the prices don't reflect the actual
projects (and honestly why would you expect them to), and for the developers
they have to operate under these expectations of performance for what are
essentially experiments that need time to mature.

What these projects are trying to do and the things they've already achieved
is just amazing and really exciting. When you actually use this stuff instead
of just HODling it, you realize why it has value.

Should these crytpocurrencies actually cost this much at this point? Would
bitcoin be any less useful if it was worth $5 instead of $20k? Probably not
and definitely not. These things aren't the sort of assets we're used to. It's
not like an equity share of the company that makes the car--it is the car. We
need to actually start driving for it to be worth anything in the long term.

------
bagacrap
Why is the fact that arbitrage is harder with btc a disadvantage? And the fact
that the "price" reflects recent sales rather than future sales seems, well,
obvious, and identical to other securities/commodities.

~~~
dragonwriter
> Why is the fact that arbitrage is harder with btc a disadvantage

Arbitrage is the method by which segregated markets are aggregated into a
single market with a common price; if that is harder you have segregated
markets.

> And the fact that the "price" reflects recent sales rather than future sales
> seems, well, obvious, and identical to other securities/commodities.

The same issue is raised with commodity/security markets in general, but it's
practically more significant when the market(s) for a product have significant
liquidity issues.

------
icedchai
I'm cashing out a little bit every month. I already made back more than 10x my
investment, so it's free money going forward.

------
dsr_
"The important thing about securities regulations is that every single one is
there because someone ripped a lot of people off that way."

Yup. You can argue about how to apply them in any given situation, but if you
want a fair exchange, you will spend lots of time re-creating most of the
regulatory environment.

------
alpatters
I think the comparison of bitcoin with gold is a better one than stocks. The
value of gold today is not tied to the underlying precious metal any more.
Gold is kept in vaults likely never to be looked at or touched. It might as
well be a digital number. Instead gold is a place to store capital with a
value agreed between buyers and sellers. It is limited in quantity and is very
difficult to copy. Bitcoin is quite similar is many respects. It also doesn't
have to be stored and corrupt governments cant easily steal it.

------
bufferoverflow
This article is pure FUD with lies.

1) The spread is not "plus or minus $500", it's a lot less. See for yourself:

[http://bitcoinity.org/markets/bitstamp/USD](http://bitcoinity.org/markets/bitstamp/USD)

At this particular moment the spread is $23 on Bitstamp, zero on GDAX, $11 on
Bitfinex, zero on Kraken, zero on it it (where "zero" is something under a
dollar, there's not enough precision to display it).

2) Yes, you can cash out, a lot. There are dozens of huge exchanges where the
daily volume is in billions.

[https://coinmarketcap.com/currencies/bitcoin/#markets](https://coinmarketcap.com/currencies/bitcoin/#markets)

For instance, Bitfinex USD/BTC 24-hr volume is $1.2 billion.

And that's just one currency pair on one exchange.

~~~
empath75
You can’t get dollars out of bitfinex.

~~~
davidgerard
I had a commenter on the original post claiming he'd gotten millions of
dollars out of Bitfinex two months ago! I pointed out this was actually news,
and asked who the sending bank was.

------
anonu
From the article: In normal securities trading, if a share is listed on
multiple exchanges, orders will often be applied via smart order routing — so
that a given buy or sell order is in the context of all the order books for
that stock. This avoids liquidity fragmentation

By definition, if you have multiple exchanges - your liquidity is already
fragmented. In the US Equity Market - you're also not obligated to route to
dark pools - only exchanges have order protection. And maybe 30%+ of volume
trades on the dark pools.

The bitcoin exchanges do publish market data - so its up to arbitrageurs to
step in and bring markets in line. We're still in the early stages - and I
expect bitcoin futures and wider adoption of new concepts (like continuous
swaps) to alleviate some of the price differences.

------
holtalanm
This is pretty much spot-on. Almost all of the 'value' that Bitcoin currently
has is hype and insane over-inflation. I weep for those that won't be able to
cash out on the exchanges when the price crashes, and they lose all their
money.

~~~
hndamien
I'm not sure if it is an illusion of safety, because the infrastructure around
Bitcoin (which itself seems safe) is remarkably better now than it was 5 or 6
years ago. This is nothing like how wild it was then, so in comparison, it
seems like it is almost regulated.

~~~
Jasper_
Says who? Most of the popular exchanges don't trade in USD, they trade in
Tethers, which only have a promise, not a basic audit, that they are backed by
actual USD.

~~~
hndamien
Everybody knows Tethers are worthless, and "backed" by a flimsy promise that
they are not backed by anything. I would say that this is remarkably
transparent that the Emporer has no clothes. Compared to Mt Gox, which I
suspected was insolvent from their actions only while the world kept on
believing. This is a major improvement.

------
thisisit
I am not going to defend bitcoin's thin markets but here are couple of things
I noted:

First, _Quoting a number like “$19699.46” to seven significant figures when
your data’s got a 5% spread would get your high school physics teacher
slapping you upside the head. It’s entirely deceptive. It should say something
like “$19,700 plus or minus $500 depending,” and that line graph should be a
thick grey bar._

The question is does the 5% spread change my buying price? I need to buy a
bitcoin. Will coinbase honor the price when order is placed ie if it shows
$19700 then will it let me buy 0.1 BTC at this price? Similarly, will it allow
me to sell them back at whatever price they show on screen? If yes, how does
it matter?

Sure, if coinbase cannot honor the price and let's in a huge slippage [1],
then that is a concern. Though in most cases where they see markets moving too
fast for them, they have routinely shut down trading.

Second, in stock markets it is not about smart order routing but NBBO or
nation best bid and offer. Brokers need to route orders to best price
available else they are liable for damages. There are no such rules in
bitcoin. And as the article notes, there are issues in getting the best price
available due to transaction times. In which case, coinbase can set whatever
price they want. But if they honor it, there is not much to talk about.

[1]
[https://www.investopedia.com/terms/s/slippage.asp](https://www.investopedia.com/terms/s/slippage.asp)

~~~
cosarara97
> Will coinbase honor the price when order is placed ie if it shows $19700
> then will it let me buy 0.1 BTC at this price?

No, neither the price at which they actually allow you to buy or sell BTC
matches the price they display. They set the price for you, which is different
in both operations (and on top they charge a fee). GDAX on the other hand
(same company as coinbase, different service) is an actual market where you
can place orders at whatever price you want, and somebody will take them if
your price matches theirs.

~~~
thisisit
It seems you misunderstood the point. So let me re-phrase as per what you
said:

> They set the price for you

>> Will coinbase honor the price _they set_ when order is placed ie if it is
_set_ $19700 then will it let me buy 0.1 BTC at this price?

In which case, the _spread_ question is only about whether there is a huge
_spread_ between the display (average) price and their _set_ price.

------
grandalf
Any price is just the amount someone is willing to pay. This is why prices
change even for things that _do_ have intrinsic value like food commodities,
oil, etc.

More specifically, price is a function of supply and demand. Bitcoin was
created with a very specific bootstrapping plan baked into the design.

What people are missing is that the bootstrapping plan is well known and
obvious to investors, and is meant to incentivize a speculative motivation for
mining, which it has done successfully.

But think about it this way, the price of a currency is only loosely linked to
supply and demand. Nobody really knows how many dollars exist, yet the
currency has characteristics that make it trustworthy.

Bitcoin is the same phenomenon. The price is based on the success of the
governance model and the appealing characteristics of the ecosystem.

Based on these appealing characteristics, there is the widespread expectation
that Bitcoin will _win_ market share from other currencies over the long term.

We know there will be a finite number of Bitcoin mined, what we don't know is
how much market share Bitcoin will have in comparison to other currencies.

Market share is not a function of money supply as much as it is a function of
the holders of the currency that rely on the currency because of its
governance mechanism, fungibility, etc. Many countries hold USD in reserve
because they find the governance characteristics of the USD appealing. Bitcoin
is just a novel way of doing currency governance.

For all uses of currency other than holding inventory, the governance
mechanism matters very little, since there is little risk exposure to price
fluctuations or the risks associated with bad governance.

Critiques of Bitcoin get mired in an imprecise understanding of all of the
above, but the most notable blind spot is that Bitcoin is a governance
mechanism first and a currency second, and investors are pleased because the
governance mechanism has been tested a few times and has (thus far) performed
admirably.

------
mvkel
I'm not sure the headline is at all connected to the article.

The article points out very real concerns with exchanges.

But there is such a thing as a "strike price" when converting BTC to fiat,
just like there is in the stock market.

When you sell (or buy) your coins on Coinbase, it gives you a strike price
that updates periodically. But when you hit the submit button, that
transaction is locked in, so you know exactly the amount that will be
transferred to (or from) your traditional bank account.

There are very real flaws in the current exchanges, but "price being
fictional" isn't any more real than it is on the traditional stock market.

------
aryehof
A normal corporate stock price and hence market capitalization, is entirely a
function of its actual book value (assets minus liabilities) and a factor
representing expectations of future profits.

Bitcoins price and hence market capitalization, is entirely based on
speculative buying and selling. It has no value if there are no speculative
buyers, and that day will come.

What really saddens me is that the noble aspirations of Bitcoin being a
decentralized, transparent medium of exchange and store of value, have been so
totally crushed in the face of crazy bubble scale speculation.

------
sathackr
imo this is basic supply and demand.

Bitcoin comes into this world at a fixed supply rate. Demand is currently
exceeding supply, so the price goes up. With bitcoin so far, the higher the
price, the more press is generated, which increases demand, so we have a
feedback loop.

The only difference is, demand can change very quickly, causing drastic swings
in price. Which then generates press, which generates demand.

Most every crypto currency will follow the same model. As long as enough
demand outpaces supply, the price will rise.

~~~
gizmo686
>With bitcoin so far, the higher the price, the more press is generated, which
increases demand, so we have a feedback loop.

The technical term for this feedback loop is "bubble".

------
mikeschmatz
Bitcoin is just a dressed up pyramid scheme to enrich ones at the top. The
lack of oversight and regulation is pretty much a welcome sign for every
scammer in the world.

~~~
SippinLean
We don't need to make this general comment on every specific Bitcoin thread. A
pyramid scheme requires a central actor to run the scheme, Bitcoin has none.
This article is specifically about the author's opinion of what "price" and
"market cap" mean in the context of Bitcoin.

~~~
davidgerard
It can reasonably be called a headless ponzi, I think.

[https://prestonbyrne.com/2017/12/08/bitcoin_ponzi/](https://prestonbyrne.com/2017/12/08/bitcoin_ponzi/)

~~~
SippinLean
A Ponzi scheme's definition relies even more on a central actor, meaning
Bitcoin by definition, is not one. The author of the article you linked to
makes this clear, and goes on to make false claims.

>it promises insane investment returns

Nothing in the Bitcoin spec promises insane investment returns, internet
comments saying "buy bitcoin!" are not part of the Bitcoin spec. This is
vastly different than a Ponzi and hard to link to Bitcoin itself, even
abstractly.

Again, the author relies on many false truths and abstract concepts:

>turning every victim of the scheme into a new principal as they talk up their
books for the purpose of recruiting new investors to subsidize their exits

If 1 person has bought Bitcoin or suggested another buy it for any reason
other than driving up the price, this is instantly false.

In pyramid and Ponzi schemes, the scheme is not abstract, it is run by actual
people. The endlessly rehashed argument that Bitcoin _is_ a Ponzi scheme
relies on these actors being represented by abstract notions, like comments on
a message board.

------
kentt
edit: removing because I don't enjoy getting into internet arguments. All the
best to you.

~~~
jmtame
FYI OP claims $400mm USD was withdrawn to make a counterpoint about liquidity,
but did not specify the exchange. Not sure why this would generate an
argument? In addition, how can anyone infer that a sell indicates liquidity? A
sell on an exchange only indicates one asset was exchanged for another.

FWIW I saw several large buys on the GDAX history today at the $18.4k price
point. One was for 36 bitcoins, and I've never seen a purchase over 5. I
shortly after saw another for 18.

------
gjem97
Can someone weigh in on the relatively large difference in prices between
various exchanges. I have always mentally chalked it up to friction--caused by
the fees of converting from fiat to bitcoin--eating up all the edge in the
arb. Is that all it is?

[1]
[https://www.cryptocompare.com/coins/btc/markets/USD](https://www.cryptocompare.com/coins/btc/markets/USD)

~~~
sharemywin
the exchanges I looked at with the lowest prices didn't have a way to buy/sell
with USD.

------
firatsarlar
It's getting more upset, day by day, to see that how intelligent people's mind
tricked by talking about the energy cost of a trading tool. Same goes for
"follow the money,... if you can't; force people to make their money be
traceable"..

1.Why don't we try to find new energy sources. ( If I start to travel at light
speed, will you still blame me -us, whoever- to use a lot of energy. ) Or
should we stand in a state ,we curve dots on the rock, to keep track of our
beloved money.

2.Why can't we find another way to fight with crime -or generally bad ,evil
whatever you want to define -. If one of -ancient- way of fight fails.

Does constant observation of the subject, is a scientific method to control
environment, that you responsible to keep at a peaceful state.

Will you blame god -or some other exterior source of what you believe to make
that happen (luck,... )? If you lose one of your eyes, or ear -which is an
interface -tool- to collect information around -what ever you believe
exterior, external...) Or continue with other -what you have currently- to
continue operating in a healthy state.

------
kemonocode
You can indeed cash out Bitcoin and the number is reasonably accurate... up to
a certain amount. $100? Sure. $1000? Yeah. $10k? That's alright too. $100k and
upwards is when your order might actually start having an effect on your
exchange to shift the price upwards or downwards.

------
davidgerard
(author here) I originally submitted this with just the second part of the
title, 'cos Part 1 doesn't deliver on "why you can't cash out". I expect two
or three more parts, that answer the question: KYC/AML, oddly-convenient
ineptitude, and hoo boy Tethers.

~~~
6nf
This article is completely overblown and full of made up nonsense. It's super
easy to sell BTC and on a decent exchange like GDAX you can sell a million
dollars via market order right now with less than $100 slippage. That's 0.5%.
They will then send it to your bank account in 24 hours no problem whatsoever.
I don't know where you are seeing a 5% spread but certainly not on the major
exchanges. Spoofing and all that nonsense doesn't prevent anyone from selling
at a decent price, I know this for a fact cause I've done it multiple times in
the last few weeks.

You should buy and sell some BTC on a big exchange before you make these
nonsense claims.

------
matte_black
Don’t most of the massive cash outs happen off-exchange between two parties
agreeing on a price?

~~~
cortic
yes and no, exchanges like Coin Floor let you pick an amount and price, then
auto match buy offers with sale offers. so its technically on the exchange and
between two parties.

~~~
matte_black
What about selling a hardware wallet with something like an OpenDime?

------
erubin
Why can't another service provider provide best-effort execution? Suppose you
had a reserve of btc and trading accounts on the various exchanges. Couldn't a
customer come to you, ask for some btc, and you could quote them the best
price + fees?

------
StanislavPetrov
This article is total trash. Liquidity is always a factor in any asset that
you buy or sell, whether its a stock, a bond, a work of fine art, or a
bitcoin. All prices are fictional until you execute a contract and receive
payment for a sale.

------
JohnJamesRambo
SALT Lending has an interesting take on this that is actually healthy for
crypto. They say never cash out and lose your crypto. It's hard to argue with
that point. Remember there were people that cashed out Bitcoin at $100.

------
odammit
I’ve been very happy doing my bitcoin trading through ETFs and equities in
Charles Schwab.

Not sure if the upside is as strong but it’s definitely skyrocketed multiples
times in the past few weeks without any of the “hassle” of bitcoin trading.

------
sjg007
The best long term failure of bitcoin argument I've heard is that when
bitcoins stop minting, that transaction fees won't be enough to maintain the
"mining" pools and you might get 51% attacks.

------
aecorredor
This is a pretty appropiate video for this post:
[https://youtu.be/hAQA_29Htts](https://youtu.be/hAQA_29Htts) fugazi?

------
marsrover
I completely agree that it is the wild west and given certain scenarios you
would not be able to reliably cash out. However, I have had no issues cashing
out so far.

------
edem
This is just FUD. As others have stated I can cash out any time I want. I have
USDT, localbitcoins.com and BTC ATMs at my disposal.

------
kentt
edit: removing because I don't enjoy getting into internet arguments. All the
best to you.

~~~
greglindahl
"replace bitcoin with gold" and you'd have a different article. One of the two
has a many-thousand-year history of liquidity, and a lot more market demand
and trading (on regulated exchanges) today.

~~~
alpatters
I don't think the history of gold changes the argument here. As a store of
capital gold has also been stolen by corrupt governments in history.

------
ainiriand
All of the bitcoin craze comes down to this:

Do you know what's behind a fiat currency? A country

What is behind bitcoin? Thin air.

Yes, it is working really good for some people, but the logic behind it is
flawed.

------
gruez
>If you look at the spreads between exchanges — the different prices for one
interchangeable bitcoin — you’ll see spreads of hundreds of dollars, and in
volatile moments it can be in the thousands.

that's plainly false. i'm not sure what exchange he was checking, but spreads
for gdax (the biggest exchange) at the moment is 1 cent.
[https://i.imgur.com/JCQfmkc.png](https://i.imgur.com/JCQfmkc.png)

~~~
cantrip
>spreads _between_ exchanges

