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Why you can’t cash out part 1: Bitcoin’s “price” is largely fictional (davidgerard.co.uk)
349 points by davidgerard 11 months ago | hide | past | web | favorite | 257 comments



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.


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.


> worth pointing out that less than 1000 entities owns 40% of the bitcoins

The fiat equivalent is saying 10 entities own most of the USD in the world. They are banks with liabilities holding money for others.

Of all the bitcoin conspiracies it's provably false yet people somehow gravitate towards it.

Do worry how easily people and especially journalists fall for this. Go click on the top 10 addresses in a chain explorer, please. They are all exchanges.


There's a top-heavy concentration of ownership from the information that's been disclosed.

* Satoshi Nakamoto's ownership is pegged at 1.5 mln bitcoins

* Chamath Palihapitiya and Social Capital own "about 5% of all bitcoins out there", so 600,000 BTC as of today http://thisweekinstartups.com/chamath-palihapitiya-david-eun...

* Winklevoss twins have disclosed ownership of roughly 200,000 BTC when filing for a Bitcoin ETF https://www.coindesk.com/winklevoss-twins-plan-nasdaq-listin...


> 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.)


Without knowing your algorithms, is Bitcoin's 2,000% increase this year a heavy factor in your "win" rate. Or, are you confident in your logic that you can grow with a slower market?


Care to share general outlines of how your bots work?


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

It'll work until it suddenly doesn't.


I was thinking about doing something similar as an experiment, do you have any good resources to get started?


> I think its also worth pointing out that less than 1000 entities owns 40% of the bitcoins.

This is FUD. 1000 wallets own 40% of BTC. See here https://bitinfocharts.com/top-100-richest-bitcoin-addresses....


Not sure what your link proves. In reality, no one knows if this statement to be true because addresses and wallets can be shared. There was a Bloomberg article with lots of interviews on this topic with people in crypto business and no one seem to deny this: https://news.ycombinator.com/item?id=15877838


Many of these wallets are actually exchange cold storage wallets, so they hold the BTC but not per se "own" it


In practical terms exchanges do own these bitcoins in that they a physically capable of trading them.


You'd probably find that 40% of US equities are owned by fewer than 1000 asset managers as well, so I'm not sure that this is all that relevant. If Vanguard decided to liquidate their holdings overnight there would be pandemonium just as if these people decided to liquidate their BTC, but it's not going to happen in either case.


Yes, this. Of all the times I watched the price of bitcoin for the past 5 months closely, more closely than I watched my cursor in VSCode suck my laptop battery away. At first I noted a trend, where at 6 AM PST I would be able to make a buy and get out by 10 AM. I kept telling myself that its the new yorkers that got OUT because they were worried about the Pacific coasters waking up. Then the time shifted the next day, and I lost my "daily" shirt (the max I would promise to lose that day).

Over time I noticed these periods of a week or so where the price would then become a bear market. And it was so easy to blame it on Dimon or some other Wal street junkie that said Bitcoin was doomed.

Then these stopped lining up. Then some ICOs got pumped. Ether tanked while Bitcoin blew up. I started to think how unglued it all became from anything that Coindesk was saying. Coindesk always ended their prediction with "But if it ends up less than X then Y will happen" Basically making it so that hey, there's a chance this will happen instead and this is the secret clue. But nothing was lining up, it started to feel like the perfect storm where you know extremely experienced investors could lure the masses into pushing tones of coin after a large drop. Even with 1000 people rushing in after a 15% drop in the price that day, the week before the 15% drop meant the price was going to rocket. Not this week, this time, the price is going to drop another 10% the next day.

Finally 3 days later, an amount of time that didn't coincide with ANY news and the price finally rose. By now most of those 1000 people had already cut their loses, but it was too late, whoever was jacking the price around already took their gains. And who cares about those 1000 people - the price is rocketing again.

So I left when BTC was around 4.5k. I should have listened that you have to be in the long game. But even so, I absolutely agree with this article - the price is being controlled by some group - some secret group of well placed investors that have a set of companies that run bots across all exchanges. They will continue to do this forever because unlike a stock, a government can never control a crypto currency. It would require all governments to coordinate and make the same set of rules. It can all be subverted if one exchange can live outside of those rules.


> Exchanges are not even prohibited from doing their own secret trades and using their own internal database and full knowledge of all other players.

Are we sure about this? The two largest USD-exchanges are Coinbase/GDAX and Bitstamp, which operate out of California and London, respectively.

If someone were to reveal that these exchanges were trading against their customers, are we sure that the authorities would be unwilling to press charges?


> If someone were to reveal that these exchanges were trading against their customers, are we sure that the authorities would be unwilling to press charges?

Based on what ? Because some people might think that is immoral ? Trading in most things is not regulated. So there is no law to be broken, expect very basic ones (you have to deliver if you receive fiat money).

If I have a trading platform in art, then I can still buy and sell for my private collection. Crypto coins are not different.


The difference is that GDAX is part of Coinbase, which is registered as a regular exchange under the New York DFS which puts them under the same regulations as non-crytop exchanges.


>Because some people might think that is immoral ?

No because they're actually laws and you can go to jail.


> are we sure that the authorities would be unwilling to press charges?

> Based on what ?

Fraud?


One thing in particular I dislike about this is that the author lumps all crypto currency into the same bucket.

As the prime example of this, ethereum and Bitcoin could not be more different. Work done by groups such as 0x mean that these regulations can be enforced by public contacts. Sure, there is more work to be done, but the potential is to create decentralised exchanges that are safer and easier to regulate than existing Fiat exchanges.

Bitcoin's recent price has been crazy even for crypto, but it is short sighted to lump all crypto currencies into the same bucket. This is a fast evolving field, lessons are being learned and better and better implementations are being built.


In practical terms, the main point of interest in Ethereum is the price of Ether.

The prime "decentralised" exchange is EtherDelta, which is completely decentralised except the absolute decentralisation of the website (deployable only as 2MB of minified JavaScript with the original source unavailable). I wrote about how well this approach works: https://davidgerard.co.uk/blockchain/2017/09/28/etherdelta-h...

How decentralised can you make your "decentralised" exchange? There's not much point to "a bit decentralised".


Public contracts can't regulate USD trading though.


yes they can. written properly and with the right data, a smart contract can be very effective.


It doesn't matter how well a contract is written, if it comes into violation of US securities laws or other rules and regulations, it will be a problem in the US. I'd expect the number of crypto-related prosecutions to rise exponentially in the US as crypto markets have heated up. The various regulatory and law enforcement agencies generally work slowly, but they do work.


I think the point he’s making is that everybody could not cash out at the listed price at once if something were to happen that made holding bitcoin undesirable (such as say, a possible crack for their elliptic curve crypto implementation). However, the same is true for banks which only keep 10% of deposits. Bank deposits are FDIC insured up to $250,000 though.


But the same would happen for any similar-functioning market. If every AAPL shareholder tried to simultaneously sell for $173.97 (current price), many would end up disappointed.

Instead, the article seems like FUD that would confuse non-tech users into thinking they couldn't cash out their 0.5 BTC at the price they're seeing on their exchange (they can.)


They would however end up with more than 0$ because Apple has cash on hand representing real value. Bitcoin on the other hand is only worth bitcoins so it can crash to zero.

Historically, stock market corrections may be ~50% but they don't hit 95% because of underlying value. Other bubbles can be much harsher.


>But the same would happen for any similar-functioning market. If every AAPL shareholder tried to simultaneously sell for $173.97 (current price), many would end up disappointed.

Yes. But if one thinks Bitcoin, with its distribution of holders, price volatility, and "quality" of trading implementations etc has the same tolerances as the regular stock market (which indeed can crash too), one is beyond deluded.

It's like saying "sure, I can crash on my custom built hot-rod made from a modified jet ski if I go into a wall, but so can someone in their Hammer". The impact, and the implications are not going to be the same...

(Heck, when the market tried to go trashing, it got a 1 trillion bailout to help it out. Who is gonna do that for bitcoin?)


Did you mean Hummer?


Yes, I did.


Banks are also backed by the fed which is there to prevent failures, and the government through too big to fail. Even in the case of the Bank of the United States (which despite its name was just an ordinary bank) whose failure in 1930 kicked off the bank panics of the 1930s, when it was liquidated the depositors received 92.5% of their deposits.

Most failures of crypto exchanges have resulted in a total or near-total loss for depositors, and triggered rushes to the exit on other exchanges.


> if something were to happen that made holding bitcoin undesirable (such as say, a possible crack for their elliptic curve crypto implementation).

A much more realistic scenario that could make bitcoin undesirable to hold would be something like all major central banks collectively viewing bitcoin as a threat then working in concert to target the weakest link of the cryptocurrency: exchanges that facilitate conversions to fiat.


Yep. Everyone yelling "We're gonna replace the US Dollar! We have a superior currency and The System is evil!" are doing the equivalent of walking into a Wells Fargo, yelling out "Hey everyone! We should all rob this bank! We'll be rich! And these WF bastards are evil anyway!" and expecting the bank to do nothing.

I think 99% of people who have decided not to own any cryptocurrencies are basically just waiting for the other shoe to drop. Sooner or later, governments will figure out that cryptos are sucking money away from The System, which, if left unchecked, will drive down stock and bond prices and nullify attempts to control savings/spending rates via monetary policies. I'm betting it won't happen until market cap hits $1T though.


Sure, definitely. There are many possible scenarios, like a major exchange like Coinbase, Bitfinex, or some chinese exchange going down / getting hacked. Wouldn’t even have to be all the worlds central banks: could just be one new regulation or rule in China.


MtGox was a major exchange and it went down but it didn't deter people from investing in bitcoins, they merely moved their business to other exchanges.

Your original comment talked about a scenario where people decide against bitcoin and such a scenario can only play out if there is too much uncertainty to make them a viable investment. Because bitcoin is decentralized, the only way major governments can try to influence it and related activities like exchanges is by acting in concert. Anything short of this will not work against it as has happened repeatedly with past attempts by individual governments like China.


"They merely moved their business to other exchanges"

The price crashed from like $1200 to $200 and it took years for it to recover. All those Moms and Dads and Grandmas who bought $10,000 of Bitcoin after Thanksgiving dinner hoping it would turn into $100,000 within a month will certainly get hit if the price falls to $1600 and doesn't recover for 3 years. All it takes is a change in the media narrative that scares away a sizable chunk of the market (say, institutional investors or mom and pops, or Chinese people)


> All it takes is a change in the media narrative.

Every article I read in the media has huge negative sentiment already. Can you point to some positive articles about bitcoin? Seems to be very few going around, it's all bubbles, energy consumption, hackers, ransomware and terror funding.

Wondering how the narrative can change for the worse from here.


The nearly weekly articles about btc hitting all-time high milestones would count as the positive articles about bitcoin in my opinion.


Fair enough though I'd contend such articles are the motivation for the bubble commentary.


You might have missed the articles about people getting rich...


A scenario where the government makes crypto currencies completely impossible is unlikely, as that would mean that you essentially controlled all communication. There are many ways they can make it difficult, cumbersome and risky however, even on an individual basis. That could lead to a short term dampening effect on the global price until people figure out effective ways to get around the regulation in question.


No, the scenario is that the governments tell banks:

"Deal with BTC and lose your license. Kay, bye!"


Yep. It would be like what happened after they made online poker illegal: anyone sufficiently committed will either have to cut their losses or leave the country.


Ding! Ding! Ding!

Bitcoin is sea shell currency trading market pretending to be a currency.


That's the same for every asset ever.


The subconscious message of this article is "people that you've heard get rich from Bitcoin can't really become rich so easily, there has to be a catch"


What I don't get from the arbitrage side is why is the spread so much between exchanges? Surely if there is a $500 difference between two exchanges it makes sense to build up volume in both and simply move between them as the price fluctuates? Are the fees and transaction times really so onerous that $500+ differences are washed out in the process?


Exchange A price is $1000

Exchange B price is $1250

Makes sense to buy on A and sell on B for a nice profit. So I buy 3 coins on A and send them to Be, sell on B and have a nice $750 profit. Now you need to get fiat from B to A and this is where you hit your bottleneck.


Assuming you can legally operate on both A and B in your country, isn't it a matter of sending your $3750 from B to your bank then depositing $3750 from your bank to A? Obviously that step alone (fiat B => bank => fiat A => crypto A) could take well over a week before fiat in B is back to crypto in A.

I know I'm missing something because a lot of people a lot smarter than me are in this space. I just don't know what it is I'm missing from the outside.


Difference between exchanges is ~0% to 5%. Price can change 5% easily in an hour on a single exchange so if you take a day or more to transfer money from one exchange to another, it's very likely you would earn more just by holding BTC.


Not every exchange has perfect withdrawal to fiat methods. Wex.nz doesn't have the facility to move fiat to a bank account. Bitfinex you cannot withdraw USD others only allow EUR withdrawals etc.


Is there a way to verify this somehow? One of the biggest issues in the Bitcoin space seems to be counter party risk with the exchanges.

How do large Bitcoin traders price that risk? With most modern financial exchanges the accounts are open, audited and they’ve had a long time to generate trust with their members so pricing the counter party risk is straight forward.


if your treating bitcoin as anything short of gambling, you probably in for a big surprise one day.


Professional gamblers price counter party risk into their bets as well. Using similar methods now that the bet takers are frequently public corporations.


So which exchange are you using? How viable is it to cash out smaller amounts, few hundred or thousands?


If cashing out is easy and reliable, why can’t I withdraw from Coinbase, six months after verifying my bank account?

I’ll tell you: they don’t have the capital to pay anyone, so nobody can withdraw. It’s Mt Gox all over again.


I withdraw every month, usually in about ~1200€ worth: if you're having trouble with that you should contact coinbase support.


I did, in October. They send me an email every few week saying “is your query still important? Reply within 24h or we’ll assume it’s resolved.” Starting to think that there is no capital behind it and my money (>€100k) is gone.


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.”


Here's what "thin" means in practice. Imagine two different sets of digital objects: AlphaCoins and BetaCoins - they're identical in the say way physics professors say "imagine an infinite frictionless plane".

Both have a 1000 in circulation.

Both are worth $10 each.

Both have a market cap of $10,000 US Dollars.

But the market for AlphaCoins is "thin" (small changes in supply and demand make for really big price swings).

There's a run on the market and everybody wants to sell off their coins.

After a day's trading:

AlphaCoins price is $3 / coin.

BetaCoins price is $9 / coin.

For goods and services you'd call this the price elasticity of demand (You can change the price of medicine and people will keep paying it b/c without it they'd die - it's inelastic - the same can't be said for a snack bag of cheetos).

To me, this is the article's argument. That while these terms describe the same things across markets there are some big differences not captured in simple "market cap" comparisons.

Maybe a better analogy is two all you can eat restaurants (identical, yadda yadda) but at one you can use your full set of dining implements and at the other you can only use a fragile toothpick to eat your food with - and all anyone can write about is how the quantity of food in both places is the same.


Thank you for the explanation.

What I find interesting, in addition to your description of the price elasticity being at issue, is precisely _what_ a bitcoin represents.

In fact, what _all_ cryptocurrency represent, to my knowledge...and that is, some increasingly unbreakable cryptographical mechanism by which information may be passed at ever more secret rates.

The question I have is: precisely who is in the market for such things, and are they not, in fact, what is holding these currencies together?

It also begs the question: if the person who can afford to 'buy' the cryptographical information is the one "funding" the market, are we not at the beck and call of the deepest pockets in terms of securing what may ultimately be state-secret level data?


The "crypto" in bitcoin is about being able to know that the copy of the blockchain you have is indeed the "authentic", consensus blockchain. It has nothing to do with keeping anything secret, as the entire blockchain is literally as public as it is possible for data to get.


Thank you for clarifying that for me.

I recall reading some article about how, when mining for bitcoin (for example), what was really being mined are progressively larger prime numbers, or scientific data, or some such data requiring lots of computation.

Isn't there something of real value being mined? If not, what is being done when people _mine_ bitcoins?


Mining is a "proof of work" event - in essence, you generate a random value so that a cryptographic hash total block would end with a particular number of zeroes. Such a block + hash is trivial to verify but very time/effort consuming to create, thus proving that you spent a large amount of (otherwise useless) work to "mine" that block.

Having a large amount of work required is what prevents a malicious actor from tampering with the chain, since doing so requires doing as much work as all the other miners together.


The only value of mining is that it is necessary for the bitcoin system to operate. Nothing of real value (outside of the bitcoin system) is being mined and as seen from space it is just a waste of electricity.


> I recall reading some article about how, when mining for bitcoin (for example), what was really being mined are progressively larger prime numbers, or scientific data, or some such data requiring lots of computation.

You're most likely thinking about Primecoin[0].

> Isn't there something of real value being mined? If not, what is being done when people _mine_ bitcoins?

"Real value" in a computational sense is difficult to articulate. Making a calculation part of a mining algorithm that ultimately results in _new_ information is challenging because it, by definition, requires a lot of effort to not just calculate, but verify. Folding proteins, searching SETI datasets, etc. presumably require the same amount of effort to verify as they do to solve in the first place. The way that cryptocurrencies that use a "proof of work" ("PoW") are typically set up is to make it very difficult to solve a computation, but very easy for others to verify that the solution is correct. The other component of PoW that makes it beneficial as a verification tool is the ability to increase or decrease the difficulty of solving the calculations required by the network. Without the concept of adjustable "difficulty," a network could not adapt or grow as more (or less) computational power is brought online. This difficulty of computation is a core component of the decentralized, distributed nature of blockchains.

If you'd like to learn more about it, here are a couple of resources to get you started:

- "Proof of Work" (Wikipedia)[1]

- "Is there a way to set up proof-of-work systems so they would be even more useful?" (StackExchange, orig. asked in Sept. 2011, updated Dec. 2017)[2]

- "The Fair Cost of Bitcoin Proof of Work" (Tomaso Aste, University College London, 2016)[3]

- "FoldingCoin" (HN discussion, Jan. 2015)[4]

Bitcoin's hashing scheme's "value" is in its ability to make it computationally difficult (and of significant real cost) to attempt to cheat the network.

Simplifying a very complex discussion, you can consider it, in a limited sense, analogous to the different ways that the World's governments and assorted financial institutions spend untold billions of USD, EUR, RMB, YEN, etc. every year to secure, confirm, compensate, and extend the underlying infrastructures that support global financial exchange.

---

[0] http://primecoin.io/

[1] https://en.wikipedia.org/wiki/Proof-of-work_system

[2] https://bitcoin.stackexchange.com/questions/331/is-there-a-w...

[3] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2801048 (Note: A subscription to Elsevier is not required to view or download this research paper)

[4] https://news.ycombinator.com/item?id=8962896


To give a real life example, the other day I bought about $2,000 worth of a crypto asset, which caused a ~20% spike in price and raised the market cap by ~$5M.

I'd say what the asset is, but I can't because if literally only one other person reading this decided to buy some then I effectively wouldn't have the option to buy more of it.


Why are you buying something that can't support multiple simultaneous buyers?


I only buy things where I won't be unhappy about the price I bought them even if crypto prices decline by 80%. Mostly things with market caps under $20M. The lack of liquidity doesn't bother me. Either the technologies will get real world use and the tokens will get listed on major exchanges, or else they'll go out of business, just like any other tech startup.


How can I find out more about these opportunities?


That's the best time to speculate.


Depending on the secrecy of an asset to retain its value and your ability to buy it sounds like a very fragile position to be in.


If the price goes up it should be because the technology has become part of the backbone of the Internet, not because people are promoting it on social media when there is zero volume.


So the market cap is you. This doesn’t apply to bitcoin.


Maybe. But if an institution were to accumulate $1bn of Bitcoin through exchanges, I'm pretty sure that would drive up the market cap a lot more than $1bn.


What's the difference between that and the same company buying a pennystock?

This is how markets work.


(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.


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.


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.


Not to challenge your argument itself, and I know you’re not the author who commented above, but I really dislike this kind of “argument-swapping.” I see it a lot, for a lot of issues, but especially for issues that are complex and not deeply understood by most people, like Bitcoin, corporate finance, etc.

It starts with an easily-digestible and shareable argument, like “Bitcoin prices and market cap are a lie.” Then someone points out that, yes, perhaps many people misunderstand basic concepts in finance like spread and market cap, but that applies to any asset or currency or security.

Then someone else joins in with a completely unrelated argument, like “yeah, but Bitcoins don’t actually do or represent anything, whereas stocks do.” Even assuming this is a valid argument, it doesn’t change the invalidity of the first argument. But I fear that all too often people see the entire exchange as if it’s a sequence of related claims, and thus feel inclined to believe and share the initial talking point as if it was somehow corroborated by the later unrelated argument.


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.


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.


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.


> 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.


Even then, if Coca-Cola goes out of business, and the stock is delisted (so the price is effectively zero or close to it), you still own 1 millionth or whatever of the company, and the company has actual tangible and intangible assets (including its name, which in Coca-Cola’s case would be one of its most valuable) that can be liquidated to recoup value to the owners. If Bitcoin goes to zero, there’s no backing store of value to sell — you own a number whose entire value in other monetary units is based on people wanting to buy it, not on any asset or guarantee backing it.


As companies become more highly leveraged, this becomes less and less true. For really highly leveraged companies, you're basically just speculating on their future growth because there will be nothing left to sell after the creditors and bondholders get in line ahead of you.


What about forex trading?


But the stock market - in general - has ridiculously profitable and powerful entities behind it. No matter what happens to investor confidence, ownership of Apple is going to be very valuable because they generate a ridiculous amount of profit.

Cryptos, on the other hand, are entirely based on investor confidence.


It's not a given that Apple will continue to generate insane profit. Apple will remain very valuable because it has tangible assets that can be sold (book value). So with a total lack of investor confidence, the price floor of Apple shares should be book value - debts.

Cryptocurrencies aren't backed by tangible assets, so the price floor is 0.


I'm not sure a neat definition of a price floor always holds in practice. Wasn't Yahoo at some point valued less than their tangible assets/stake in Alibaba?


I suspect that it’s a bad idea to make investments based on how high the cost floor of the investment is.


Cryptos imho are equal to gold not stocks


Investing: http://www.macrotrends.net/1319/dow-jones-100-year-historica...

Speculating: http://www.macrotrends.net/1333/historical-gold-prices-100-y...

Which one do you think bitcoin is? Well I'll tell you, it's the second.


The major difference from the current equities market, as described in the fine article (the latter half of it), is that in the Bitcoin market you see common manipulative practices that are illegal and also mostly eliminated from the current equities market.


Because of inter-exchange protocols (FIX / FAST) to share the order book, that isn't happening with bitcoin, hence the spreads (between exchanges) and associated arbitrage opportunity.


I have been invested in Bitcoin since the very early days. This bull run can be explained, in fact it was predicted by many. I'd be happy to address any questions.


So no questions then.


  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. 
I always wondered about that. Especially since people (and hucksters, trying to sell their wares) refer to Bitcoins as crypto currency.

I'm not a financial wiz kid, but market cap for a currency doesn't make any frigging sense to begin with.

Sure, you can count the amount floating around for a currency on various levelse (ususally expressed in mx) but I never felt that it makes sense to define this as "market cap".

The whole situation really reminds me of the Dutch tulip mania (https://en.wikipedia.org/wiki/Tulip_mania, the first speculative bubble in history).

At least with your "investment" there you were able to plant pretty flowers. Here, I fear, that a lot of small investors will get burned very, very badly.


All the headlines I see in mainstream media talk about Bitcoin being a risk, the likelihood of it bursting at any moment, etc. I can't remember a single mainstream article I would say is mindlessly positive.


There is only one word suitable for describing bitcoin: scam

The vested interest has been very successful in obscuring this basic fact, usually by conflating it with a bunch of other unrelated matters (decentralized infrastructure, fee-less money transfer, easy international trade...etc)

I penned a tongue-in-cheek layman description of bitcoin that alludes to the basic scaminess of it: http://blog.codesolvent.com/2017/12/the-bitcoin-scam-needs-t...


Of course the problem is that major parts of your argument apply to the Federal Reserve system also, as well as nearly all other fiat currencies such as the Euro, Pound, Yuan etc.

So exchanging fiat Euros for fiat Bitcoin means what, exactly?


Bitcoin is not fiat; a fist currency is one whose value is based on its backing by a government (“fiat” specifically refers to the authoritative dictate of the State giving the currency value.)


The FT lexicon says:

Paper money or coins of little or no intrinsic value in themselves and not convertible into gold or silver, but made legal tender by fiat (order) of the government. [1]

Fiat money is an intrinsically worthless object, such as paper money, that is deemed to be money by law.

----

I will say that when Japan agreed to accept payment of taxes, with Bitcoin, they deemed it to be money.

Probably I could find examples in the U.S. government prosecutions of criminals who used Bitcoin, that had government lawyers advancing arguments that treated Bitcoin as money, but, I don't have them to hand.


> I will say that when Japan agreed to accept payment of taxes, with Bitcoin, they deemed it to be money.

I'm really interested in figuring out if this is true. What source is saying this? From what I can tell some taxes might apply to Bitcoin in Japan but in no way can you actually "pay" taxes in Bitcoin (you can obviously convert it to Yen first though).


The US government considers bitcoin a commodity. You will not find examples of them considering it a currency.


No it doesn't apply to them. This is a popular argument from libertarians but unfortunately it is a purely ideological argument that has no basis in reality.

The aforementioned currencies are backed by the value of their issuer's economies, those economies are real.


@patrick

Every American participating in that economy must pay taxes every year on their income. The taxes must be paid in US dollars, even if the economic activity uses a different currency or barter. Therefore Americans must come up with a quantity of USD proportional to the size of the American economy every year (or "go to prison"), and provided that the total amount of USD in existence is bounded (this part is the job of central banks) this places a floor on the value of USD. This story is necessarily simplified but I think essentially true.

There is an old saying that a language is a dialect with an army and a navy. Likewise, a fiat currency is a currency with a taxing authority.

Gold, on the other hand, is just valuable because it is expensive to produce and has a long history of being valuable. So that model can work.


"So when Japan said they would accept Bitcoin for payment of taxes ... ?"

I'm not able to find any reference to such a move, which I would think would be widely reported in English. So I suspect you may have your facts wrong. I read that Japan no longer collects sales tax on digital currency transactions, but that is not at all the same.

If, hypothetically, a major government accepted all tax payments and equivalents in XBT as well as their own currency, and credibly promised to keep doing so no matter what, they wouldn't so much be backing Bitcoin as "unbacking" their own currency. It would leave their citizens free to stop using fiat currency if they wanted, and if enough were eager to do that the value could go to zero. (In principle, that could be fine. In practice, contracts and other nominal rigidities would probably make the transition period... problematic)

If a major government decided to accept tax payments only in Bitcoin, they would be backing it in the sense intended.

(I'm not necessarily taking a bearish position on Bitcoin. Rather, I'm arguing that fiat currencies are not the right model for understanding its economics)


> Gold, on the other hand, is just valuable because it is expensive to produce and has a long history of being valuable. ...

Bitcoins are expensive to produce and if it hangs around very long it will have a long history also. So in the long run bitcoin could be a viable alternative to gold.


Gold is valuable by itself and there is only 80-90k tons of it ever (plus some amount in the oceans). Gold would be used everywhere in the electronics in pure form if it was priced and widespread as copper or iron.


Yes, of course, but those uses are not very important to understanding the current price of gold.

Likewise, I own a $100 billion Zimbabwean dollar bill as a curiosity, but that market doesn't put an important floor on fiat currency prices!


So when Japan said they would accept Bitcoin for payment of taxes ... ?


Establish the means by which my having a million dollars' worth of bills in my hand, can get at the value of the USA economy.

If I can buy an item from Amazon or Overstock.com via Bitcoin or via Yen or via USD, explain how there is an actual difference.


You have to pay your taxes with USD, so there's always a base demand for USD. Bitcoin has no intrinsic demand. It can go to zero because nobody needs it.


Crypto market cap doesn't mean the same thing as the market cap of a stock, but that doesn't mean it's meaningless. It approximates the total amount of wealth currently held in the form of a particular crypto, which is interesting to know in comparison to more traditional asset classes (stocks, bonds, gold, etc) as well as to other cryptos. If you also have some knowledge or an assumption about the velocity of money in the crypto, it also gives you an indication as to the total amount of commerce that can be facilitated by the crypto at its current valuation.


'approximate' is the key word as it's averaged over exchanges which is a big difference to standard market prices, as mentioned in the article:

> 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.


I don’t think the “average over multiple exchanges” thing really matters that much when we’re talking about the usefulness of market cap. The reason market cap isn’t a great measure of “total value at the moment” is because there certainly aren’t enough buyers willing and able to buy all Bitcoins or all Apple shares at the current market price.


True, but if someone tried to buy all the Bitcoins or Apples shares, the price would start to go up. Getting them all would cost more than the current market cap. This is why company buyout offers are always for more than the current market cap.


> It approximates the total amount of wealth currently held in the form of a particular crypto,

I don't see how it does anything of the sort.

* It's not the amount that was put in to it

* It's not the amount you could get out of it

It's a number that's easy to calculate and gets headlines, but I can't see what else it's good for in practical terms.

Perhaps with a tiny altcoin it would be worth 51%ing it. But for anything larger, or for an ICO token? What does this number actually do?

Say there's a crypto asset that isn't getting headlines. Its market cap is $100 million. Just knowing that, what do you know about the crypto?


Your criticisms about it not being the amount that came in or that can come out also apply to stocks.

If all I know about a crypto asset is that it has a market cap of $100 million, I know it's a very niche asset in comparison to bitcoin or ethereum. It's small enough it's reasonably likely to be a scam. For me personally, it's small enough that I'm not interested in learning any more, which has practical use because my time is finite.


> Don’t all of the complaints about exchange rate and market cap apply to virtually any other item that is traded?

> Market cap is extremely commonly cited for stock markets.

Yes.

Spreads usually depend on volume--high-volume securities tend to have a lower spread because there's a lot of market participants.

More established markets often have market makers (entities with simultaneous bids and asks) and arbitrageurs who make money off spreads between different exchanges. I usually look at this spread and arbitrage (which I'll get hit with when I buy or sell) as the price of having a liquid asset. For stocks, it tends to cost relatively little.

Market cap for Bitcoin is complicated because it's not known how many Bitcoins have been lost.

Ever since people stopped storing stock certificates in safe deposit boxes, this hasn't been an issue for equities. Even then, companies kept a ledger with ownership.


Is it a solved issue for equities? How do you know the shares you purchased are valid?


It's solved to an extraordinarily high degree. 99.999% or greater. There are fringe cases that pop up from time to time and make headlines; the reason they make headlines, is because trillions of dollars in equities trade hands every year in the US, and such cases are very rare.

It's because there's an established system of trust, liability, responsibility, regulation and oversight in the network, assuming you're using any number of several dozen popular brokers (and that you're a common investor). Microsoft has a vested interest in knowing how many shares it actually has outstanding and who owns them; there's a chain that follows, that includes the CEO, CFO, board, other large powerful investors, regulators, common investors, and so on and so forth.

The scale and solved nature of it is roughly 100x that of Bitcoin in contrast.


IIRC there was the issue with fake shares of Overstock being traded:

http://investors.overstock.com/phoenix.zhtml?c=131091&p=irol...


> It's because there's an established system of trust, liability, responsibility, regulation and oversight in the network

You can just admit you don’t know.


Essentially, my understanding is that all the shares are held by a common trusted corporation, the Depository Trust & Clearing Corporation (DTCC), or something like it. In this way, transfers in ownership are as fast as updates to their ledger about who owns what.

I suspect it's only a matter of time before something like the DTCC is established for Bitcoin. Yes, from one perspective it would defeat the "trust-less" part of the system, but from another perspective it would enable instantaneous trades both within exchanges and between them. All that's necessary for this scheme to work is for the exchanges and other market participants to trust that the depository company will deliver on any assets it claims to owe them.


I'm a newbie to the world of crypto currencies. What concerned me more is the bit about "wash trades". I can accept the spread, but there is truth in the article when it comes to trading practices that probably would be largely mitigated in the presence of a regulator.


Yeah, I would be concerned about 'wash trading' too. And the Crypto trading space seems like the Wild West in int 1880s in how some crypto trading sites and exchanges are screening for this kind of illegal activities while others aren't.

> PSA: The Bitfinex trade engine ALLOWS for WASH TRADING

> The trade engine on Bitfinex will allow you to buy and sell to your own orders, the procedures to do it are as follows (which will likely be ‘fixed’, or partially fixed after this post…)

Source: Wash Trading Bitcoin: How Bitfinex benefits from fraudulent trading => https://medium.com/@bitfinexed/wash-trading-bitcoin-how-bitf...


Why does bitcoin even need market cap? Since it is a blockchain, you can calculate how much fiat/worth it currently has, by adding up all of the transactions. No?


You can calculate how many bitcoins are theoretically in existance by simply counting the number of blocks and refferencing issuance schedule. The blockchain will not tell you what these bitcoins are worth in any other currency; nor will it tell you how many of these bitcoins are spendable by anyone (eg. did the owner loose the key).


Well he does argue that the infrastructure isn't as advanced and regulation isn't as mature. But you could say the same about equities in emerging markets.


Yes, only several times worse.

A random guy that self-taught himself PHP, for example, is not usually found (or even allowed) to build one of the biggest exchanges for developing markets. For Bitcoin though, they do.


in fact, "I know PHP! How hard could running an exchange be?" is literally the process by which Mt. Gox and Bitcoinica - whose stolen code was pressed into service as the first version of Bitfinex - came into being.


Exchanges like Coinbase and Gemini are much more professional.


They're not being pitched to suburban mums and dads in the tabloids.


Then it sounds like your argument should just be "this is too risky for more than a tiny investment unless you're very secure," which I agree with.

Where I part ways is in your claim that the price is somehow illusory and it's impossible to cash out. Until recently I worked for a company that was mostly paid in crypto, and had no trouble selling it off, moving the money into a bank, and meeting payroll.

Crypto is new and the market infrastructure is immature; that means there's more risk, and also more return, just like the early days of other new asset classes that have arisen over the past century. William Bernstein wrote about this in his recent Investing for Adults series.


How recently is “recently”? It seems (to me as an outside observer) that it’s gotten notably harder to get national-currency money out of exchanges in the last, say, 6 months, because (I’m guessing) as the price goes on an upward run, more people who bought low are trying to sell to realize those gains, which triggers higher transaction volume, which suddenly prompts correspondent banks to look at exactly what all this money moving around is — at which point AML/KYC processes kick in and some banks decide the relationship with the exchange is too risky.

Didn’t one of the major crypto exchanges recently lose all its correspondents for awhile and then picked up a single one again?


I resigned about a month ago.

Coinbase and Gemini, for example, are U.S. exchanges that strictly follow money transmission regulations and AML/KYC. They're not likely to have banking problems, at least under the current regime. If you go with a sketchy foreign exchange so you can stay anonymous, you're more likely to run into problems.


Yep. In fact, Gemini's value proposition is that it's as rules-following and upright as a crypto exchange can be - they want to market to serious money who aren't interested in cowboy exchanges.

Unfortunately, this has left them with much lower volumes than the more cowboy exchanges ...


I'd definitely concur that your first paragraph holds. Having a flutter is one thing. Buy £5 of ether on Coinbase, see what happens! Investing seriously, OH DEAR GOD NO.

The motivation for this is that I keep hearing from friends asking "help, [relative] thinks bitcoins are a good idea! what do I do?" So instead of abstruse jargon-laden blockchain inside baseball posts, I tried to write something more accessible about the problems.


I was recently looking into stocks and shares ISAs and which index funds are best, and I can safely say that emerging market funds are very definitely being pitched to suburban mums and dads in the tabloids. Meanwhile, they're running articles about Bitcoin being a bubble and a huge scam. What I'm saying is, your claim about what the tabloids are convincing people to invest in doesn't seem terribly founded.


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.


> This is the same for every stock traded on any stock exchange in the world.

While we do live in an age where stocks seem increasingly untethered from reality, that's still not remotely true.

Stocks are, in theory, based on the value of the company. Which is something you can calculate based on its assets and revenue.

Granted the math doesn't add up for a lot of companies right now, but that's an indication we're in a bubble not an invalidation of the concept of stocks.


The market cap is still a simple calculation of the last share price * the number of shares outstanding. There's no magic there. The market cap is subject to huge swings as well if someone were to suddenly sell off a big chunk of shares.


It is more of an indication that QE made cash worthless.


> QE made cash worthless

Really? All your cash is worthless? Well that sucks but tell you what, I'll help hedge your losses by swapping it all for a big mac meal (which I assume I'll have to barter for, but I'll do that for you).


how about worth less.


Isn't the difference that a stock is only traded on a single exchange? If stocks were traded on multiple exchanges, and the value was reported as the average across all of them, then that number would be just as made up.


A lot of stocks are trading on multiple exchanges. Unilever and Shell trade on the NY, London and Amsterdam stock exchanges. People typically use the one closer to them geographically or from a currency point of view.

And things like gold or oil barrels also have multiple exchanges.


Unilever is actually 2 companies:

https://en.wikipedia.org/wiki/Unilever#Legal_structure

Unilever plc and Unilever N.V. ...operate as nearly as practicable as a single economic entity, whilst remaining separate legal entities with different shareholders and separate stock exchange listings


Stocks are also traded on many different order books [1], each of which will have different prices, so the quoted price is just as made up (although usually by ignoring all but one venue rather than averaging across them).

Also worth noting that for both stocks and cryptocurrencies, the price that is shown is almost always the last traded price not a quote for a price you could trade at anyway.

[1] in the US, for example: https://www.sec.gov/foia/docs/atslist.htm


I think a large part of the point in that part of the article is that the price gap between exchanges is much wider than it is for just about any security trading on an established stock or commodity exchange (because the time and fees involved in exploiting that gap for Bitcoin make arbitrage hard to pull off, so the gap-tightening effects of it don’t kick in). You aren’t going to see inter-exchange differences of several percentage points in the price of a share, because savvy traders/trading bots would instantly jump on it and the gap would tighten up again.


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....

https://blockchain.info/charts/trade-volume?timespan=1year&d...


24-hour trading volume for Bitcoin is $4.86 billion (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....).

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.


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.


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). 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.


> Before that date, roughly, more money moves through one stock exchange in a single day than all of Bitcoin in a year.

Calling the NYSE "just" one stock exchange isn't exactly a fair comparison. The NYSE is somewhere in the region of 20% of the total stock exchanges by market cap. It's twice the size of the next-largest stock exchange (NASDAQ), which is itself about twice as large as a "normal" large stock exchange (e.g., London or Tokyo).


True, but we're also comparing it against all BTC transactions.


> 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.


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.


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


> 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.


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?


This isn't done, as evidenced by the very different prices on each exchange. It's considered unwise to keep bitcoins on the exchange, and certain exchanges have a 'trustworthiness' premium that they charge. Presumably there's not enough capital willing to take this risk to move the markets.

People might start taking advantage of the futures market to go short btc, so exchange exposure is only limited to the time it takes to immediately move coin off exchange. Time will tell if that allows enough capital to arb the difference.


You can however gdax limits you to 10k/day of withdrawls from the exchange (be it usd or btc). And gdax has a 3-6 day wire transfer delay.

You end up making more by simply hodling


> gdax limits you to 10k/day of withdrawls from the exchange (be it usd or btc).

That's just the default limit. You can ask for increases.


but the delays are the problem.


There's also more complicated tricks, like arbitraging via an altcoin. I'll mention that later, didn't want to get too detailed right at that point.

Basically, though, it's reasonable to assume that arbitrage is happening as absolutely efficiently as it possibly can, and we still see huge spreads, because the Bitcoin market is structured for inefficiency and volatility.


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.


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.


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...


Is this meant to be scary though? From my perspective, it's obvious that bitcoin markets aren't as developed as traditional stock / forex markets... but it literally got added to CBOE one week ago. It seems there's nothing categorically preventing it from developing in time. So while this is interesting it doesn't seem particularly important right now.


>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.


> 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.


In microseconds even, if you speak of the most traded stocks (AAPL). Good analysis by the way.


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.


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...


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.


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.


Black-swan events sounds less rare in digital world.

I am also doubting if FDIC insurance is for the full amount, or the 250K that's often cited for banks.


"For US customers, your USD balance is covered by FDIC insurance, up to a maximum of $250,000."

You literally didn't even bother to click on the one link in that comment.


Looks like i really didn't - sorry. 250K insurance is fairly low, for some bitcoin accounts.


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.


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.


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.


> 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.


> 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.


I think there’s actually a real risk in bitcoin of a few people controlling all of the wealth which makes it a not very fun game to play for anyone else, and makes it hard to justify it as a payments platform.


That's an interesting point - but how is that not unlike our current capitalist system? There was a tweet (posted on HN the other day) that 50% of wealth in Europe is inherited...


You can’t legally walk away from dollars in the us.


Following the same logic: what would you pay to own all of a single currency? It'd be completely worthless as nowadays they're not backed by anything.


People keep saying this, and it's totally untrue. Because of tax, there's a fixed percentage of every country's GDP that must be transacted in that country's currency. It's 100% false that "fiat currencies aren't backed by anything".

If I owned all the currency of the country you reside in, you would have no choice but to trade with me. If you don't buy any currency from me, you won't be able to pay your taxes and you'll go to jail.


No, if you owned all the currency from my country, my country would just issue a new currency, which would effectively nullify any value behind the old one. Countries making new currencies is a fairly common event in the past century and that's not even counting the move to the Euro.


Except Apple would still exist as one of the world's most profitable company. That's the underlying value.


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.


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.


> 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.


Arbitrage involves moving large amount of volume and transactions. Arbitrage is not effective on bitcoins because there is too much risk with trading bitcoins.

To reply to your question. The problem is that the bitcoin market is plagued with deep issues. Arbitrage is hard in such an environment, that's the consequence, not a cause.

To make an analogy. Think of a sea, a sea always have fishes. If there are no fishes at all in a sea, the problem is unlikely to be the fishes. Fishes are simple animals living day to day (just like arbitragers). Most likely, the problem is with the sea, maybe it's super polluted and killed all the fishes?


It makes the price stupidly volatile, and the thin per-exchange order books make it much more manipulable.


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.


"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.


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.


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

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

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

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


When article says “plus or minus $500”, it’s not talking about the bid/ask spread on a given exchange, but the price difference from one exchange to the next, which is exactly what your own second link shows.

And sure, you can cash out, and see a number in a balance statement. How hard is it to get that cash out of Bitfinex into a real bank though? (I’m not even going to address the inherent hilarity of citing Bitfinex as proof that things are A-OK in Bitcoinia.)


You can’t get dollars out of bitfinex.


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.


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.


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.


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.


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.


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.


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


> 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.


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.


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.


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.


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.


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.


>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".


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.


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.


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

https://prestonbyrne.com/2017/12/08/bitcoin_ponzi/


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.


> A pyramid scheme requires a central actor to run the scheme, Bitcoin has none.

No, once put in motion, a pyramid scheme doesn't require a central actor.

> We don't need to make this general comment on every specific Bitcoin thread.

OK, I'll check with you next time before commenting here.


Yes they do, they require operators and recruiters, which have a specific meaning and do not exist in Bitcoin in any sense other than an abstract one. Your comment would not be out of place on a post titled "Is Bitcoin a pyramid scheme?" but it is a generic re-hashed comment that has little to do with the specific content here.


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


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.


is that why Bitcoin's value dropped something like 5%?


Which exchange?


source?


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


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


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.


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.


(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.


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.


The article does read mostly like sour grapes. "T-T... They're never gonna get that money anyway!"

Some examples are plain false (calling "thin" volume when several exchanges see a billion dollars a day).

If the point was that banks will not let you transfer out of the exchange, the exchange will hose you, or your tethers will prove worthless, then the article should have just made that point. BTW the first two are false, obviously no experience actually dealing with big money crypto. WRT to tethers they look like a fraud but only represent one inferior exchange.


Tethers are total crap, please do an article about them.


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


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.


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


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?


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.


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.


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.


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.


This is a pretty appropiate video for this post: https://youtu.be/hAQA_29Htts fugazi?


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.


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.

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