> Ever wonder why Coinbase takes about a week to “process” the sell?
I've actually always wondered this. What were to happen if the moment I click Sell, the price is $10K but when it's "processed", the price at that time is $1...would the USD I receive be based at time of click or time of processing?
There is not one single price, but many offers at different prices and volumes. The exchange doesn't sell or buy bitcoins, they just connect sellers and buyers (and handle the transactions). The price you see is the best current offer for the amount you are selling, I think. Usually, it changes a little, but yeah you are not guarenteed that price. If, at the time your order comes in, nobody wants to sell for $10K, but only $1, that is what you get.
This is why most (all?) exchanges have the option of buying/selling at market price ("best" price, I could imagine there is some protection included though so the order doesn't go through if there is more than X% price difference), or with a limit (where you say "sell X BTC, but I want at least $Y per BTC).
They do at least a 0.5% spread + 1.5% fee. So the price listed if you are buying, it's at least 0.5% higher and if you're selling it's at least 0.5% lower. Which means if you're trying to "flip" as in buy low and sell high, you need to see at least a 4.1% or so increase to just break even. Sometimes their spread will be over 1% in both directions.
Btc usually operates in practice on a 0.5% spread or less.
There's a reason why the only name we know from the gold rush is Levi Strauss. The real money is in the facilitators of the rush, not in the prospecting.
Issue Tether (it is issued, not mined), trade Tether for Bitcoin, BTC price in Tethers increases, due to stated and believed peg of Tether to USD, BTC raises in USD price due to arbitrage executioners.
Failing to understand how you could peg Tether to the USD and have people believe you. I was under the impression that pegging to a currency is something only a very big player, with close to unlimited resources can achieve, see People's Bank of China, Swiss Bank etc. Among others, you have to defend the currency against speculators and that requires a lot of capital.
Even the Bank of England failed to maintain the peg to the German Deutschmark some years ago. Can someone with more knowledge in the FX market area explain this better?
> Failing to understand how you could peg Tether to the USD and have people believe you.
In principle, it's simple: people pay you USD for Tether, you charge them a small percentage fee, put the remaining USD in a reserve account, and issue the buyer a corresponding amount of Tether. You do the reverse to buy Tether back from people.
For the trust issue, you get a reputable company to audit your reserves and Tether/USD transactions.
If you do this, no defense of anything is needed - if someone wants to sell Tether, they can always come back to the company that issues it and exchange their Tether for some of the dollars in the reserve account at an exchange rate of 1:1 minus fees.
In practice however, the auditing and transparency for Tether is not sufficient to be sure that this is what's actually happening. So the "having people believe you" part is definitely an issue right now.
> Even the Bank of England failed to maintain the peg to the German Deutschmark some years ago.
That's not the same kind of peg, at all. A Tether is just supposed to be a proxy for a USD. The pound and Deutschmark were two otherwise completely independent currencies, so the idea of pegging one to the other was dubious to start with. Here's a brief article which covers some of the issues with that peg: https://www.investopedia.com/ask/answers/08/george-soros-ban...
That would make sense indeed, so for every tether coin issued they’d normally have to pull a dollar out of circulation. Otherwise they re printing money isn’t it? Even if true, saying that they back it up is not enough.
Now that I think of it this would make sense for the FED to actually use the blockchain tech to manage its currency supply. Instead of the printing press they issue cryptodollars which supposedly are better than paper because they can be easily and fastly moved around or whatever. But not for a 3rd party to just say: This is a dollar, but called differently, trust us, we issued it.
> That would make sense indeed, so for every tether coin issued they’d normally have to pull a dollar out of circulation.
Correct.
> Otherwise they're printing money isn’t it?
Correct.
> Even if true, saying that they back it up is not enough.
Right. The original idea was that they would provided audited statements proving they held the necessary reserves. They did start out doing something like this, as described here:
See the screenshot of their "previous release" which showed reserves of $44 million across seven banks.
However, for various reasons, including avoiding regulations which would make running this kind of business much more difficult, subsequent releases were less specific and suffer from a host of issues described in the above article. Nevertheless, the latest release mentioned in the article did show $442 million of reserves backing Tethers.
You're correct that the Fed could certainly use a blockchain. However, there's nothing wrong in principle with the idea of a 3rd party issuing a token representing a dollar, if they provide appropriate auditing and comply with regulations in a respectable jurisdiction. No-one is currently doing that.
That s the thing I don’t get, how do they “issue” tether? Because if one says they peg it to the dollar then it must follow the dollar’s inflation. Otherwise somebody is at a loss because there s more tether value than usd or viceversa, even if they were fully transparent and fair.
Edit
Unless of course tether is not a store of value in any way and just a fancy name for a dollar.
The way it works is, i go to exchange a, and tell them hey i have this cryptocurrency and i have enough cash to back it up. People can withdraw money from me using these.
If you do not verify my claims, you think this is a great idea, because now you can transact with usd(t). Formally these exchanges only used cross-coin exchanges.
Now this is not a problem as long as you have _enough_ money to support withdrawals on an ongoing basis. Nobody knows you dont have enough cash to support all issued tokens, because seemingly, everything works nicely. With the recent hype, money keeps flowing. Until a mass withdrawal happens.
But why do I want tether in the first place? Why bother switching back and forth at all? I don’t see why would I want to hold tether.
Can I buy a can of coke with it directly? What if the coke seller is a bit skeptical of tether and asks for 1.2 tether instead of one usd, just to play safe. Isn t this pressure applied to the exchange rate?
He means they don't support withdrawals of fiat currencies like USD or EUR. Many crypto exchanges only support withdrawal of crypto currencies.
To allow deposit or withdrawal of fiat, exchanges tend to have to comply with international banking regulations, which requires a great deal of paperwork. As a result, only a few exchanges offer this - examples are Coinbase, Bitstamp, Bitfinex, Kraken.
Before Tether existed, you couldn't buy or sell dollars or Euros on a pure crypto exchange. That's a big limitation.
Among other things, Tether allows you to trade in USD on these crypto-only exchanges.
Basically, one problem Tethers solve is allowing exchanges to operate more completely without regulatory oversight. As such, the limitations in their transparency may be acceptable to many users, who know that they're not operating in a regulated market and are willing to accept some risk for doing that.
Tether is supposed to be backed 1:1 by US dollars and function as a non-volatile way to move money across exchanges. It's market cap is ~$815M. Lots of people believe that Bitfinex, the creator of Tether, is not actually holding $815M to back it. Instead they believe Bitfinex is creating Tether out of thin air and could be using it to inflate the price of Bitcoin.
Why would anyone want to exchange their Bitcoins that are worth over $10,000 each on Coinbase (and can be converted to real dollars) for some tokens that are backed by nothing?
The entire market cap of Tether is a small fraction of the daily volume of BTC. If 100% of Tether was traded for BTC, it would just be a blip on a single day's pricing.
Daily transactional BTC value has been in the billions for months, even before the recent price explosion. Yesterday's was a [very] record breaking value pushing $6 billion. The total market cap of Tether is less than $0.9 billion. That would've been about a single day's volume back in July. And to clarify, we're talking about if 100% of every single Tether is being used to purchase BTC with these numbers. That assumption is not correct meaning the actual impact is likely substantially lower.
> Daily transactional BTC value has been in the billions for months
That's absolutely true but what you cannot tell is how much actual liquidity exists. I was playing around with algorithmic trading this summer and would routinely have days where my personal transactional volume would exceed $500k and I was only playing with $2.5k. Just a lot of very short duration (sometimes holding for mere seconds) trades and I always took the maker side to avoid paying any fees.
Coinmarketcap has Tether's 24h trading volume at $1.9 billion (over double the market cap). I find that concerning.
They list the 24h volume for Bitcoin at $24 billion. At 9% or 10% of the 24h volume, Tether could very possibly be a major factor in the bitcoin price spike.
I would agree except the article wasn’t about any specific cause or even this particular wave; just a general explanation of the bitcoin phenomenon that may even be taken as a general explanation for investment any bubble in general.
I disagree. There is a section of the article titled "Where is all this cash coming from?" which claims (via a Reddit thread) that it's individuals buying on credit.
It was because debt-based speculative investing is one of the easiest and most common ways these types of risk are spread. There's lots of other sources of investment, but the debt-based ones are most concerning with respect to the analysis.
The other dangers are municipal general fund and endowment based investments. Local municipalities in countries like Greece and Italy got caught up in the 2008 real estate crash and then all of a sudden, things like street sweeping and garbage pickup stopped. Speculative bubbles cast wide nets.
Or older people getting into the crypto game because they're hearing their stock advisers tooting their horns.
Some of them have boatloads of assets and will trade a small percentage just to get in the crypto game. No credit required.
My friend I helped buy in isn't disappointed. He doesn't fully get what cryptos are yet (although I explain them every time I talk to him), but he sure likes the returns...so far.
I'll probably be downvoted into oblivion for hating on the latest hot internet rumor, but here is why I believe the tether rumors should be ignored:
The tether situation has been twisted into a PR campaign against bitcoin by the bcash supporters (formally the segwit2x) supports.
When the segwit2x fork was cancelled, /r/btc (a segwit2x and bcash community) and a number of popular twitter accounts suddenly started picking up the bitfinex'd anti-tether campaign. This includes a large group of what are most likely twitter bot accounts (have not tweeted in a long time, all joined around the same time, etc).
Tether/Bitfinex is working on an audit but this takes considerable time. The auditing group will not put their stamp of public approval on an audit until it has gone through the most stringent reviews.
Tether has been receiving significant "institutional" money over the past few months specifically trying to exploit the bitfinex USD lending market.
Given how Wells Fargo and other large banks have been treating any company related to the bitcoin space, it is not in Tether's best interests to publicize which banks they are using. Hopefully someday this situation will improve, but for now if you run a company in the cryptocurrency space your fiat banking is tenuous at best, therefore you do not advertise your industry to your banking partners.
Bitfinex is making $5m or more per day on a slow day, and has been for quite a while. This revenue stream can be used to support Tether if needed.
Tether's USD pair on Kraken has remained close to $1. This would be the first market to go crazy if there were an actual issue with Tethers as the tether holders would rush to redeem them at Kraken instead of via Tether themselves.
The "printing" of Tethers is now largely being sent to Bittrex and Poloniex in order to support their customers' tether balances. Tethers are a public blockchain, do the research and follow them to their actual destination.
Even if every single tether were being used to borrow margin funding on bitfinex and buy bitcoin, it would hardly make a dent in the daily BTC volume at Bitfinex. Tether "followers" make a big deal about a 15m or 30m tether generation event, but even with this being used for 3x margin on bitfinex it would hardly make a dent on the > 2.5B usd trading volume.
There are many more arguments supporting or attacking tether. I will not be responding to any comments because I have a feeling this will turn into a mess but I just wanted to throw some more information / opinions into the mix. The whole cryptocurrency world has been completely fueled, almost lives off of, FUD and rumors that would push a price up or down. This feeds right into that.
BUT:
At the end of the day you should trust no exchange, the entire point of cryptocurrency is that you control your own holdings.
OK. Maybe i am assuming there have been no new Tether tokens because the “granter” decided not to grant anymore, but it has actually been a market response?
I am wondering... if they can grant new tokens, why havent they? Lack of demand?
Perhaps, but an epic crash of the most well-known brand, a death spiral in investor confidence and the ensuing media reports would kill not only Bitcoin but potentially any other cryptocurrencies. Legislation could follow to block or at least pigeonhole any other crypocurrencies into a really niche market.
Thanks, this is about general markets however. I've been trading BTC since 2011.
Doesn't matter if it's tulip bulbs, baseball cards, bitcoins, houses, or dotcom companies, markets operate on similar principles and talking about the market dynamics doesn't say anything about the asset in question. Cryptocurrency is a viable means of exchange and the technology is great and all but that doesn't change the rules or mechanics of the marketplace. It isn't magic.
>> 'Doesn't matter if it's tulip bulbs, baseball cards, bitcoins..markets operate on similar principles.'
An elegant raison d'être for this whole thread: Not having any real technical knowledge of economics, it was very easy to head down the rabbit-hole of conspiracy theories and hype - this brought me back to thinking fundamentally (I live in one of the most ridiculous housing market "bubbles" - but it's been a "bubble" for about 10 years now).
I disagree. You can't apply regular market theories on Bitcoin. The world hasn't experienced this before and it will open up a whole new field of economics. In 10 years you'll see that I'm right.
...If it is a more stable asset class than what you currently own, then why wouldn't you buy and hold? Isn't that the point of diversification? Legitimate, honest questions from someone without any real academic background in econ.
“Ever wonder why Coinbase takes about a week to “process” the sell? Or why when you buy on other exchanges you’re debited instantly but when you sell it takes a few days to be credited?”
“It’s mostly likely because these institutions don’t have the liquidity to actually pay you. The important thing to realize is the exchanges aren’t selling the Bitcoins on the open market nor are they transferring anything between wallets when you sell.‘
“
Anyone here know if this is true?
The article is based on the above assumption. If it is Ian selling my bitcoin NOW. THIS IS THE BIGGEST RISK I HAVE HEARD IN THE CRYPTO WORLD
I mean, the exchanges aren't selling, sure, but it is a market... so when you sell your bitcoin someone is putting up cash to buy it. I mean unless I don't understand how these exchanges are functioning.
I have no idea why it takes a few days to process, however. I don't think the fact that it can take a little while to "process" sells is because it's a ponzi scheme though, that seems like a bit of a jump. I mean plain old ACH transfers take a few days, does that mean that ACH is a ponzi scheme?
I'm not claiming any of them are. On the contrary, I'm saying there's a risk that some of them could be partially operating like this and if they were, you wouldn't be able to tell.
I guess. They could also be inventing the buy side entirely and just taking people's money. They also could be Nigerian princes who just really need my SSN to access their family inheritance.
I still don't think selling "taking a few days" necessarily is evidence that there is a ponzi scheme going on, though.
When I sell equities in my Schwab account, it takes two days to access the cash. I'm pretty certain Schwab isn't running a ponzi scheme.
The idea is unlike having coins in a personal wallet, on an exchange you effectively just have a claim card placed with a central authority. It's put trust and centralization back into the system.
The claim card only needs to be satisfied when claims are made. Detaching the claim from the asset and then reattaching when claims are made IS how the exchanges work fundamentally.
Having 100% of the liabilities here is certainly possible but if you had only 20% of them, there'd be effectively no difference unless there's a market panic.
And when/if that happens, I bet that not all 124 or so exchanges have 100% of their liabilities on hand at the same time as the panic.
I think the explanation is really simple. A couple of months back numerous non-technical acquaintances began expressing interest in Bitcoin with a number of them going on to purchase it -- completely independent of one another. I doubt my anecdote is particularly unique. There seems to have been a huge influx of "dumb money" on the heels of an exponential increase in media coverage.
There is the possibility that I'm reversing causality here. In other words that the media coverage increased following the increases in bitcoin, rather than the opposite as I'm suggesting. But Google Trends along with the price graph seem to support my suggested causality:
This just seems to be a huge influx of dumb money. If this is true, it's going to lead to some interesting near future volatility. These sort of investors are going to be more inclined to jump ship at what would normally be the tail end of swings. They will see it as 'the crash', race to get out, and create a self fulfilling prophecy. Perhaps offering a great time for investment for anybody who can accurately determine when the double dip decline is bottoming out before a return to normalcy.
Pretty much all of the money in Bitcoin was dumb from the get-go. These weren't economists figuring out that something was under-valued or the system could be gamed. It was people gambling back then and that's what's continuing to happen.
Like you, I noticed an increasing amount of fairly oblivious people talking about Bitcoin a while ago in our office and that's the most certain marker of an impending crash, but in terms of there being smart money outside of huge investors in the earlier days of Bitcoin I disagree. Developers that like to gamble are not smart investors.
> It was people gambling back then and that's what's continuing to happen.
Not exactly true. Bitcoin was extensively used as a money laundering tool to facilitate illegal trade online. The money being used on those bkack-market deals dumped some liquidity into the mix and each money laundering transaction helped back bitcoins with real cash. As bitcoin's adoption as a key part of black market payment systems kept increasing, the increase in demand started driving the price.
The phenomenon was very similar to the one where drug pushers started using Tide detergent as currency, except Tide has real world value and there are no shills pumping its value saying it's the future.
I think there's major inherent value in Bitcoin. Or at least was. I enjoy traveling and it's quite the pain with traditional banking. It ranges from the small things like facing account locks (even after informing the bank you'll be traveling) which take days to clear up, to getting absolutely gouged on access to your money. If you want quick access to your own money then you'll be facing artificially weakened exchange rates, fees on said exchange rate, and then fees on top of fees because fees. To get reasonable access you need to wire money which comes with annoying hassles, paperwork, delays, and then you better hope you're not trying to get access to your money during the weekend or a bank holiday.
And then the banks themselves also face countless rules and regulations which result in more hassles to consumers. Happen to keep depositing just below $x for whatever reason? Welcome to a suspicious activity report (for fear you may be trying to dodge financial accounting reporting regulations) and having all deposited funds confiscated until you spend tens of thousands of dollars proving yourself innocent, because in finance innocent until proven guilty apparently doesn't fly. And that's of course just one example among countless.
The current monetary system is pretty much awful. I thought (and think) Bitcoin is the start of a change to this. In other words that it has inherent value. The limits of that value are now being shown as transactional fees get crazy, but the point of this is that I don't view Bitcoin as an arbitrary commodity. It is a decentralized financial service.
I think there is major inherent value in a decentralized currency and I think the technology is neat. There will be more practical value in Bitcoin after the crash when the speculative value has stopped being a factor.
It has practical value once it's crashed and a real, stable monetary value can be established. A currency you shouldn't be spending because it can double in value in the next week is not a practically valuable currency. There are great ideas in blockchains and the whole decentralized financial system, but the current situation is not practical. It's useful only for its speculative qualities.
I don’t exactly disagree. But, until recently, the people I knew who were investing were techies with political bents. They appreciated the technology, wanted to support it, and invested small amounts that they could afford to lose. Would call this ‘dumb money?’
Supporting something because you like the idea of it is not smart, no. It's honorable and a great thing to do, but in terms of investments it's certainly not smart. I didn't mean "dumb money" as in all the people who invested in Bitcoin are dumb, but rather that these were not well thought out investments with sound rationales.
"smart" and "dumb" money are technical terms in investment. It's just a label placed on a class of investments when talking about the market. You can call them whatever you want and they aren't intended to be anything more than a purely functional way to differentiate two classes of things.
Intelligent people can be stupid investors. I'm not judging anyone's intelligence at all. An investment made with no sound rationale by a Nobel prize winner is effectively dumb money.
I am suggesting there are some rationales for investing in cryptocurrency besides investor profit. I am not arguing for their popularity, but that they do exist. They seem to ascribe different value systems that you might not be considering. In the current market situation, they are probably fairly irrelevant or undermined, but maybe not so in past terms.
Yes, I've recently exited a large position, while an alarming number of acquaintances who have limited or no investment experience are getting each other into Bitcoin off of Facebook hype, in some cases ridiculing each other for "missing out".
Invest experience doesn't matter here and I think you exited too soon. Your friends however are still early adopters. The FOMO we see now is nothing compared to what will happen once real mass adoption starts. Everyone talks about Bitcoin but very few actually buy. This will change.
> I think the explanation is really simple. A couple of months back numerous non-technical acquaintances began expressing interest in Bitcoin with a number of them going on to purchase it -- completely independent of one another. I doubt my anecdote is particularly unique. There seems to have been a huge influx of "dumb money" on the heels of an exponential increase in media coverage.
As much as I think there might be a crash, so many things are wrong here:
> They don’t do technical analysis or are savvy enough to place limit orders.
I agree on limit orders but what is the fascination with TA. Not a day goes about where someone in cryptocurrency uses some kind of chart mumbo jumbo to prove a point.
> Ever wonder why Coinbase takes about a week to “process” the sell?
Simple answer - Settlements. Banks are not very fast. If someone was to refund you now, you don't get the money in a day. They will always say, "money will be credited back to you in 2-4 days".
There are so many additional reasons for this:
1. Security. The amount of non-technical people going on the exchange is huge. So they don't know if the sell was the right one or not.
2. KYC - They need to ensure the buyers are following AML laws to ensure they don't get sued later for helping drug dealers.
3. Volume - The sheer volume of transactions which need to processed, specially with KYC confirmations.
4. Settlement - They can only pay someone if the buying party has sent the money to them.
5. Banks - Banks always know who is crediting the money. They might have put extra checks for money coming from Coinbase, not to slow Coinbase down but again to save their asses.
etc.
> Closing shop for a bit
The logic on this is so convoluted. If they keep the public price API is fast because it doesn't need to handle additional requests. It is a simple fetch.
Additionally, if they keep the price API open it is just providing ammunition to detractors.
Have you ever been in a stock market crash? Try that, your broker will freeze up and stop responding. You will have a public price API to know what just hit you.
Sure, there's honest and upstanding ways of explaining all of this. But there's also billions of dollars being exchanged on opaque markets every day so there's also the usual suspects that brings with it. In valley units, that's a unicorn startup every hour.
And....your solution is to write an article claiming this is fraud?
So, if I use your logic - there is no disclaimer/disclosure on your holdings ie there is opaque-ness. Hence, you have written this article to try and spread FUD to cause market panic.
There is no room for honest and upstanding way to explain your actions.
Sorry if you read it that way. I was interested in talking about risks and what could be happening, not claiming anything as true. It's both within the range of possible and has historical precedence.
I've actually always wondered this. What were to happen if the moment I click Sell, the price is $10K but when it's "processed", the price at that time is $1...would the USD I receive be based at time of click or time of processing?