A lot of people lost a lof money because they got margin called at ~$2 for a commodity that is worth ~$300.
On the other hand, a lot of people made a lot money since there are buy orders that wen through at less than 1% of the real price.
Is there any risk or downside to this? Seems like buying a lottery ticket for free.
 ... or someboy fat-fingers an order - although I think in that case I think still the higher bidders would win, wouldn't they?
A number of people with USD on deposit at Mt. Gox, who correctly understood Bitcoin's price to be unsustainably high and were waiting for the correction, are now 3+ years into waiting for a Japanese bankruptcy court to pay out their claims. They are, in the Bitcoin economy, the lucky ones -- the more common thing which happens when exchanges fail (which happens in 20%+ of exchange-years) is for all money (and things of more dubious value) to be lost.
This is different than in more traditional markets, where custody of assets is distinct from being an exchange (you don't wire money to the NYSE to trade there), custodians/brokers are regulated, individual accountholders are insured, and you generally don't have to have $2000 cash on deposit and locked up to keep an order for 1000 of Google at $2 on the books.
I feel like I have to say that professionals very much do have orders far outside the usual trading ranges for various things in the expectation that a fill against that order usually represents a quickly profitable mistake by a counterparty. A major portion of the reason that this is something professionals do and amateurs largely don't is because there do exist cases where orders get filled far away from the market and one's counterparty praises all the spirits of capitalism that someone else was being inattentive to the fundamentals at a time where being inattentive to the fundamentals is a poor decision.
I think with these coins it could be a decent bet that we'll see this happen again in the next year or two.
If anything that means the conventional wisdom should apply even more, no? It seems more likely that Ethereum would go all the way to zero than whichever company it was that traded at $.01 during the flash crash (Proctor & Gamble?)
A central institute isn't always bad
Complexity fattens the tail. Ethereum must be one of the most complex things out there.
It's been live for 1 year on GDAX and then it went for a 3000x round trip. What does that tell you about odds?
Lots of contexts where this kind of bidding is a good idea. E.g. after a really bad year you can expect big price swings around tax loss selling season (nov-dec), where people take out their frustration on their worst performers. Doesn't always work but if you've already identified a couple of trainwreck stocks that you think deserve a second chance, getting a stink bid filled for one or more of those stocks can make a very big difference later on.
Of course, the Ethereum flash crash is on a different level :-)
>Doesn't always work
Thats putting it lightly, you're describing some form of survivorship bias. If it were that reliable and simple the major active fund managers could score reliable index-beating returns just off of Nov-Dec.
As it turns out, rules like that don't work, which is why passive index funds inevitably win out over attempts to time the market.
In the specific example I gave, I talked about putting in stink bids for burned down companies you already wanted anyway, during the 1 or 2 month window when its stock has a big chance of getting another kick in the teeth for simple fiscal reasons.
The cost for trying this is pretty much zero. The worst that can happen is that the price never hits the bid and then you have to be content with the regular price. If it does work, you may get an additional 30% or whatever discount on the company.
If the rest of the story doesn't work out, it won't be caused by the extra discount. So stink bids literally do help performance and active investors do put them in and a lot of them do suck for a lot of reasons and these tax loss selling waves do happen despite everyone knowing about it because they are caused by regulations.
"passive index funds inevitably win out over attempts to time the market" This is a totally different discussion, not about the chance and impact of getting a low bid filled, but about efficiency of markets and whether people who beat some chosen benchmark are lucky or skilled.
But maybe there is a relationship. Let me ask you this: do you think Wall Street has ever had a good idea (like ETFs) and didn't take it way too far? Like 3x inverse Venezuelan Beaver Cheese ETFs? If there is a demand for passive index funds, Wall Street will indulge. But to make a passive index fund you need an index. And so they have been puking up a whole circus of indexes. With some of these indexes, especially ones that involve small companies, I wonder what will happen during the next serious drawdown. And so we can get back to the subject of stink bids.
Some exchanges do put price bands on some items. Also some exchanges have trading halts when certain price points get hit.
One of them already been pointed out - the counter-party risk. Not only can there be situation like Mt.GOX disappearing with people's money. The exchange can refuse to honor the order specially if they are the market makers.
Some brokers put a time limit on the trades. These are called Good till Cancelled (GTC) limit orders. Like Schwab has a 60 days limit for the GTC orders. I am not sure how the crypto currency exchanges work.
Instead MtGox disappeared, taking my money with them.
Over a long enough time period, the risk of any given crypto exchange being hacked approaches 1.
Of course if you do this on every exchange, you multiply your risk by the number of exchanges, and your reward probably only comes out of a single one of those exchanges, unless it is the real deal "flash-crash" coin-wide permanent glitch-out end-of-the-world everything's hosed and the price is never coming back, in which case you lost $2000·N which sounds a little worse.
They sold off my entire holdings for $0.01 - $0 after fees. At the time LTC was trading for something like $25/LTC.
It took about 3 weeks to get anything but an automated response from their support team.
This was the response:
"After further review, this sell was due to a margin call of your margin position on the LTC/BTC order book. A series of large sell orders were placed on the LTC/BTC order book on May 21, 2017 around 1am UTC causing a large price decline which triggered a margin call of your position when your maintenance margin ratio was exceeded.
The trading engine and margin call functioned as designed. The large price decline was due to the relatively low liquidity on the order book at that time."
They eventually refunded the coins.... but a couple of days later removed half of the refund with no explanation. I'm out of pocket by about $1200. I'm still waiting for a response from them on that one.
Why did you have such an order? I can understand a stop loss order at some small percentage of the original purchase price, because you still get something, but one that says "if this currency suddenly becomes worthless, give it away for $0.01" doesn't make any sense.
>When the stop price is reached, a stop order becomes a market order.
Market value was extremely low due to low liquidity.
This is a risk with stop orders that many investors aren't familiar with.
AIUI, the way margin buying works is, the first, second, and third priorities are repaying the broker, and the moment your collateral looks like it might not be enough they will dump everything without caution to get the money back, which can result in making stupid (in hindsight) trades.
With that said, I do have a hard time believing there were no buyers at a price closer to $25, so that definitely seems shady. But margin buying is playing with fire and I'd say it could have been a lot worse ...
GPU makers didn't sign up to build machines that print money. But it turns out when you do make machines that can print money, people tend to buy them at a rate faster than you can make them! Right away, whether or not you did it on purpose.
(I did get my ASIC Jalapeño miners from BFL before they were busted up, I did order more when they came around and offered to let everyone order more, and I still did manage to earn a pittance over and above my initial investment on both batches, regardless of the absolutely ridiculous production and shipping delays.)
This worked better than it would have otherwise, because my employer had electricity priced into the rent at a flat rate, and told me he wouldn't mind if I threw these things into the server room.
(I got two early batch and four 10GHash later on for a total of about 50GHash. I don't remember exactly how long, but I am sure I waited a lot longer than 5 months.)
* Those with resources will have an edge, and will buy an optimal number of GPUs to get return before the price is driven down
* Anyone without resources will not be able to mine quickly enough to get a return before the price is driven down
* If the market were still lucrative, the GPU makers would not be selling all of their stock, which means it is a near certainty that either the GPU makers or someone with connections has already snapped up a healthy share
* Worse, the more lucrative it is, the more quickly ASIC makers will release ASICs which make those GPU investments all but worthless for mining.
All of this means that anyone contemplating whether they should get into mining already has their answer: "no".
That certainly seems to be the consensus on the mining forums I'm following. /r/EtherMining is now inundated with people who lack the very basic skills needed to assemble a computer and run mining software, but are attracted to the prospect of free money. Many of those people also lack the ability to do basic arithmetic and the sense to realize that the only way they will turn a profit is if the USD value of ETH rises sharply -- and that if that happens they'd be better off in any case just buying ETH now instead of blowing $2000 - 3000 on equipment.
Your other points are fair, but they take time to catch up. Depending on how much you're buying the GPU for and your electricity price, it may make sense still. Also, another coin may become popular.
Unlike the situation with Bitcoin a few years ago, Nvidia cards are ok for mining Ethereum (something like 40-50% lower hash rate than AMD, but still very much profitable).
Remember the whale that hunted shorts and longs hours before the ETF rejection? If you do margin trading, you will get rekt sooner or later in this space.
There's the interesting technical side to cryptocurrencies but most people underestimate the entertainment factor.
1- Have 1 million dollars in ETH
2- Place a buy order at a very low price
3- Place a sell order for the 1 million dollars in ETH you own
4- Have a partner fill that sell order
5- Watch the price topple down and your order from 2 get filled
But you can manipulate the markets in a similar way without a collaborator. It's called running the stops and is an old technique.
They do if you work inside one. Just saying that people have done way more for way less money.
Or it could be that this is immergent behavior that exists in all modern exchanges and it hit a population that wasn't prepared for it because of lack of sophistication.
1- Someone bought ETH for a ridiculously cheap price during the presale and forgot all about it (https://etherscan.io/address/0x7d551397f79a2988b064afd0efebe...)
2- Realised two years later how much it's worth
3- Decided to cash out having no prior experience of how stock/ForEx/crypto exchanges work, i.e. they were ignorant of the consequences of dumping that much ETH on one exchange in one go
4- Which then triggered a cascade of stop losses and margin calls.
Edit: fuck that, check this out! 7200 ETH at 0.1 USD!! https://api.gdax.com/products/eth-usd/trades?after=6326580&l...
This does not build confidence.
Some lucky people (or the people who orchestrated the crash) snuck in some super low buy orders that got matched.
The price had recovered within a few minutes (once all the margin calls had executed). It just goes to show the risk of trading on margin
Clearly if the exchange matching engine was working properly there were asks that low (in the form of stops).
That's pretty typical in crashes.
Various brokers and exchanges offer more types of stop orders, such as stop -> limit, where you set a limit price, and your order becomes a limit order after the stop price is reached.
Of course crypto exchanges take forever to implement new order types, and I'm not sure any of them have stop -> limit.
Also, stop orders don't work in general in a slipping market because liquidity vanishes from the book.
I would note however that after the SNB event many exchanges and brokers busted the trades that were done at extremely off prices.
Theoretically because literally everyone doing it got liquidated it probably won't happen again - people wont set up stop losses and gdax will probably introduce a circuit breaker.
It's even possible that the multi-million dollar trade wasn't an accident, and they put a bunch of buy orders in to hunt the margin traders.
It just shows CNBC is not ready for the crypto world. The whole point is the trade info public and distributed.
There was a trade for 3809 as the screenshot shows but also other larger trades. At $.10, there was $2,592.33 in trades now worth ~$7.8M.
Here are the trades in question:
btc still have intrinsic value as it is traded for chinese expating money, scared Venezuelans, American weekend drug users, etc.
etherium exists for the sole purpose of playing investing with btc. everyone I know who owns etherium bought after they decided to buy btc and got a price hike on their investment so they flip btc and etherium instead of btc and usd. because they see it as two things that ever goes up. ha.
this is the most perfect scenario for a pump and dump. intentional or not.
The reason? It's an applications platform, not just a currency. It brings fundamental innovations in decentralized computing that means it can reach places Bitcoin never could. And when that happens, the utility (and price :) of ETH will match.
So unless you are suggesting the Swiss national currency is also not as valuable as bitcoin your hypothesis doesn't hold up.
it's worth more than bitcoin was worth ~3 months ago
market cap is useful in that it shows the total value of the coin. Comparing the price of 1BTC to 1ETH doesn't make sense, but comparing their market cap does
The alternatives to fiat money are commodity money, e.g. gold, or representative money, e.g. pieces of paper exchangeable for gold at a fixed rate. Cryptocurrencies are more similar to fiat money in terms of their value being a function of social agreement versus utility.
"Useful" might be a better term, but it makes some sense to equate those two.
Fiat currencies are created by fiat (legal declaration). No government created either, so no, they are not fiat currencies.
But I meant in the sense that they don't have intrinsic value like gold.
All value is assigned. So, what then, besides traditional consensus, makes gold 'intrinsically valuable' without also making cryptocurrencies intrinsically valuable?
Fact : things wont change by the mere will of individuals so they need to have other options before things sort out.