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Goldman Sachs Is Setting Up a Cryptocurrency Trading Desk (bloomberg.com)
346 points by chollida1 on Dec 21, 2017 | hide | past | web | favorite | 466 comments

When it comes to Bitcoin, I think of Linux as an analogy. When it first emerged, many people questioned it's basic premise: "why is there a new operating system? Everyone uses Windows, or Mac". People didn't know or understand the idea of open source: "Doesn't that just mean people will find bugs and ways to hack it?" "Without a company behind it, how do I know I can trust it in the long term?" At first it's usability sucked. It took forever to get it up and running. It was confusing and hard to learn. It had a small, rabid fan base who kept obsessing about desktop adoption rates and wondering when it would take over. That is all kind of the same vibe as Bitcoin. But just as Linux showed, you don't need a monolithic, centralized entity to back it, it can start slowly and improve over time. "linux on the desktop" basically failed (cue all the linux desktop heads on HH....!) but it completely took over the whole back end of the Internet. Every server runs it. And it then morphed and took over almost all mobile/tablet/smartTV/etc/etc devices. I think something similar could easily happen with Bitcoin. It has securely held Billions of USD equivalents in value for years. The software continues to evolve. Its core technology has morphed into many other formats. And like Linux on the Desktop, maybe the early idea of digital cash will change into another idea, like a settlement layer. who knows? But I remain pretty optimistic about it.

> When it comes to Bitcoin, I think of Linux as an analogy.

I've read Bitcoin is like email, Bitcoin is like TCP/IP, Bitcoin is like the entire Internet. Now I've read Bitcoin is like Linux.

At one time few people had heard of (random thing from thin air) New Kids On The Block.

Some didn't understand the new fangled (boy band) concept, some thought existing bands/music were good enough, some thought they'll take over the world, and some just thought they could get rich off it all before it collapsed.

Bitcoin is something that happened to catch on (entirely, by design, due to profit motive), which is why it's superficially similar to other things that happened to catch on. (Even things that catch on because they're actually useful, and not just a potential route to get rich quick without any effort.)

Once upon a time Denmark, like Bitcoin, didn't exist.

Danes (like Bitcoiners) were a strange bunch, famed and feared for their involvement in crime to make money. Slowly their influence started to spread, however, despite - but in some ways because of - their criminal behaviour.

Many legends were created... Ragnar Lothbrok, Ivar the Boneless, Magical Tux and Free Ross.

Then along came Christianity[1] (Coinbase/Winklevii) which provided more legitimacy with other, less beardy, groups. The true believers didn't like this, of course, but most people recognised the social and economic benefits of selling out everything they were supposedly all about.

The similarities end there, sadly, because today Bitcoin consumes even more power than Denmark. A fact which is completely batshit insane, but since Bitcoin hype and hysteria is even more insane, and increasing with every $1000 price pump, nobody cares.

Serious question (which will go largely unanswered in favour of turning this text white) for people who seriously think Bitcoin ranks in importance/significance with email/Internet/Linux/Denmark:

Now in its tenth year[2], what has Bitcoin actually achieved, other than a sickening energy waste and crazy price fluctuations and speculation?

[1] Which is also Bitcoin: https://twitter.com/larslfe/status/909192006362005506

[2] See creation dates for bitcoin.com/net/org.

That's one of the more convincing arguments I've seen.

I still hold though that Bitcoin was an early prototype and its value will sooner or later approach zero.

I do however think that blockchains and cryptocurrencies are a good idea and here to stay.

To build on your example:

Linux is here to stay but a number of the old companies, distros and packages are either gone or on life support and newer companies, distros and packages are making our wishes reality.

I can't help but agree with this. People can only mine so many coins. Users will prefer blockchains which have lower fees and transaction times, so miners will give priority to those coins. At some point the selling point of Bitcoin will become less and less true. I have rewatched several promotional videos for Bitcoin pre-2015, and most of their claims are false as of late 2017.

Survivor bias. It is also true about many, many things that turned out to be flops in the end.

> When it first emerged, many people questioned it's (sic) basic premise

As they did Charles Ponzi's international reply coupons.

> That is all kind of the same vibe as Bitcoin

You mean the creator(s) who went to great lengths to hide their identities (that's reassuring), or do you mean the various ripoff artists, fraudsters, imprisoned scammers etc.?

> It has securely held Billions of USD equivalents in value for years.

So did tech stocks in 1999...so did subprime mortgages in 2007...

Analogy is good. It does not however tell us that it will be the case, especially if you look at the development community around Bitcoin. While Ethereum, serious innovative stuff is happening but is not being aggresively marketed for good reasons.

Ethereum has been hyping proof-of-stake since version one and delivers Cryptokittens instead.

Cryptokitties is an important step. It's helping to normalise the discussion around crypto, showcasing a different example of value exchange based on it, and making people comfortable with that style of transaction.

It's like Snapchat's dog-face filter is the normalising step for AR, you need the small, novel things to move the needle.

What's with all the extreme negativity with Bitcoin and its trading price on HN? I've been noticing that in all the BTC related threads recently.

Yes, this is possibly getting too large too fast. Yes there is a chance this is a bubble because the barbers and shoeshine boys are talking about it. But there is also a chance that we genuinely are at the beginning of the transition from Fiat currencies to crypto (beginning of the S-curve mass adoption). And given that we live in the digital connected age dealing with a virtual concept, it takes a lot less time for things to catch on and spread like wild fire, as opposed to other transitions in history like snail mail -> Email (which also was not that slow).

And if at all that crypto vision does come true, the value of BTC and some of these other top cryptos would be worth a _lot_ more than it is right now.

Again, this could go the other way and it could all come crashing down soon and maybe the hype dies down. But I feel a majority of the HN community is just waiting for that to happen which I did not expect.

There seems to be a ton of excitement about Bitcoin now, not because of what it can do, but almost entirely because of speculation. Almost none of the general public interest in Bitcoin stems from an interest in what Bitcoin is; the vast majority of people simply see it as a get rich quick asset. And the reason why people are only interested in it for speculative reasons is because it doesn't seem to have any particular benefit for most people.

And if this is a speculative bubble the way it looks like it is, it will end like other speculative bubbles. A few people will get absurdly rich, not because they added any value to the system, but because they were able to time the market. Their money will come from the many others who will lose a lot because they tried to do the same thing but were too late.

Beyond that, there seems to be a small group of people who are interested in it because they see it as an alternative to fiat currency. But strong opposition to fiat currency seems to be one of those odd economic beliefs that some people get, similar to the people who think that our society would be great if we just got rid of money and had a barter system. Outside of fringe beliefs, fiat currency is generally seen as a useful tool.

I'm tired of this perspective. Just because you "feel" people are in bitcoin for "the wrong reason" doesn't make it bad. Similarly if people start buying electric vehicles because they are faster than gas cars it doesn't make them "worse" than people who buy them for environment change.

A lot of millenials have learned a lot about the existing financial system due to Bitcoin, even if it was initially to make a quick buck, and I suspect there's no way back to fiat for a lot of them.

> A lot of millenials have learned a lot about the existing financial system due to Bitcoin, even if it was initially to make a quick buck, and I suspect there's no way back to fiat for a lot of them.

This is exactly the kind of one-sided perspective that makes me very sceptical. No, they didn't 'leave fiat' in any way, and they never will. At best they can hedge against it a little. But while that might be personally profitable, it is not clear at all whether it is a net benefit; the main problem of western economies nowadays seems to be too tight monetary policy, and crypto is tighter than fiat.

When did they leave fiat currency at all if they are using Bitcoin?

Is not cryptocurrency the ultimate fiat currency?

It only has worth because we all "agree" it does via supply and demand for the currency itself, rather than any backing material value. Aside from a bunch of power plants in China, I suppose? But people don't hold Bitcoin at $20,000 because they strongly believe in the material worth of the rural Chinese electric grid.

(post edited to say "fiat currency" rather than the noun "fiat" which means decree or command)

fiat: An authoritative command or order to do something; an effectual decree.

Apologies, I intended that as a shorthand for "fiat currency" the way the parent post had ("there's no way back to fiat for a lot of them").

I did not mean the bare word "fiat", and will update my post accordingly.

Your example of electric cars doesn't really translate. In your example, people are buying electric cars because there is an intrinsic property to them that make them superior to alternatives (e.g. faster). With bitcoin, people are currently buying not because they believe something about bitcoin is better. Instead, they're following greater-fool theory investing.

Whether millenials have learned about existing financial systems or not is immaterial. It's unlikely they'd be holding a position in bitcoin if it weren't for the massive gains that have been seen in the past year. It's purely a get rich quick play for the majority of buyers today.

For technical reasons, Bitcoin honestly sucks. The block rate is so low that transactions cost many dollars and take hours to confirm. This is only going to continue to get worse, as it turns out that having a global ledger is actually the opposite of a decentralized system.

I can't do anything with Bitcoin that I can't do more easily with my credit card. It offers no value except a tool for rampant speculation. Block chain is junk, and while I see promise in the future I strongly believe we're in the Myspace stage. Something better will come along in a few years and blow this garbage away. Something that's actually usable as a real currency in all the ways I can use a dollar and maybe more.

The lightning network could fix everything, or fail spectacularly. I think an even bigger danger than failing spectacularly is if they take too long to roll it out. Other cryptocurrencies are already gaining some favor because of the situation BTC is in now with the high transaction fees.

It has a good chance of working, in my opinion (the lightning network), if they don't dawdle too long. But the clock is ticking.

IMO Lightning network solves a non-problem. It only sets up a transactionless channel between two parties. The whole promise of Bitcoin was secure transfer to anyone. Maintaining a balance between two parties is trivial and solved thousands of years ago.

The whole reason we have currency is to allow transactions between people that don't trust each other, so I don't think Lightning network will do anything significant

This is incorrect. Lightning Network transactions are trustless just like Bitcoin [1], even over multiple hops. You set up a channel with one or a few peers and then can pay or be paid by anyone in the network [2] with no counterparty risk.

1. With the caveat that you (or a service you delegate) need to be prepared to broadcast a transaction within some time period if a peer tries to defraud you, which is unlikely since if they fail they lose their funds in the channel.

2. Assuming enough liquidity in the network

Lighting network channels don't require you to trust the other party.

Lighting network is also distributed, you don't need a direct channel between you and another party to pay them. You just have to find a route.

Most transactions fall into the first -solved- category, a minority is in the second.

> I think an even bigger danger than failing spectacularly is if they take too long to roll it out. Other cryptocurrencies are already gaining some favor because of the situation BTC is in now with the high transaction fees.

Who cares? Honestly, who cares if BTC is the one that wins? I only care about some cryptocurrency seeing mass adoption, I don't care if that's BTC or any of the other thousand coins.

Well certainly all of the HODLers care. Some of them have a lot to lose if Bitcoin fails.

I think a bigger risk than specifically Bitcoin failing is all this crypto fragmentation. If not Bitcoin, then what?

When Yahoo was replaced by Google people switched and their lives didn’t change.

If/when Bitcoin goes to zero people could lose faith in crypto completely there might never be a replacement.

The fragmentation is fine. Technology is in the works to make blockchains interoperable. Look up Polkadot.

I’m aware of some of these efforts. I’ve been following REQ.

If currencies go to zero and the masses lose their money then they could lose faith in the whole system. Interop of 100+ currencies won’t matter if all have zero value.

I’m not saying this will happen, but suggesting it’s a worst case scenario.

>Who cares? Honestly, who cares if BTC is the one that wins?

Well, everyone who is long on BTC.

They should be diversified or else they deserve the pain.

There are already new players in town. Currently Raiblocks is gaining in popularity. It offers AFAIK the fastest transactions with NO FEES. This is the future.

>It offers AFAIK the fastest transactions with NO FEES.

Is it not obvious to you that no fees is a ridiculous proposition? Free transactions mean spam and that doesn't work in a distributed ledger.

Transactions have a small amount of PoW attached to them to deter spam, and are also very small (designed to fit in a UDP packet).

I'm sorry, but what's so good about raiblocks...? Aren't they just PoS based?

Sure. You'll just have to perpetually wait 18 months for the lightning network to get completed.

'I can't do anything with Bitcoin that I can't do more easily with my credit card.'

That's false as your credit card issuer controls who you can and cannot transact with. With BTC you control whom you transact with.

In other words: Bitcoin is mostly good for illegal transactions.

No, that’s a commonly held misconception likely tied to the fact that it was being used by people in conjunction with Silk Road. The public ledger system ties history to the transactions so you can trace the flow back in time. Law enforcement officials probably love that aspect.

Good old fashioned cash is much better for criminal activity.

A crypto like Zcash (another fairly large crypto) that utilizes zk snarks to encrypt transactions and then decouple coins from their history would be much better suited for illegal transactions.

Illegal transactions? On a public ledger system?

BTC was always about reducing control from a few centralized parties. I don't want my bank or paypal account being arbitrarily frozen.

Nowadays BTC is not very good at transactions due to exorbitant fees + very slow confirmation times, but things like ethereum, bitcoin cash, and altcoins offer options. ETH is very quick.

How does ETH compare to LTC in terms of T/s?

It can be an equalizer, no doubt about that. Probably the biggest reason I hope it works its way into our culture the way credit and bank card transactions have. That and privacy, which these exchanges have none of.

Primarily, with another use being those who lack a proper banking system.

I doubt it with the insane transaction fees and confirmation delays, they're better off using Western Union on both counts at this point

I wasn't going to say it... But somebody did

Well. That's true until the government gets involved regulates it, and starts to actually monitor all transactions.

For Bitcoin like technologies completely lack privacy.

In the absence of regulatory intervention. The biggest risk for Bitcoin is for a country like the USA to outlaw it.

Bitcoin truly does suck, for reasons mentioned and the wastefulness of PoW. However, saying that "blockchain sucks" is really short sighted and screams of ideological bias. We're not in the MySpace stage yet, but more like AOL. The internet in the early 90s sucked a whole lot too but the potential was pretty obvious, just like it is with crypto. And today there's a whole lot more to blockchain than just digital cash. That's just the most obvious and, by now, one of the least interesting applications.

Sure, all of this technology is nascent and scaling issues are yet to be solved. But it's far from useless in its current form. Not every application needs 10s of thousands of txs per second, for example ICOs. I know that this is another hot-button issue, but some of us feel strongly that people should not be protected from themselves. And that's the most important thing that blockchain offers: true freedom, and that's why it's so exciting. Especially at this junction, in the wake of the internet having been co-opted by big business and big government.

Some of us think that burning coal at 250kwh[1] per transaction isn't sustainable.


Some of the negativity about Bitcoin in particular is around the relative lack of utility of the actual network, and how this usefulness hasn’t grown with the price. Currently, Bitcoin Core (the dominant fork still) has ridiculously large transaction fees (sometimes averaging over $20 for a given day) and transactions can take hours or days.

There’s also some contention because Bitcoin Cash (the other fork of Bitcoin) is in a lot of ways closer to the original design of Bitcoin (“peer-to-peer cash”), but is having to fight for the name “Bitcoin”.

I agree, Bitcoin being the largest has a lot of issues with governance and the community not being able to move fast on the scaling issues. I'm not too familiar with the core team's development plans but there's a lot of scaling work and research going on with Ethereum and Litecoin, etc and eventually I'm sure whatever works would flow into Bitcoin as well.

I think having the first-mover advantage and name recognition, the network effect that it has right now and the global media's attention, it looks really difficult for a smaller coin with better tech overtaking BTC anytime soon.

We've all seen technologies that are more advanced than an established player in a field but a lot of times, that does not matter. That's what I believe at least for the short to mid-term timeline.

Yeah, so what can we do to change this? First step, don‘t buy into the hype and advocate against bitcoin at every step. People need to know that bitcoin as a technology is not what we need and will die hopefully sooner rather than later.

The negativity often seems to go beyond reasonable criticism and delve into spite. As another commenter suggested, I suspect a bit of jealousy is at play and it wouldn't surprise me if a few spiteful commenters wouldn't discuss the shortcomings in a much different way if they held Bitcoin.

Obviously, there is more than enough happy-clapping on the side of speculators to balance everything out, but I do wish the conversation more often found a practical mid-ground.

You actually hit the nail on the head but come away with a different conclusion than me...

People do discuss Bitcoin differently depending on whether they have bought in or not. But the dangerous effect is the opposite of what you aluded to. People attached to bitcoin who have money on the line engage in acrobatic brain gymnastics to find ways to rationalize the value of it because they desperately want their gains to be real. At the moment they simply aren‘t. Bitcoin has failed it‘s initial mission, it‘s impractical and people just speculate that somehow things might change in the future. It‘s just a mind game right now. So your mid-ground would require me to accept that there is some value in the speculation regarding bitcoin which is a tough sell. It‘s mostly greed and people will be hurt by it at some point. Let‘s stop before it gets to messy!

> I do wish the conversation more often found a practical mid-ground.

There isn't much middle ground. Bitcoin has proven to do a horrible job at just about every single thing it was originally marketed as. It isn't free, it isn't instant, it isn't permissionless, it isn't anonymous, it isn't secure, and it isn't decentralized. The only thing bitcoin has going for it is the price, which is more likely than not fueled largely by exchanges pulling funny business.

There are many other cryptocurrencies. It's a well known fact that Bitcoin is probably one the worst ones at the moment. Its hopes rest on the core team's ability to provide an effective solution to the scaling problem, and so far their track record leaves much to be desired. Meanwhile there are new coins based on new protocols emerging, some showing a lot of promise.

Blockchain-based currencies are not an acceptable replacement for the existing monetary system because of the extreme brittleness of their mechanisms. You really are completely on your own when it comes to things like getting hacked, losing your wallet, etc. And we know that nobody's machine is secure against a persistent attacker.

The social mechanisms (regulatory etc.) around retail banking are a crucial safety measure for individuals in the first instance. Bitcoin discards all that. If you repair the safety net, by creating a web of trust between principals (e.g. banks), proof-of-work becomes an unnecessary nuisance.

From the recent ING paper: "The average person [...] dislike[s] having no rights, no recourse, no guarantees, no legal coverage, nothing. They just want secure, reliable and hassle-free access to their money, and if they forget their password, they want to be able to call their provider and have the password reset for them. And with reason: recent analysis suggests that up to about 20% of all Bitcoin in circulation may be lost forever, due to, for example, misdirected transactions, lost passwords and crashed hard disks. Banks are the usual providers of custodian functions preventing loss and theft."

It's possible to be anti-Bitcoin while accepting that digital money is the future.

Could that be solved by some sort of banking layer between such-inclined users and their holdings, without interfering with the core aims of Bitcoin? e.g., an abstraction where the next generation bank provides some extra level of security or recourse. I can't imagine that banks as they are today are brilliantly efficient.

The ING paper continues "The fact that they [banks] do not (yet) provide custodian functions for Bitcoin (e.g. for regulatory reasons) does not mean that the general public would not need or want those services for cryptocurrency. In fact, many Bitcoin users choose to keep their wallets with online providers – meaning that even in today’s Bitcoin universe, there is a clear role for intermediaries."

The Bitcoin/blockchain-agnostic term for the basic abstraction these intermediaries share is "distributed ledger", though that doesn't solve the whole problem.


> because of the extreme brittleness of their mechanisms.

On top of all that, we're still entirely unsure how the system is going to function once all bitcoin has been mined and it becomes a pure transaction system.

>But there is also a chance that we genuinely are at the beginning of the transition from Fiat currencies to crypto

Maybe, but the current price is no reflection of that. The current price is based on speculation, not utility. No "maybe" about it.

That's just your opinion. My opinion is that every dollar, euro and yen that stored outside the current financial system is being safely utilised in the bitcoin store of value.

The primary concern is that if BTC wins, we will all be subservient to an algorithm which no one has any incentive to change. We'll lose all financial controls.

Worse, people with massive crypto fortunes can act as evil as they want, and society can't do anything to stop them. Right now we can take the money away from the powerful, if society collectively agrees to. That will become impossible.

If BTC had no upper limit, I would agree with you. But Satoshi capped it, and theories abound as to why. The most reasonable explanation is that he wanted to incentivize network strength: more participants, the healthier the network, and deflationary currency encourages adoption from a game theory point of view.

But think about the endgame. What do you think will happen when coins stop being minted? When there are only 400 BTC left to mine? What will happen to all those miners and the vast worldwide mining apparatus?

If Satoshi were still around, he would likely want to remove the hard cap. And then we'd be in a different situation. But he didn't, so we're not.

Why would it make any difference if Satoshi were still around? He can't make arbitrary changes to the consensus rules any more easily than anyone else can.

And you might not be able to take money away from the powerful, but you can still throw them in prison.

Try throwing Putin into prison.

That's the kind of threat model at stake here. Another Putin emerging. And this one may be much less predictable.

If Satoshi were around, his opinion would carry weight. He's the spiritual leader and mysterious benefactor, the only person to have ever solved the byzantine generals problem with sybil resistance. If he spoke, people would listen more closely than to others.

In fact, people are resisting change mostly because they want to stick to satoshi's original vision. So he is speaking to us, in a way, by saying nothing. That's him communicating his vision to us, and us agreeing with it.

If he were still around, he might very well say "I only did that to ensure the network stayed healthy! We still have an endgame to think about! The miners will eventually run out of coins to mine, and it's in our interests to continue the status quo rather than degenerate into that world."

> Try throwing Putin into prison.

You can't thrown Putin in prison because he's not a resident of a country you control.

Likewise, you can't steal his money, even under the current system.

Can we present the argument without appealing to a fear of the evil Russian boogeymen?

for me at least it is an opportunity to keep my own wealth. If I can keep my own record of wealth why would I entrust a third party that doesn't care anything about me? Perfect example is Wells Fargo opening accounts and charging people.

> for me at least it is an opportunity to keep my own wealth.

As long as you don't mind the value of that wealth fluctuating by very large amounts. Today that wealth might be worth $10k, but in a month it very well could be $100...

Or being unable to access it.

Totally this. Brexit has me not trusting the government I reside under as far as I could throw it. I believe in crypto as an ideological position and hope to see it continue to grow. It might not be Bitcoin that wins in the end but decentralized, truly global, non-governmental mechanisms of money control are needed. There is far too much power in their hands as they push for "cash" to become digital (i.e. traditional bank accounts with access via debit/credit cards).

Because it is not wealth. Bitcoin is a sea shell currency. Or tulip bulb currency.

Wells Fargo clerk issue is totally separate from this.

"for me at least it is an opportunity to keep my own wealth. "

This is a really poor reason to use BTC.

A) BTC is supposed to be a currency - generally, a currency is not where you should be storing wealth. Currencies are not designed to be 'stores of value' - they are there to facilitate economic activity and transactions.

If you want to 'store wealth' - put it in real estate, bonds or equities. Commodities. Other currencies. A broad mix/basket of many of them.

B) There's no reason at all to think that BTC will necessarily be worth more/less than another currency. Why do you think BTC will 'always go up'? Much of the BTC hype may have already been had.

C) By simply keeping your currency in a trivial savings account, will roughly protect it from inflation.

In addition - most bank accounts are Federally insured - in case something goes wrong, you get up to $200K back etc..

D) Risk. BTC could go to zero tomorrow. Probably not - but possibly. It's extremely volatile = bad store of value.

People have this really odd view that 'currency = value' ... it's not ... currency is just a 'medium of exchange' - so you only need to hold it when you want to transact with someone else in a common/liquid way.

Over any reasonable length of time, currency is generally not a good place to hold value, and it's not designed for that.

If you have lot's of currency, trade it for something else, spread it out.

There will never, ever be a currency or any other magical currency store of value that will provide what you are kind of implying. Never. This is because the ratio of 'things people need' and the 'amount of currency they need to transact for' is constantly in flux, ergo, a 'fixed' currency constantly in flux relative to that.

You totally misread the parent comment. Nowhere did they state they only wanted a store of value.

They were talking about the blockchain and its public recordkeeping. There's nothing like Wells Fargo doing shady things and charging you money, or BofA randomly charging you money or changing their account rules, or freezing your account...

Coins have their downsides, but a public ledger for absolute truthkeeping is not one of them.

That's not correct. Wealth is a measure of stored value, be it in producing assets or currency.

Sure - you can technically store wealth in currency. Just saying it's generally not ideal over the long haul, and that that is 'ok'.

Absolutely true. This is the fundamental value of bitcoin. It is a store of value. I say no to trusting 3rd party. Especially wells fargo...

I’d hazard a guess that a lot of the fundamentals haven’t really changed in an interesting way - it’s just becoming more widespread and popular, which isn’t interesting from a tech perspective. And I don’t disagree with throwing a small amount of cold water on the hype - the number of headlines aren’t in line with the actual utility of it.

This is what I am actually afraid of! Why would you want to become bitcoin worth even more... when its value is so unevenly distributed towards early adopters? ... when it is using as much power as a medium-sized country while only providing a few transactions per second at a price of $10+?

Before you jump on the hype train, just ask yourself if it really is a train you want to get on, consequences and all. Alas I fear lot of people are already too invested in bitcoin as to see the problems with it.

I mean this is crashing now, but at some point it will go back up. Blockchain technology will continue to make people in high places very mad. It's here to stay. Is there a lot of money in it right now for the stage it's in? Absolutely.

Blockchains are objectively a better system. If the government pulls a Napster on Bitcoin (and Blockchains), I hope they get whatever is coming to them. Napster -- it had its problems with fairness and ownership, and a reasonable case could be made as to why it hurt creative producers. But Bitcoin/Blockchains? Literally no case can be made as to why we have banks when we have Bitcoin. It helps everyone except the people in charge of the inferior systems.

For example, what happened with Slavery? There was a lot of old money in Slavery and at some point we had to be like "sorry guys, your system sucks". Of course, that ended with war. But at the end of the day, we are in a better system. I can proudly say "slavery is disgusting" without fear of being hurt by the government.

Today we live in a time of financial slavery. A time where certain people get to control our money and thus our means. When will we be able to say that "banks are disgusting"? I am waiting for that day.

> But there is also a chance that we genuinely are at the beginning of the transition from Fiat currencies to crypto (beginning of the S-curve mass adoption)

I can only speak for myself but I see this chance as practically being 0.

As far as I can tell the only people who would need something like Bitcoin are those who participate in illegal/immoral activity. Seeing as there is no regulation, I don't think it's far fetched to believe those who have a large amount of Bitcoin, such as hackers who were paid ransoms in it, would have motivation to try to increase the perceived value of it.

Personally I believe that people, especially those who already participate in illegal activity, trying to profit is easy for my mind to grasp and believe than for some technological revolution. I suppose the bias from my personal experiences shows as well given that I haven't met a single person who has purchased Bitcoin for its utility but many who have bought it because "it's going to go UP!!!!!!!!!".

I suppose personally I don't want to see people throw their money away, especially because in this case I believe it will benefit scammers, and that's why I have a negative attitude towards it.

The total market cap of all cryptocurrencies is .6 trillion USD. There's dozens of coins with teams and communities trying to make them succeed and provide value. There's a lot of work and creativity involved in providing new technological solutions to overcome the limitations of older cryptocurrencies. I think you should give the cryptoscene another chance and do some research on what's going on. Saying that all this work, money and effort is something that will only benefits scammers is a bit unfair.

First of all I didn't mean to put down anyone's work. I am sure the technology is fascinating. Someone asked about the reason for negativity and I gave them my reasons.

> I think you should give the cryptoscene another chance and do some research on what's going on. Saying that all this work, money and effort is something that will only benefits scammers is a bit unfair.

I suppose the issue is that I don't really see anything wrong with our existing currencies but there are hurdles and issues to using cryptocurrencies (I can't actually use it to buy many things and its value fluctuates too much for my stomach to handle).

Market cap is irrelevant when significant percentage of the coins aren't being exchanged or used for anything, and are just sitting in cold wallets.

> Saying that all this work, money and effort is something that will only benefits scammers is a bit unfair

It's entirely fair. Bitcoin is a solution in search of a problem. The only "solution" it's solved so far is lining the pockets of the folks at the top of its pyramid. Bitcoin has been around for, what, 9 years now? If it was going to see mainstream adoption, it would have happened a long time ago.

9 years is a very short time for a foundational technology to go mainstream. The internet took ~25 years.

Which is a good thing. A "foundational technology" is foundational because it lets the new one builds on top of it faster. It reduces marginal time for new ones to become mainstream.

A lot of the negativity comes from people who missed the boat, sold too early, etc. Also, people who don't understand bitcoin or confuse it with ICOs/blockchain crap. I'd say that's the bulk of it to be honest.

I agree. I "missed out" on purchasing some bitcoin assets early on. So seeing a lot of the rise right now, I don't share in the excitement as -- I would imagine -- someone who's holding a few thousand BTCs.

Having said that, I think there's a bit of (healthy) skepticism amongst those of us who hold "traditional" assets regarding BTC.

As someone who holds real estate as part of the investment portfolio, I understand and see the return from the rental properties. Stocks give me dividends. Bonds give me interest payments.

Currently, all these yields are in dollars. But would I gladly accept BTC as payment? Currently -- no. It's too volatile for it to be useful. And the entire issue of blockchain transaction backlog is worrisome.

So if a tenant comes to me and says, "I'll pay this month's rent in BTC," I'd still have to say, "No thanks. I'll take dollars please."

Your “real estate” investment is propped up by the federal reserve. You were bailed out at the expense of savers. I’m glad you missed out on bitcoin. It wasn’t made for you.

Whatever happens, can we fucking stop to shorten them to crypto!? Crypto does not mean cryptocurrency, for God’s sake!!!


To be fair, crypto also doesn’t mean cryptography, but in programming circles they are often used as synonyms.

Crypto just means hidden.

Of course, it's from Greek. I'm not saying it should be used to mean cryptography, nobody's claiming that. I'm just saying that throwing it around as a shortened version of cryptocurrency is the most ill-conceived usage you could possibly make of it. Both from an etymological and lexical standpoint.

> Again, this could go the other way and it could all come crashing down soon and maybe the hype dies down.

The housing market crashed in 2008 when everyone defaulted on their loans and all the speculation on those assets went upside down. I wonder what a cryptocurrency crash would look like.

A blip

Because at the moment, bitcoin has no redeeming qualities.

- it is not transactional, as each trade costs $30-40. as exchanges hold the orders for weeks

- it is not rare, as there are tons of viable cryptocurrencies coming out each day

- it is not safe, as exchanges go bankrupt and shutdown.

- it is not stable, as prices fluctuate wildly each day. Downside could be 90%, upside could be 20%.

- it is not fast, as 100K+ transactions awaits

- it is not anonymous

- it is not valued correctly, as a sell order of $100M will most likely reduce the price by 50%

Single-purpose accounts are not a good fit for HN and you've repeated this stuff several times already, so I've banned this account. If you don't want to be banned on HN, you're welcome to email hn@ycombinator.com and give us reason to believe that you'll use the site as intended in the future. That means posting comments as part of thoughtful conversation about intellectually curious things. It definitely does not mean hammering an agenda.

People have listed some good reasons, but no one hit the real painful and unpleasant reason:

People are negative about it because they missed the ride up. It was at $1k earlier this year when these people started dissing it and calling it a Ponzi scheme, and now it's at $15k. Those people missed out a 15x gain, something most startups they've labored their life over can't do. It's human nature to be jealous

They typically do this for a few reasons:

1. High net worth clients demanding such products. 2. Obvious FOMO. 3. In case this crypto thing becomes big they don’t want to be criticized. 4. All companies are seeing a nice bump in their share prices with any association to crypto

Mostly I think it's 1.

A lot of people jump on guys like Jamie Dimon and Lloyd Blankfein for calling Bitcoin massively volatile / a bubble / whatever, like they hate cryptocurrencies.

They don't care, and they aren't supposed to. Their business is to sell whatever the customer wants to buy, cheaper or easier than they can get it elsewhere - and right now the customer wants to buy Bitcoin. Who cares if the backside falls out of it later?

They got burned by doing the same with subprimes, selling securities to clients who requested them but in which they did not believe themselves (and were shorting at the same time). This sort of move carries a significant reputation risk. I am sure not everyone at GS believes in crypto-currencies, there must be a lot of internal emails in the style "this is a pyramid scheme", "this thing will crash", etc... Reminds me a lot of 2007.

That's not quite correct.

The problem with subprimes was that banks were issuing questionable loans, and then selling them to investors (Without telling them that the loans weren't worth the paper they were printed on.)

This carries a significant reputation risk because they were, quite literally, defrauding their customers.

A crypto trading desk, on the other hand, just lets them buy or sell crypto on a customer's behalf, and charge them a fee for it - much like Coinbase does for retail customers. They won't have any insider knowledge about crypto, and they probably won't even care if BTC goes to $100,000 tomorrow, or to $0. The customer asks the bank to sell them BTC, the bank gives them a quote, and the customer accepts or rejects it. The bank doesn't know if its a good price, nor does it care - and the customer knows that the bank doesn't know, or care.

There's still ways to defraud customers in this arrangement, but there are far fewer incentives to do so... Compared to offloading toxic, shitty mortgages off your books, after having bribed ratings agencies to rate them AAA.

If you really care about crypto, this is a Good Thing (tm). Currently, the counterparty risk with Bitcoin exchanges is through the roof. Some of them allow illegal wash trades, some of them don't follow KYC, some of them go belly-up and steal all your bitcoin and dollars, some of them may be front-running their users, some of them don't allow half their users to withdraw USD, some of them are down for minutes a day... For anyone trading in an extremely volatile environment (Like Bitcoin), this practically screams: "RUN, DON'T WALK AWAY."

The counterparty risk with a Goldman Sachs trading desk is... Much lower.

Investors buying subprimes were professional investors. Most of them didn't like subprimes but were buying them because that was the only way to pick up a little bit of yield in a market where credit spreads were massively compressed. It's after they lost their shirt that they suddenly pretended having never realized that subprime stood for loans to riskier borrowers.

This is not very dissimilar. I am certain the majority of investors who will buy bitcoin did not do their due diligence in term of how the currency works (in fact I see a lot of pretty financially switched on people around me who seem quite confused on how it works). They buy now because they want the return and will complain that they weren't aware of the risks when they lost their shirt.

> Investors buying subprimes were professional investors. Most of them didn't like subprimes but were buying them because that was the only way to pick up a little bit of yield in a market where credit spreads were massively compressed. It's after they lost their shirt that they suddenly pretended having never realized that subprime stood for loans to riskier borrowers.

There's certainly more due diligence that they could have done, but that's a red herring. There was plenty of outright fraud on the part of the ratings agencies. No subprime mortgage should have been rated triple-A. Yes, you could blame investors and pension funds for not realizing that they were systemically duped, and buyer beware and all that, but the ecosystem expected that CRAs were not flat-out lying to them.

Also, some of those investors were legally obligated to invest portions of their portfolio into AAA instruments. Their hands were, quite literally, tied.

> Investors losing money = investors suing. Selling products that you don't believe in yourself = testifying in front of a bunch of angry senators waiving internals emails about "shitty securities" at you.

When I buy a shitty penny stock from my stock broker, and the stock tanks, I can send as many nasty e-mails to him, and my senator as I want. Unfortunately for me, nobody will care one whit.

When Charles Schwab sells me a share of MSFT stock, it's not because they believe, or don't believe in MSFT. Their opinion of MSFT is completely irrelevant to this transaction. They do it because I asked them to sell me a share, and because someone else asked them to buy a share.

When some crook sells me a mortgage that they underwrote, that they then bribed a credit rating agency to rate highly, that I'm legally obligated to buy... That is an entirely different situation. Do that enough, and you bet some state senator is going to be gunning for them.

Credit ratings are merely an opinion. You can't call fraud if someone is wrong on an opinion on whether some securities will go up or down (otherwise you would jail 90% of research analysts). In this case their rating was based on the assumption that there wouldn't be a US-wide real estate downturn. That was backed by a long history and turned out to be dead wrong.

I am sure there was fraud as well. But fraud doesn't explain the financial crisis. Investor complacency, untested new product, excess leverage and reliance on short term funding, too much liquidity in the system, interest rates too low for too long, these were the fundamental reasons.

An engineer signing off on a bridge design is also 'merely' an opinion. It's an opinion that will put that engineer in jail, if the bridge collapses, and it turns out that he took a bribe to sign off on the design.

There's a world of difference between "We misjudged the long-tail risk of the instrument we rated" and "We straight up lied so that we could keep getting business from the banks."

Half the mortgages in some of those AAA instruments were issued to people with income at minimum wage, or with credit rating in the 500s, or to people buying homes that were never even looked at by underwriters. This isn't a "Whoops, our math was a bit off, we didn't expect the collateral to drop in value for a bit."

This is straight-up fraud, and the people carrying it out should have been taken out back, and had their shirts taken away from them. We need more, not less personal responsibility from our professional sectors.

If you think that the future of a business or an economy is as predictable as whether a bridge will hold, my advice to you is to stay away from any financial product.

> But fraud doesn't explain the financial crisis.

Fraud is the only thing that caused the financial crisis. Period.

Fraud from the top on through the bottom. The guy lying about his income to the mortgage broker who knew the dude was lying (and likely told him how to do it effectively), to the ratings agencies lying, to the wall street banks lying, to robosigning, etc. etc. etc. It was outright fraud every step of the way and almost no one who participated in that market has clean hands.

A simple trading desk does not create the kind risk that caused the financial crisis. The nature of the CDS/MBS contracts the bank owned in their name caused the counter-party risk. Buying and selling bitcoin on behalf of customers does not come with anywhere near the amount of risk as signing a CDS that says Goldman owes a pile money money if AIG defaults.

The problem isn't counterparty risk. The risk to GS is the reputation risk. Investors losing money = investors suing. Selling products that you don't believe in yourself = testifying in front of a bunch of angry senators waiving internals emails about "shitty securities" at you.

> Selling products that you don't believe in yourself = testifying in front of a bunch of angry senators waiving internals emails about "shitty securities" at you

This exact phrase should be painted on the wall of the lobby of every investment bank in the world.

GSCO is not doing this for retail clients.

Goldman did not get burned on subprime. They got burned on self-underwriting synthetic contracts and listening to MBAs rather than quants to justify not hedging them. If you have not watched "The Big Short" you should watch it.

This move by Goldman is based on learning. They will trade against the clients. Except they would hedge it.

> They got burned by doing the same with subprimes

I really doubt getting bailed out should be called "burned". More like they realized they could get away with murder.

In this case, though, they will be acting only as market makers, i.e. just brokering sales and purchases, not actually taking positions themselves (for the most part), meaning that whether they believe in it or not only matters in their analyst recommendations, which are completely separate from the trading desk anyway.

Don't forget Jamie Dimon's company is founding their own blockchain for transactions, Quorum.


Finding a use for the underlying technology supporting bitcoin is very different than saying bitcoin as a fiat currency is worth the value at which it is currently trading.

I'm not a financial expert but I thought the value proposition of Bitcoin is that it is not a fiat currency.

That's a strange thing to say. I think of a "fiat currency" being one which 1. is not backed by a physical good, like gold, and 2. is recognized by a government, so you can pay taxes and fines with it. Why would it be beneficial that you cannot pay your taxes with Bitcoin?

My understanding is that the mining metaphor is supposed to be reminiscent of gold's scarcity.

It is also my understanding that the crypto- in cryptocurrency enables anonymous trade. This would seem to preclude the need to even pay taxes since no government could even track the transactions. As I understand it this is the primary value proposition of Bitcoin.

Why would you want to pay taxes to the US government in any currency other than the US Dollar? I really don't understand the value there. Do people pay US income taxes in Euros? Why? How?

fiat - an arbitrary decree or pronouncement, especially by a person or group of persons having absolute authority to enforce it.

The amount fiat currency can be doubled overnight by the authority over the fiat currency. Stealing, in effect, from all of the people holding that currency. Non-fiat, like gold or bitcoin (at least this is what the true believers believe), have a high amount of work that needs to be done to just get a little bit more of it. No grabbing half the currency overnight.

Nit, but an interesting subtle one:

bitcoin-core can double the amount of bitcoin overnight. They can commit new code which does that and shows up in the next client.

But, that would presumably be noticed: either in the oss repo, or in the blockchain itself.

So I think more accurately, it's sort of in between a fiat currency and a commodity. It's a fiat currency whose operation is completely transparent.

Well, they could but the entire community can just fork. Miners are under no obligation to stick with a crazy change like that. The core developers would only shoot themselves in the foot and make themselves never to be trusted again.

And with Bitcoin Cash gaining in popularity, a fork is not an impossibility. In fact, BCH is popular because it's actually usable unlike BTC at the moment (extremely high fees, slow confirmation times).

BTC has no value proposition. None what so ever. Just like sea shells as currency have no value proposition.

Blockchain technology aka shared public ledger has a value proposition.

Undoubtedly. My comment was only meant to frame that he may have a vested interested in lambasting one implementation of the tech while promoting his own, and that he wasn't merely acting as informed commentator.

He can't be merely a skeptic when he's selling his own version to some of the largest banks in the world.

I think the same but its, 1 because of 2 i.e high net-wroth clients fear of missing out.

They kinda do cause at that point they didn't have a slice of the pie.

This kind of covers every conceivable case for doing this. If you list enough reasons you're bound to be right on one of them.

It covers the sober and reasonable cases. I think the main thing this enumeration does is to provide alternatives to the hyperbolic notion of “cryptocurrency/blockchain is taking over the world and even the big investment banks are going in on it”, with either the bullish “this means it’s a real economic revolution” or the bearish “this means we’re at the peak of the bubble and the big banks are losing their minds and threatening the world economy again” subtexts to it.

It's only four items. I appreciated the enumeration.

HNWIs are definitely starting to talk about and ask for crypto products.

EDIT: I work in the area, not a shill.

Best performing asset class over the last few years. Even if it is a bubble, you might as well allocate a few %'s of your portfolio to it if you're wealthy..

Well actually that's not what we advise but we're not GS either.

>Best performing asset class over the last few years.

Previous performance is not a predictor.

>Even if it is a bubble, you might as well allocate a few %'s of your portfolio to it if you're wealthy

If it's a bubble it's a terrible idea to allocate a few percentage points to it.

To expand on this a bit: I recall seeing that, if at the end of each year, you moved your money into the mutual fund that had the highest return during that year, in the next year you would have averaged -40% returns. Negative 40%.

Yeah, this isn't a mutual fund. Yeah, it's not directly applicable. But chasing previous returns is a way to lose money, not gain it.

"If it's a bubble it's a terrible idea to allocate a few percentage points to it."

Why? The word 'bubble' has negative connotations, but the flip side is the only opportunity of a great multiplier on your investment in a short time is during a bubble. Caveat of course, you can lose a lot of money, but that's why you allocate 1% of your portfolio so you can still survive.

Well part of that is how we define bubble, since it can only be post hoc, then by definition a bubble is bad since you're going to lose your money when it pops.

But basically it's because we don't try to time the market in that sort of way. Bubbles are great if you can sell right when you need to and (1) Bitcoin is fucking godawful at that and (2) we don't want to try and do that. Better to invest long term and ride an economic wave.

Timing in the sense of "we think European stock are going to do well so we'd likely to slightly increase the allocation across our portfolios" is alright but timing in the sense of "we think we can buy a new type of highly volatile asset with no underlying fundamentals and which doesn't fit neatly into any of our extant asset classes and sell it before it goes bad even though we can't do the same thing with regular old GE stock" is really bad.

Think of it this way, would you ever put 2% of your IRA on a roll of the craps wheel? No, because that's not what that account is for.

EDIT: Maybe a better example would be like buying TSLA options. You wouldn't do that in a portfolio because it's volatility for basically no reason.

To be fair, I don't think your comparison to the craps wheel is fair. From a risk level, it's probably less risky than any form of angel investing.

Yeah I thought about that so I edited the comment to compare to TSLA options, bad timing, should've thought more before I submitted. To be fair though, it's my opinion that angel investing is also basically a craps wheel but I might be in the minority on this board in that opinion.

I don't disagree with that, but by that definition, no investor should be taking any above average risk. I think being aggressive with a few percentage points of your portfolio on "long shots" or high risk stuff is not necessarily bad.

We have no idea how far cryptocurrencies will run. There will be corrections along the way, but if it actually is a major bubble it might very well run up to $10tn in market cap before we see a major correction.

But I agree with the options example. Just being OK with risking a part of your portfolio doesn't mean being stupid about it. You want to make sure that the upside is sufficient and the true downside isn't 0. Which is why I would say crypto currently seems like a better investment than angel investing or buying options. You are probably putting 50% of your capital at risk, for a potential 5 to 10x return.

>We have no idea how far cryptocurrencies will run. There will be corrections along the way, but if it actually is a major bubble it might very well run up to $10tn in market cap before we see a major correction.

Come on man... That number is straight from your ass.

>I don't disagree with that, but by that definition, no investor should be taking any above average risk. I think being aggressive with a few percentage points of your portfolio on "long shots" or high risk stuff is not necessarily bad.

Not necessarily, it's more about minimizing timing risk. If you think Bitcoin will continue to run up in some sort of Keynesian-Beauty-Contest-Unpoppable bubble and/or is the new gold or what have you then yeah as a long term investment, cool. Most people don't think that though.

>But I agree with the options example. Just being OK with risking a part of your portfolio doesn't mean being stupid about it. You want to make sure that the upside is sufficient and the true downside isn't 0. Which is why I would say crypto currently seems like a better investment than angel investing or buying options. You are probably putting 50% of your capital at risk, for a potential 5 to 10x return.

None of these numbers come from anywhere though. The real answer is that with crypto you're putting ??% of your capital at risk for a potential ? to ?x return. There's no numbers to pin on anything, it's completely baseless. It's like a currency in that respect, it's only worth what people think it is with no underlying fundamental. You can't quantify anything about it because it's based on the psychology of individual investors and the sociology of investing groups. If some guy in Barron's wrote a really good and well researched article about how bitcoin is bad because it can't scale and you really need one of the scaling coins and you should get out now because BTC valuation is only based on there being a greater fool after you and so on the thing and if some guy on reddit wrote the same thing you don't think the price would dip? Of course, BTC is a meme, it only works because people believe in it. So how much do you want to bet on other people buying into it?

> It's like a currency in that respect, it's only worth what people think it is with no underlying fundamental.

This is my biggest concern with Bitcoin right now. There doesn't seem to be any rational way to justify or explain its price.

How would someone go about making the argument that Bitcoin is over or undervalued at $10, or $100, or $100K? What's the justification?

Even currencies have far more fundamentals. Currencies at least represent faith in the governments that issue them, and those governments' ability to pay treasury bonds and manage inflation. I have never heard a good explanation for what the price of Bitcoin should be in terms of USD.

No idea how big the bubble grows before it bursts, or where it ends up afterward.

I found the risk/reward to be worthwhile, but I'm not risking what I can't afford to lose.

Because when a bubble bursts money has just been moved around but there's no net increase in wealth. Expected value is close to zero.

Which is why you need to have a clear exit point, not keep your money in forever. Fortunes were made (but also lost) during the dot-com bubble.

If Bitcoin were to crash, you wouldn't be able to exit. The exchanges would be overloaded, the price would collapse while you[1] can't trade, and you may also discover that some of the exchanges have stolen your money because they are insolvent.

[1] Although some whale customers may be able to. They may win big - or at least, lose less, at your expense.

Between now and the event horizon, there may be considerable opportunity.

I mined some bitcoin in the early days, when you could solo-mine for a week or so and net coins. I had a handful of coins that I cashed out for less than $100, because I didn't like Bitcoin as a long-term investment. If I'd sold half, I'd have made a tidy profit off the sale of the first half, with another handful of coins that, even if they tanked, I'm still in the black. But, if they go to some ridiculous number, like $10,000, I'm substantially better off.

Needless to say, I didn't save half, but even for people buying in now (I'm not), could end up doing well, even if the trajectory of BTC is $15k, $20k, $45k, $0, Of course, if the trajectory is $15k, $10k, $5k, $0, they'll be shit out of luck.

Exactly this. During the subprime crisis, even the big banks couldn't offload their risk.

It's crazy to think an amateur investor in Bitcoin is going to be able to "keep the exits clear". By the time you see the downturn those exits are long gone.

Banks and large investors need to offload billions of dollars worth of assets. Orders of magnitude more than what the average amateur will generally be working with.

If an amateur can actually guess when the downturn starts (a really big if), they should not have much of a problem exiting. Even if a large investor can identify the downturn, if they try to exit quickly, they will probably just exacerbate the problem, without even being able to get all the way out themselves

Yeah, but now you're trying to time the market. That's... a less than optimal strategy.

Of course, you need to rely on luck in a bubble. There's never any guaranteed returns in anything with a possibility of a high return.

Exactly. Soros has said that bubbles are when the biggest trading gains are possible.

>>If it's a bubble it's a terrible idea to allocate a few percentage points to it.

If I had $100 million, I wouldn't have any issues with investing $2-3 million in Bitcoin just for shits and giggles.

The idea is that when you have boatloads of money, you don't have to be risk-averse, as the marginal utility of each dollar you have is very low.


The best performing asset class is cocaine. Buy leaves from the growers, process, sell to the red carpet users. Thousands percent every year.

After watching the educational documentary “Breaking Bad”, meth seems a lot more profitable: you can by the inputs legally and all you need to do is some cooking. Getting rid of the logistics of import is surely a money saver.

They are just making markets, so it's sort of 1 and 2. I say sort of because it means clients want to trade cryptocurrencies. They aren't necessarily high net worth individuals though. My guess is most clients are institutional, though it might be different with people wanting to trade cryptocurrencies. It's FOMO if you think not wanting to lose money to your competitors is FOMO. I'd say it's more just performing one of their job functions.

I doubt they care about being criticized and until GS releases Goldman Coin I doubt they're trying to get a share price bump from this.

It's not entirely clear to me whether "making markets" means on exchanges, or over the counter. The term normally means on an exchange; over the counter, you're a dealer rather than a market maker.

If it's on exchanges, then it has nothing to do with high net worth clients, or any other kind of client, because they won't be trading with their clients specifically, they'll be trading with other market participants.

if it's OTC, then it could be part of a package of services for clients. That would still a bit weird, though, because a bank would normally act as a broker rather than a dealer for its clients - going to the market and finding them the best price, rather than making its own price.

I think that their reason is much simpler: they think they can make money doing it. I guess you could call that FOMO. But basically, they think that with their trading instincts, technology, and famously huge brains, they can move their prices around so that they can buy low and sell high without getting, as we say in the trade, their faces ripped off.

Dealers act as market makers quoting bid and ask prices, don’t they?

It's fundamentally the same thing, yes - showing bid and offer prices at which you will get into risk on your own account. But the term "market maker", in my limited experience, usually means on an exchange, whereas it's "dealer" over the counter. For example, you have swap dealers, but futures market makers.

"They are just making markets" are you seriously implying GS and JPM are just making markets :)?

Given that prop trading has been severely curtailed at investment banks, yes.

JPM makes about 1/5th of profit from "trading" and of that I seriously doubt market making is much of a contributor.

Not just curtailed, they aren't allowed to participate in prop trading at all as per the dodd frank legislation.

Also. This past year to date has evinced all time historical low volatility in major currency crosses. Difficult to make the case based on sheer volume that fiat is being abandoned for crypto. But players hunting for alpha tend to go where the action is:

Traders Lament Death of FX Volatility as Torpor Tanks Returns


At the barbers today they were all talking about having bought bitcoin recently. When barbers start trading in bitcoin its probably the peak. In 1929 some people started getting out when the shoeshine boys started giving tips.

the reason for that saying is because by the time the lowest class of service workers is buying then there is nobody else to buy from them

Stocks and commodities spread through society that way, from the most well connected VCs down to the lower class when the price rise makes them feel like they have a chance to get rich after it is shown in their nonfinancial choices of entertainment

Bitcoin hasnt gone through society in this route

Existing hedge funds, VCs, University endowments and pension funds are legally incapable of buying cryptocurrency

They are all forming new LPs with new operating agreements to do so

There is no institutional leverage or credit in the cryptocurrency ecosystem

There are no derivatives to manage risk yet

The lower class will be selling to the institutions soon

What is interesting here is that it almost seems to be acting like a reverse bubble.

Most of the institutional 'slow money' like endowments and pension funds will never touch cryptocurrencies, no matter how they are structured. They can't even take positions on FIAT currencies, or even bonds below AA rating. No way are they ever touching cryptos.

> No way are they ever touching cryptos.

Not what I’m hearing in legal circles

Everyone wants exposure, and if they require a new legal structure or a financial derivative they are doing what needs to be done.

The pensions will just go through the next hedge fund that buys for them.

My mom mentioned that she’d heard of bitcoin yesterday. I’m pretty sure that is also a sign.

My mother raised it last night. Meanwhile, my mother-in-law has been sending me "It's time to cash out of Bitcoin" articles.

I told myself I would sell my crypto stack when my Mom asked me what bitcoin is.

I sold it about a week ago.

In times of Weimar prosperity, more people should curl up with a copy of Ben Graham's '29-crash postmortem "Intelligent Investor", IMHO. I can't help but suspect that these barbershop customers will someday regret not having simply parked half of their savings in AAA-rated government bonds, the other in consumer defensive dividend champion stocks, and rebalanced once a year. More power to them if they strike it rich, though.

I believe this article completely contradicts this belief.

yeah.. my barometer is when the designers at my company started talking about it...

Surely designers at a tech company (I guess) are knowledgeable of macro tech trends, so they've known cryptocurrencies for a while, but weren't interested in discussing it publicly?

In gold rush, you want to be person providing services to people chasing gold, instead of being person chasing the gold.

Today, an 80-year old client of a friend's financial services firm wrote: .

"Hi. Thank you for your excellent stewardship of my retirement savings all these years. You have helped us change a lot of things, and weather some pretty terrific storms like the Fall of 2008. I am now focused on a higher risk-reward trade off, and will be entrusting my son to invest my assets into the brave new world of crypto currencies. With thanks, please kindly close all of my accounts and begin the process of moving my funds to my son so that he can purchase Bitcoin."

I am not kidding. This, folks, is how the world ends.

The fact that he's gambling on bitcoin is not the only problem. As you near retirement (or in this guys case, are retired), you want to reduce your risk profile. If my life savings disappear in my young 20's, no big deal, I can rebuild them. At 80, if that money goes, it's gone for good.

I feel really sad reading this. This can only end in tears for people like this old guy, or the people buying BTC with their credit card, or the people taking out mortgages to buy crypto.

Jeez, if I were the financial adviser of someone this old and receiving this letter I would want to make sure that my client was still in his right mind and not being cleaned out by a nefarious relative or other con-person.

> I am now focused on a higher risk-reward trade off

Yea, no kidding!

The silver lining is that at 80, he won't have to live in penury for very long.

It makes sense from his perspective, yolo, plus it might be his son's inheritance anyway so what does the 80-year-old care?

Well I wouldn't be thrilled on losing my life-savings, no matter what age.


Can you transfer money to your son in the US? That should be tax evasion.

Where I am from, that order would be totally illegal. ain't happening.

I don't think that is illegal or tax evasion anywhere in the world. Depending on the amount and the jurisdiction and whether the son gains ownership of the funds (rather than just the power to invest them), the firm might have to report this transaction and the son might have to pay for taxes.

It is illegal and it is tax evasion in some jurisdictions.

1) Transferring your money directly would allow to avoid inheritance tax.

2) Some jurisdictions have hard limits on what you can "donate" to your children. It can be "low" like 100k per 10 years.

No, it becomes tax evasion if you do this and then fail to pay the applicable tax on it.

In the same way, it's not tax evasion to have a successful business, say, making a million dollars selling shoes, even though there are limits on how much money you can make selling shoes before you have to pay tax on it. It is tax evasion if you make a million dollars of taxable income and only pay enough tax for half a million.

Do you have a specific jurisdiction in mind where this transfer would be tax evasion?

It looks like we're both in agreement that there are legal requirements beyond "just transfer all the money to my son".

Point being. When the client ask "transfer the money to my son and close my account", he usually doesn't mean "take 30% off, transfer what's left to my son and close the account".

You can have a look at France. I am not sure what paperwork is needed to make it legitimately, it's non trivial.

In the context provided it sounds like the client meant his son would be taking over as the steward of investvesting his money and was going to put it into BTC. This is not illegal in any way. It’s not any different than having an investment manager in the first place, other than it sounds like an objectively terrible idea.

It’s pretty common to move around retirement accounts in the US, the most popular type are tied with your job and frequently move when you change employers.

In the UK on the other hand there is no paperwork at the time. You just transfer it. If the old guy dies within something like 8 years though it should be included in his estate.

You can transfer money to whoever you want. All you need todo is to write a check.

You're wrong on so many levels. Try writing a 100k check to someone and bank it, you'll understand that the world doesn't work like that.

I don't know about checks (we don't really use them here in Germany) but I see many 100k bank transfers and that's an absolutely routine thing to do, even across national borders (but you might need to file some anti-money-laundering and statistical documentation).

I would be really surprised if you couldn't transfer 100k (or 1M or 100M) anywhere. Sure, the recipient might need to pay taxes on that.

Yes, the bank can freeze the funds and request the recipient to justify where it came from, that's my point.

For international transfers, I've seen some getting cancelled without notification, the money is just sent back. It's weird.

and for bitcoin at any point you want to cash in or out 100k into real money: you'll probably have to go through KYC too

I read that as moving to the son's control, not literally gifting the money to him.

That could make sense, but I don't see how "closing all the accounts and moving the money to his son" would be a simple administrative change.

No man ever got rich mining gold on his own, but they certainly got rich selling blue jeans [1].

[1]: https://en.wikipedia.org/wiki/Levi_Strauss_%26_Co.#Origin_an...

Great. Now we’re on the path to making this a systemic risk.

Oh good, I was worried that the BC bubble bursting wouldn’t have enough negative effects on the economy at large.


It won't. GSCO will price counter-party risk into the spread.

If GSCO is serious its coders will write code to run against crypto-APIs at the speed unseen by the "My exchange run on Rails" crowd.

At least in this case you and I can have access to the same APIs that GSCO gets access too unlike the stock market.

You can get access to the same trading APIs GSCO has access to. It does not require much either - the biggest difference between you, me, Jenny from the Block and GSCO is that they can carry much higher risk and provide much higher liquidity and access to exotic markets. Exotic markets are not liquid, so they are not really interesting.

If trading is not your primary business, you really do not want to do API trades.

Why do you think it would have any effect? It’s still a comparatively tiny market.

It is small, but has an indeterminate reach throughout the international economy. Nobody knows where the exposures to its collapse would be. A market panic could ensue from such a collapse, followed by other vulnerabilities becoming magnified in importance to the minds of investors.

This of course is a guess, and it could well have little impact. But it seems that the risk is larger than the size of this market would otherwise be in more mature sectors.

It will have almost no impact at this point. It's not highly levered or used as collateral in the financial industry. There's no coupling between BTC and the rest of the financial industry.

> There's no coupling between BTC and the rest of the financial industry.

Maybe not right now, but the way things are going I wouldn't be too surprised if it actually ends up happening. I'm also sure plenty of people in the finance industry see this as a good profit opportunity; They might not find the gold themselves, but they will make plenty of money selling shovels to the people looking to find gold.

We don't know they're not used as collateral, and it doesn't have to be in the lit markets where this happens. It could be in dark markets in Asia, having knock-on effects on demand or other investments in the real economy. There is also hedging, which automatically couples correlation into other markets.

> half a trillion USD is a tiny market What?

BTC market size is the $$/Yen/GBP/Euros exchanged into BTC a day and backwards, not Max(SomeOnePaidForBtc) * BTCs outstanding.

Interesting. Why is it this and not daily volume?

I trade you my dog for your cat. We both say that they are worth a million dollars.

What is the market cap of our two-animal store-of-value ecosystem?

(Unless you're an economist, the answer is not "Two million dollars.")

On the other hand, if I then went ahead and sold your cat to some outside party for $600, and you sold my dog for $400, we could reasonably say that the market cap is ~$1000.

Apple, Google, Microsoft and Amazon all have market cap larger than 500bn.

Pretty much any 5 of the Fortune 100 has a market cap greater than 500bn, 500bn is a fuck tonne of money but compared to the aggregate size of the market it's pretty much bugger all.

The same could have been asked about the Tulip and Bulb craze.

The tulip boom and bust didn't have much of an effect on the overall Dutch economy. According to this Smithsonian article, the story has been overblown significantly:


I don't think anyone is saying the crypto bubble bust will have much of an effect on the economy either.

On its own definitely not, but the same could be said about the assassinstion of Archduke Ferdinand. When the world is a powder keg, it pays to keep track of the matches.

My best guess is that the "store-of-value that can't be manipulated by banks" is effectively over. Big banks it seems will take over the trading volume of the big crypto coins and develop their own exchanges.

They may be able to partially manipulate the price, but they can't influence the currency or money supply. That's the beauty of crypto.

Doesn't matter one single bit. Goldman Sachs can't mine gold and control its physical supply, but they sure can play with its market price. So they can drive down the futures price and then hoard physical bullion on the cheap if they have a large institution or country wanting to accumulate gold reserves. Rinse, repeat. Finance 101.

Also, bitcoin as it stands right now is pretty useless compared to other cryptocurrencies. The value of bitcoin long-term is tied to the core team's ability to make the necessary changes to the protocol and to do it fast before another currency overtakes the lead of the cryptosphere. This is not gold, this is a world of software that changes and evolves constantly. The bubble for bitcoin might burst soon, but other coins that provide actual value will take its place.

Except clients don't need a third party to store their Bitcoin, unlike gold. Additionally, the blockchain is a public ledger -- anyone can audit it.

The price is everything. You don’t need to defeat cryptography to manipulate BTC any more than you need alchemy to manipulate the gold market: https://en.m.wikipedia.org/wiki/Black_Friday_(1869)

If they can't influence the money supply, but can influence its price, what difference does it make?

If you consider BTC to be the stable currency then it is USD that is crashing.


I see no reason to consider that, though. You'd have to say that, not only the US dollar, but every paper currency is crashing, along with gold. That seems quite a stretch.

That is exactly what the cryptocrazies are stipulating. It's cryptocurrency vs fiat. Seen from the fiat perspective, it's an obvious bubble. But if you're on the cryptocurrency side, it's barely the start of a massive and inevitable shift.

Fiat currencies, OK. I could maybe see that. But also gold? And petroleum? And real estate? And every other asset class on the planet?

No. Crypto's a bubble. This isn't fiat currencies sliding.

I think there are so many kids that did well in science and math and love science fiction and probably enjoy dabbling in some kind of tech libertarianism and have a certain naïveté about cryptocutrencies and what will happen in society. I mean this in a nice way but the view that the apparent obscene volatility of cryptocutrency is a sign of it's stability and the USD is crashing, is an intensely delusional view. That really cannot be understated.

In BTC terms the USD is doing pretty well this week.

Right now, this store-of-value is being manipulated by whales and exchanges. Bitfinex has allowed illegal wash trading for months, there is evidence that points to insider trading on Coinbase, it's entirely possible that exchanges have been front-running their customers...

The market is more free and open with Bitcoin than our own stock markets. Bitfinex and Coinbase are just two of hundreds of exchanges. There's even localbitcoins, which allows you to trade directly with the other party. The ecosystem has come a very long ways and is the freest market in the world.

I'm sort of surprised there's going to be a regulated secondary market for this, where the newest version of the GOP Tax plan will place a fee on this form of arbitrage[1]. Then again, I did learn today that a hot wallet I had on a crypto-trading website had folded and didn't send me any notice of shutdown; along with the time period of filing a claim having been long passed. Since there's a lot of theft and lack of accountability with these closures, maybe regulation could incentivize better data protection practices and pro-consumer behavior.

[1] https://www.bloomberg.com/news/articles/2017-12-21/tax-free-...

It's not a new fee, IRS gave guidance on this already in 2014. The bill just updates the language more specifically.

Believing crypto-crypto trades would be like-kind was always pretty fanciful thinking.

> maybe regulation could incentivize better data protection practices and pro-consumer behavior.

Perhaps I am too cynical but given Equifax is still fresh on my mind I really have doubts the US government will do anything but pass laws to make sure they are getting taxes from cryptocurrencies.

While Equifax is a quasi-governmental company that's privately traded; fully private companies that are regulated in the space are required under the umbrella watch of FINRA/SEC regulations. In the past[1], they have not had any problem with levying 7 figure fines against organizations that are outside of data compliance.

Taxing cryptocurrencies will likely push traders who want a greater margin to foreign countries' exchanges; but I see it as a step in the right direction for institutionalizing the practice. I've seen a posts across multiple subreddits where people want to start trading these purely as investment vehicles rather than use the underlying technology. With an influx of ideologies working both with and against one another, a lot of ordinary people can get harmed from the wild-west environment and volatility associated with it.


Can someone explain this collective mania to me? This is all 100% pure speculative frenzy, right?

95% speculative frenzy, 5% building the financial framework of the future. It's a bit like the dot com boom in the crazy days when most of the stuff went bust but some real companies came out of it.

Most of us Bitcoiners are skeptical of modern monetary policy and want a risk-free store of value for our wealth. Today Bitcoin is very risky, however, we believe its fundamental properties will ultimately lead to a stable place to put our savings. Sure, it won't gain interest or dividends but it also won't be subject to inflation or central banker manipulation.

The above is purely my opinion and is frequently the subject of disagreement. It is, however, why I got into bitcoin.

So why bitcoin rather than another cryptocurrency?

If another becomes more popular, everyone shifts to it, and the price crashes, what use was bitcoin as a store of value?

The difference with other assets like cash or gold is that they have value that is supported by a clear rationale based on a central bank’s economic policies.

I chose bitcoin because for several reasons:

1. I believe in the technology approach bitcoin is taking over any other coin (I believe functionality like smart contracts should be a side chain to the main bitcoin chain).

2. It has had a firm 21m supply cap since the beginning

3. It is the most decentralized

4. It has the largest userbase -- it's a more widely adopted currency

5. It has the most proof of work behind it (most of the mining power in the world targets the bitcoin blockchain). Proof of work is what keeps the chain secure from malicious actors.

6. The ledger is public

Something like gold can't be audited. If I bought gold, I wouldn't want to store that in my house. I'd need to trust a third party to store it for me. Who's auditing that third party? Is my gold only mine on paper? Bitcoin is auditable, gold is not (for the average person).

Cash is a depreciating asset -- at best, it loses 2% per year (likely much more).

The value of gold is not rational

If Bitcoin is not inherently stable why do you think it will become stable in the future? Do you believe it is subject to manipulation by parties other than central bankers? I don't understand this line of thinking but I am not an expert so I am curious to hear your perspective.

Because of vaporware promises from the developers of BTC.

Don't worry, in 18 months^, Lightning Network (TM) will come out and fix everything by adding a second layer to bitcoin, nevermind that the first layer will be ignored

^ Not accounting for perpetual delays as LN as been promised for a long time


Yes, it's a gambling fantasy for many. It's like looking a penny oil stocks and their volatility and imagining a path to millions; I admit, I can understand the intoxication and gold fever. For others, it is an intense or obsessive interest in the, somewhat arcane, and a little vague, "technology".

amateurs like Coinbase might speculate, but pros like GS use the Federal Reserve as their backstop

its one of those "heads I win, tails you lose" scenarios...GS will keep the profits but if things go south, their losses can just be taken out of your local school budget

Explain for those not in the know, like me. I thought Goldman repaid their TARP bailout money?

The TARP money was just a small fraction of the actual bailout. The Federal Reserve also drove the interest rate on your savings account below the rate of inflation (robbing you of your wealth). Artificially suppressing interest rates also propped up asset prices -- assets such as houses which all the banks own. TARP was the tip of the iceberg.

That's like blaming firemen for making my house wet when it was on fire. The Fed likely prevented a deflationary spiral with it's relentless QE and never suffered the ill effects of high inflation that the anti-Fed faction insisted would happen.

House prices needed to fall. Bad debt needed to be written off. Investors making risky loans needed to lose. None of these things happened, and look where we are. I vehemently disagree with everything you said in your post.

You're not supposed to bail out the failures in capitalism (i.e. so-called "crony capitalism").

Of course the companies getting billions in government support will win big and easily pay back their loans. If they didn't get TARP bailout, they would fail and better competitors would replace them.

It is complete baloney and has nothing to do with crypto.

it changes the risk profile when insolvency is not a potential outcome

I'm not damning GS...any entity that has officially crossed over into too-big-to-fail should take as many crazy risks as possible...why not?


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