"of these two explanations—
1) Bitcoin’s rapid and sustained rise is due to the fact that it satisfies a real economic need in an elegant way, and people have responded to that; or
2) Bitcoin’s rapid and sustained rise is due to a magical fountain of fake dollars that everyone just decided to treat as real dollars, and that can be used to manipulate its price any time it’s in danger of falling—
the second is possibly more impressive. Like, creating billions of dollars’ worth of value by building a useful thing is relatively straightforward. Creating billions of dollars’ worth of value with a ridiculous perpetual-motion fake-dollar-printing machine is a real innovation."
Creating money by printing is not a new thing. Making people believe that the money you've created with whatever hocus-pocus is real and that investment X will just spew money indefinitely is not at all a new thing. It is one very standard old thing.
That by itself doesn't prove bitcoin is this. But in analyzing investment that's rocketing up in value, one should remember that what Hyman Minsky called "speculative finance", ie, bubbles, should not be excluded or treated as "something really weird". "Are X many people really that foolish?" Well, how often has this happened before? There is an answer to that question.
Across so many people, and at BTC's market cap though? I think that's unprecedented. Penny stocks or pyramid schemes, sure, but they never affect this many people or hit 12-digit valuations.
(By the way, fiat money doesn't count as an example because it is backed by a variety of government support structures (which are very much not hocus-pocus) and it does not appreciate in value indefinitely relative to the cost of goods.)
But Bernie Madoff's $65 billion is all real dollars paid into the scheme. Bitcoin market cap doesn't track the amount of the money that has been paid into the current Bitcoin market. It simply estimates the current market price, then multiplies that number by the total of number of Bitcoins.
So the amount currently paid into the current Bitcoin market is going to be much, much lower. Experts estimate that nearly 30% of current bitcoins are 'lost' forever in non-recoverable wallets. Also, the gal who bought 1000 bitcoin at 5 dollars hasn't re-paid another $6 million into the system. But, if Bitcoin crashed to zero today, would you also need to account for dollars lost by investors who built mining stations and gear?
I guess we will never know. But, I think it is fair to say that the Madoff scheme is in the same ballpark of Bitcoin.
At least with bitcoin, there is no company. So, all it is is price * shares outstanding (held shares).
Given that there is some portion of btc that is 'lost' as well as the fact that we don't know what people paid for what is held, I don't see how anyone can come to a conclusion about the "the size of assets with different supplies."
In fact, the definition of market cap says nothing about that conclusion. The description says that it was just a way of grouping companies of various sizes. So, we are back at square zero, bitcoin is not a company.
Maybe I'm totally wrong in my feelings about MC, but at the end of the day, this is not an indicator I would use for TA or popularity of a cryptocurrency. For example, Volume is a much more interesting high level number.
It's not quite the same as the Madoff Ponzi scheme, because in that, all the money went into Madoff's firm, and relatively little came out as redemptions. In a trading market, every dollar that comes in from a buyer goes out to a seller (minus exchange fees, which reportedly have netted Coinbase close to $1B this year, again supporting a >$100B trade volume). They can then be used to purchase more crypto later, and show up in the volume statistics again.
But this alone indicates that Bitcoin may be a bit more resilient than Madoff's ponzi scheme; when multiple people get rich off it, there's much less of a single point of failure for the scheme to collapse.
I.e. that %500M and $90B is unique dollars being transacted and not just promises being passed back and forth.
Most things in the economy work that way though - the total supply of hard currency in the economy is only $3.6T, so when you speak of the $18T US GDP or the $20T US national debt or the $524T value of the derivatives market, it necessarily accounts for the same dollar changing hands multiple times. That's what makes it a currency, that it can circulate and change hands while holding its value.
It might be closer to the abuse of sub-prime mortgages and mortgage-backed securities. Is feeding a bubble the same as pumping and dumping? Sure can be.
I was going to comment on this, but I was blocked by my time manager. :(
Current market cap of BTC, at $111M, puts Madoff's scheme at about half of BTC. Compared to BTC's peak in 2017, Madoff's $$ is about a quarter. (supply * rough BTC price of $20,000).
Additionally, Madoff's scheme affected 4800 clients.  The amount of users on Coinbase as of late 2017 is about 2400x that amount . So while amount "paid in" is lower, market cap is much higher. The affected userbase is also many multiples higher than Madoff's clientele.
So, my point: the difference in $$ is higher, and the difference in userbase is far higher.
More practically, note: we are comparing BTC to the largest grift in history. That's a lot of money.
That said other tokens have similar characteristics..
Sure, Bitcoin is different. But it's kinda the same...
Creating tether out of nothing to buy bitcoin is similar to the Fed creating dollars by QE to prop up asset prices.
So I'd pick "Fed-coin" as the last one to go down.
You have to pay taxes in the local currency, but if the currency crashes you just have to pay a higher nominal amount of taxes.
You can outlaw competing currencies, but you can only do that in your own country, and it doesn't necessarily keep your official currency from going down the toilet.
It only has value because a government can ask others to settle part of this debt or take their property otherwise. Naturally, the amount of debt a government can issue this way is limited by the value of property it can threaten.
Zimbabwe, for example, cannot reach much of valuable property despite having some guns and boots. But the USA is a very different matter.
Sure... if the Fed claimed some secret mega-investor was bankrolling it all, and that of course there are audits but uh they're not finished yet and we fired the auditor but this random guy says he saw our bank account balance so it's all OK...
The one thing that leaps to mind is the Japanese real estate speculation in the 1980’s. Everyone claimed, very logically, that Japan is a mountainous island with very limited space, so real estate would be almost sure to go up in value. Ultimately, the market crashed, and hasn’t recovered even 25 years later.
Curiously, at the height of the housing crisis homes were about 5.5 times the median national income. In San Francisco right now (another place where supply looks limited by the water) homes there are 17.2 times the median national income.
You're comparing national home prices in Japan vs national income in Japan. Then you're comparing local prices in SF to national income in the USA. You're then comparing these comparisons to show SF is super inflated.
This makes no sense.
That a 13.6 median price to income ratio. 2018 median house price is $1.61 million, so for wages to keep up the 2018 median income would need to be $118,382 to maintain the 13.6 ratio.
Edit: I agree with parent it probably still doesn't make sense to compare cities with nations. These numbers are just for your entertainment. I think median price-to-income ratio for Tokyo now is now about 4. I am sure in the bubble it was much higher. Though again apples to oranges, it seems that the peak bubble average price to average income ratio for Tokyo was 18 .
The average annual gain in SF since 2010 came to 11,173 persons, and the median is 10,824. The overall population increase of 78,593 amounts to an estimated spike of more than 9.75 percent. For comparison, that’s a higher year-over-year increase than seven of the ten most populous counties in the country, including number-one ranked Los Angeles County (up 0.1 percent since 2016), Orange County (0.4 percent), and San Diego County (0.6 percent).
Breakdown of how the city has grown since the last full census in 2010, with SF’s official population of 805,770 at the time:
2011: +10,524 (816,294)
2012: +14,112 (830,406)
2013: +10,486 (841,270)
2014: +11,988 (853,258)
2015: +13,062 (866,320)
2016: +9,783 (876,103)
2017: +8,260 (884,363)
Put another way, the more people are spending razing and rebuilding on a given supply of land, the less they'll be able to spend on the land itself.
Objects in the real world have utility that's directly linked to their unit value. That's not necessarily true for Bitcoin... if it goes up 10X, I can just use 1/10 as much and get the same exact transaction result. So why is it "limited" from a supply/demand perspective?
But that's not true of money...whether it's official fiat money, many local currencies, or even gold, which has some utility but not near enough to support its total value.
Ada Diamonds sells lab-grown diamonds and jewelers can't tell https://news.ycombinator.com/item?id=17228369
De Beers admits defeat over man-made diamonds https://news.ycombinator.com/item?id=17183603
I like that one. Makes it seem like its a perpetual motion machine and we all know how that ends.
If they're < 1ct., it doesn't pay to have them analyzed.
"Real" diamonds have always been considered scarce, but only because of marketing. De Beers, AlRosa, etc. have very large reserves of natural diamonds. Over time, they will become genuinely scarce, as the industry agrees that economically recoverable deposits of natural gems will decline after about 2020.
So bitcoin might not be too unique or valuable.
> Objects in the real world have utility that's directly linked to their unit value.
Could you explain what this means to you? I don't understand what you're saying
If I want $1000 of bitcoin, I don't care whether that value is in 1 BTC, 100BTC, or 0.0001BTC. They are otherwise identical to me.
Therefore, the fact that the total of all bitcoins in circulation can't exceed 23 million is irrelevant unless you care about the value of 1 BTC, which is only the case if you are trying to sell them for more than you paid.
There are some elements of behavior economics that counter this - people like to buy lower-priced coins and stocks because they get "more" of them, from a unit perspective. But rationally, there's no reason to consider 1 BTC @ $10 any different from 0.1 BTC @ $100, hence the number of "units" seems potentially irrelevant.
Bitcoin is still at the beginning of the beginning of any sort of ecosystem. Everyone expects way more from it than is possible. It is/will deliver on the things it is designed to.
You're correct that I don't care about the value of 1 BTC (or 1 EUR) unless I can sell it, but you imply only selling it for USD again. When it is widespread enough to be a currency, you can 'sell' it for goods and services.
This is bull. It's not zero cost to fork a cryptocurrency. It's not zero cost to mine. The supply of a digital good might well be very large. However, it will most certainly be finite.
Then you're limited to "What's the biggest number that a miner can name in the finite amount of memory available?", which has the ultimate limit of a Busy Beaver function.
BB(n) for n > 1500 behaves like an infinity in many important ways.
Then just apply my original argument. It's not zero cost to mine. It's not zero cost to fork. The supply of cryptocurrency will be very large, but it will be so many x orders of magnitude smaller than BB(kerjillion), that x itself might be larger than the number of every cryptocoin ever made and every cryptocoin that ever will be made.
The useful thinking is about the computational limits of our current civilization, not infinities or redonkulous numbers.
My point was that other traditional "store of values" have inherent value based on their utility per amount, which means that the finite supply has implications for people who want to use it. Bitcoin doesn't have that - it's purely useful in terms of what you can trade it for (much like a dollar.) Hence the fact that there's only so many "units" is kind of uninteresting, because a fractional unit is no less useful.
Indeed, any theory of manipulation has to involve a managed hype cycle.
If a small number of people and organizations controlled both bitcoin supply and bitcoin trading and had the ability generate tether, they could "prime the pump" of the hype cycle to get attention and a rise in price. They'd then cash out money from the folks who put dollars into bitcoin. But once the hype cycle turned, they could slow down trading in bitcoin, slow down the cashing-out of tether, and print new tether so that a bust wouldn't be evident in the price, and so that an actual mass exodus from bitcoin into real dollars wouldn't be possible.
Thus bitcoin prices could be sustained at an apparently high level, with even a few upward bumps, for a while.
Lots of things have predictably limited supplies. Most of them don't go through a hype cycle.
Sad on many levels.
Watching the BitCoin saga from Mt Gox to today has often felt like watching a financial crimes historical reenactment society having an annual get together.
The global average energy consumption is 110,000TWh.
Every cryptocurrency in circulation collectively uses about 55TWh, or 0.05% of the world's energy usage.
I'm not sure the tradeoff is worth it.
> When I am playing a game, my computer's power consumption increases by a lot. I am using more energy and ultimately generating more entropy in the universe. Is it worth it?
Yup, that's the right answer to a collectivist sentiment. Value is subjective
For example the global pet care market has sales of approx $100 billion. Many people think that is a waste.
Other examples more than 0.05% simple to find!
If it becomes an actual currency, the proof-of-work system will put everyone in an arms race of power/compute efficiency unlike any other.
FPGA and GPU development has been granted quite the stimulus package from the crypto craze.
There are secondary benefits to this technology.
I bet the economic incentive got a lot more people into coding than before too.
It de-risks and incentives clean and cheap energy generation like solar.
To be sure, it's the growth rate of that consumption that is more concerning. But at the same time, there are lots of reasons to believe that Bitcoin's electricity consumption will naturally moderate and flatten over time.
If you think Bitcoin has even a 1% chance of changing the world for the better e.g. via increased financial inclusion for lower-income populations, I think that amount of electricity is a reasonable "investment" to make (for now).
The internet has changed society for the better in innumerable ways, but it's also robbed us of privacy and freedoms. Cars allow greater access to economic opportunities for people living outside urban centers, but they are also responsible for most of the world’s air pollution, and millions of people are killed each year as a result of traffic collisions.
This is the reality we have to face as people who work in technology.
Local bakery makes world a bit better, but not really worth if you needed a whole power plant to run it (intentionally ridiculously extreme for demonstration purposes).
That is impossible for anyone to say with any certainty, because the future impact of new technologies are, by their nature, impossible to predict.
The oft-cited statistic is that 2 billion adults worldwide are still completely “unbanked” and don’t even have a basic checking or savings account. One percent of 2 billion is 20 million people (roughly the population of a mid-size country), many of them living in poverty.
A global decentralized currency like Bitcoin could eventually allow what happened with M-Pesa in Kenya to happen more easily in any country in the world.
I've written about this as well. You can skip to the section titled "How Bitcoin can help the poor and unbanked" to read data on how m-Pesa has improved life for many poor and rural Kenyans.
Aside from the obvious downsides, Bitcoin doesn't even do any of the good bits of m-Pesa (local currency denominations, works on dumbphone, instant transactions, intuitive because it's basically mobile credit, loans and repayments)
However, the more important question is how all of those things will change going forwards.
Is Bitcoin's volatility decreasing? Yes.
Will Bitcoin ever become stable enough to be a reliable store of value comparable to gold or the US dollar? We'll see.
Will cryptocurrency security and management improve? Most certainly.
Will new regulations help weed out bad actors? One would hope so.
Will Bitcoin become easier to use on mobile devices? I can't see why not.
Will Bitcoin transactions become instant or near-instant? Many people in the space are working on it.
Will Bitcoin become more intuitive? I would bet yes.
If one wanted to help lower income populations, it could be difficult to conceive a solution less likely to help them than bidding up energy prices to safeguard the proceeds of wealthy hackers' speculation. I'm going to go out on a limb and say that Bitcoin neither provides nor ever will provide as much utility to the world as, say, Ireland.
The fact that China built a large hydroelectric power plant (Three Gorges Dam) that displaced a lot of people, shouldn't be an argument against Bitcoin. There are ways to provide electricity for Bitcoin mining that are green and don't displace people.
> safeguard the proceeds of wealthy hackers' speculation
The people who get richest from the stock market are those who are already wealthier to begin with. Are you against the stock market and securities in general?
> nor ever will provide as much utility to the world as, say, Ireland.
Apples to oranges comparisons aside, a better comparison would be Bitcoin eventually becoming a popular alternative for gold investment, and/or an alternative to Western Union.
Gold mining causes direct physical destruction of landscapes and ecosystems . I think Bitcoin mining largely displacing gold mining is a good thing.
Western Union charges as much as $95 to send $1,000 , and their customers are generally poorer working-class people. M-Pesa in Kenya has already demonstrated that mobile money services can lift hundreds of thousands of people out of poverty . The Bitcoin protocol doesn't have a corporate profit motive and can become a cheaper and more globally scalable version of Western Union or M-Pesa.
It was an observation about how much of an understatement "a single power station" was, not a suggestion large scale hydroelectric was the world's only power source. I mean, another way of putting it would be 10+ large coal fired power stations which is probably a more accurate reflection of how the additional power generating capacity is supplied...
> The people who get richest from the stock market are those who are already wealthier to begin with. Are you against the stock market and securities in general?
No, but I'd never pretend that, say, an HFT trading shop was going to save the poor, still less that it had such potential to liberate the poor it would be worth using the same amount of electricity as Ireland to run their trading algorithms
> a better comparison would be Bitcoin eventually becoming a popular alternative for gold investment, and/or an alternative to Western Union.
Whether you love gold or find its appeal faintly ludicrous, its demand has survived over several thousand years of increasingly advanced alternative investments, and continued to increase after the end of a gold standard, so arguments that the existence of Bitcoin might seriously dent gold mining are hard to take seriously even before we get to the stage where the actual litmus test is dent gold mining to the extent it cancels out the energy use consequences of Bitcoin
I've used Western Union to send myself amounts in the $1k range to a developing country before. Cost including currency conversion was nowhere near $95 (people have paid more than I did for BTC-BTC transactions!) and I got cash I could actually spend. And I don't think a better Western Union (everything in the history of Bitcoin suggests catastrophically worse Western Union) would be a good use for more energy resources than a typical developing world country either, and am confident relatively few remittance-recipients in those developing world countries would agree. For the tech and price savvy, cheaper options already exist.
In other words, it's worth remembering that mining is currently massively subsidized through inflation, and as such future market dynamics must account for this.
Or I can realize my interests are a very small subset of human interests.
Nobody has ever formulated an accurate prediction without gaping holes in the logic.
Also, even with their exaggerated calculations is still a tiny, tiny fraction of that used by traditional banking. (and not even on the same scale as internet use).
The problem though is that if ether really were a "magical fountain of fake dollars" that would be reflected somewhere in the market price of tethers. Look at the price charts for tether->USD it's pretty nominally 1:1
The most contrarian one could argue is that people who sold bitcoin for fraudulent tethers haven't tried to withdrawal them /at all/ and therefore the tetherUSD liquidity hasn't been tested.
Kraken offers a USDTUSD pair. How is that hard at all?
Not true, bitfinex reenabled usd withdrawals in November.
Bittrex has a public pair between Tether and "True USD" , but their fiat USD market is not yet available to the public, and I don't know where we can find pricing data for the non-public market.
What is "very restrictive"? Cap on max amount for a given period?
Or they're just matched by the number of people with 'legitimate' tether who haven't withdrawn?
That's silly. Ponzi-style schemes have been around since at least the late 1800s.
A Ponzi scheme is a specific kind of fraud based on the promise of an unreasonably high return on investment which is actually payed by late adopters. Bitcoin doesn't make promises and it doesn't have a cover story to hide the source of the money. It may be a bubble, but it is not a Ponzi scheme.
The primary market force was pretty obvious -- fraud like cryptolocker and money laundering. Shockingly, fraudulent exchanges and practices were/are pervasive.
>>A university study in 1593 led to the discovery that tulips could withstand the harsh northern-European climate... With their intensely colorful petals, tulips were unlike any other flower popular in Europe at that time 
Additionally, another innovation that drove the bubble was the widespread introduction of futures trading, allowing year round trading, as well as traders to speculate without needing to take delivery of the crop.
A lot of the other stuff was dubious to outright wrong too, but it was harder to prove he didn't genuinely believe it.
This is really frustrating to read, this is a false dichotomy, there are plenty of other plausible explanations. It's not limited to "EITHER Cryptocurrency's value is fake magic OR it satisfies a real economic need."
It's quite possible (some) people have a (")real(") economic need for a magical fountain of fake dollars.
I put the scare-quotes in parentheses because by real I mean a manic need, in the sense of mania - an excessive enthusiasm or desire; an obsession.
In any case, nobody uses Bitcoin as a currency because it's logistically harder for 99.9% of people, and nobody uses it as a store of value because its insanely volitale. Bitcoin is really just a speculative asset.
So it may be logistically harder, but it's doable enough that it was worth it to avoid having to do an international wire transfer with banks in many cases still stuck in a world of paper and faxes (my bank manager actually boasted about the amount of manual, paper-based back and forth setting up my business account required when I opened it two years ago).
Still eithet are a piece of cake and lightning fast compared to normal banks.
If I attempted to buy an ice cream cone with Bitcoin, will the money be transferred before the ice cream melts?
What costs more, the transaction fees or the ice cream cone?
It will not.
>What costs more, the transaction fees or the ice cream cone?
There have been times where the average transaction cost was about $20. It's hovering around $0.80 cents now, to the best of my knowledge. So it depends on the market.
I belief that the current strategy is to convince others that bitcoin is a great transaction medium for everything under the sun (i.e. ice cream) and then cash out in dirty fiat once the price reaches a target so you can buy Lambos full of ice cream. It's really not a sincere attempt to create a currency as it is to masssively enrich early adopters by encouraging use by normal people.
As price and transaction fees rose the transaction medium for everyday things(like me paying for Namecheap hosting/domains in BTC in 2013) went away.
Many big vendors such as Steam actually stopped accepting BTC directly(or through 1 step processor such as Bitpay). It was too much trouble/risk and annoyed customers.
Cheaper/safer/more convenient than bank transfers. That Bitcoin promise has not been fulfilled.
SEPA is way cheaper/more convenient/safer than Bitcoin in Europe. Even in countries with troubled banking systems such as Venezuela, it is not normal to pay for regular items with BTC.
So Bitcoin "pivoted" to store-of-value strategy. Promise that offchain solutions like LN will handle transactions "any day now".
Hilariously Bitcoin.org just put back the low-fees part.
So it's basically a trash startup.
The transfer is instant. To get a guarantee of settlement takes 6 confirmation, or about one hour, which is much quicker than the 6 weeks it takes for a credit card transaction to become irreversible. Unless you're purchasing something like a house, you don't need the payment to settle to complete the purchase, with either cryptocurrency or credit card payments.
Ethereum's confirmations take 15 seconds, to Bitcoin's 10 minutes, and you need about 12 to have a virtual guarantee of irreversibility.
Only the large-cap cryptocurrencies can provide a high assurance of irreversible payments:
>>What costs more, the transaction fees or the ice cream cone?
In (small-block) Bitcoin, at any reasonable level of adoption, the transaction fee, which is why small transactions could only be economical using an off-chain protocol like the Lightning Network, which has been in development for several years and is still largely unproven as a full substitute for regular Bitcoin transactions.
Bitcoin (Cash) guarantees low fees into the future as a result of a high maximum block size. With Bitcoin Cash, there is a higher risk of settled transactions being reversed with a 51% attack, given it has only 10% of the hashrate of (small-block) Bitcoin.
Ethereum's transaction fees are currently much lower than the cost of an ice cream, but that wouldn't persist with higher levels of adoption. That could change once it implements sharding, with promises to increase maximum transaction throughput 100X, or has the sub-chain plasma protocol deployed, which potentially enables virtually infinite scaling.
Nobody used the Internet in its early days because it was logistically hard for 99.9% of people. However it made completely new things possible and over time, companies figured out how to make it not logistically hard to use for the majority of people, who enjoyed these new possibilities without having to worry about the complexity of the system underneath.
However, I agree that its rapid and consistent growth rate is concerning and can't be ignored.
It's an area I'm really interested in and have been reading a lot about, because most of the news and "analysis" of the issue on both sides has been obnoxiously biased.
I tried to write a balanced summary article of the situation (below). Long-term, Bitcoin's electricity consumption could really go either way i.e. flatten or continue growing indefinitely. There are some causal factors like price that are out of our control, but there are others like the Lightning Network that are both feasible and in our control, and could significantly moderate Bitcoin's electricity consumption.
Well first of all, according to your own blog post, it is not as much power as a single large power plant, but as much power as the single largest power plant in the entire US. And thats just an estimate. It potentially uses twice that amount.
And 10% of the power of all the worlds data centers is absolutely bonkers. That isn't a small number, its spectacularly large.
And all of this for something that has yet to be adopted by 99.9% of the people on the planet.
Unlike data centers where electricity consumption is directly correlated with internet usage, Bitcoin's electricity consumption is instead directly correlated with its price (which attracts more miners), and is very indirectly correlated with the number of users or transactions.
It's very possible that Bitcoin could be adopted by a significant (e.g. 10% or more) percentage of the world population even as its price remains fairly consistent, which would mean its total electricity consumption would remain fairly consistent as well.
That's what modern banking is. 95% of money in use is created by the private banks themselves.
Through a highly-regulated process. We haven't had a bank run on regulated deposits since the FDIC came into being.
I've already told you the fact that 95% of money doesn't exist outside of the private banking system. What kind of regulation do you think is stopping everyone from wanting to get paper money for their entire life savings?
For those who don't immediately see this, just think for a moment how much of your income ever leaves the banking system. Do you get paid in paper money? Pay your rent in paper money? Did you buy your car with paper money? The answer to these questions for everyone is increasingly no.
That's missing the point.
The point of regulation is building a society where you don't need to do that. A bank collapse no longer means you lose your money - the FDIC insures a good-sized chunk, and the Feds come in and take over operations temporarily. Bank runs are prevented not by having enough paper money on hand, but by making people feel confident in the entire system - that your money will be there when you need it.
Fascinating read on how relatively seamless this now is: https://www.npr.org/templates/story/story.php?storyId=102384...
Who do you think is footing the bill when the government has to step in? The banks or the government? Wonderful regulation...
Banks pay insurance premiums to the FDIC.
> The paper money doesn't exist.
Who cares? A college diploma that's not printed out is still a college diploma. I don't need to be able to physically hold it in my hands, and if a hundred thousand people all asked the Bursar's Office for a copy, they wouldn't be able to do so in a timely fashion either.
There's also zero evidence that Tethers are a scam. I'm pretty sure it would have been discovered by now, and also unlikely that Circle would pay $400m for an Exchange whose main currency is USDT if that was the case.
Both NYT and Bloomberg seem to love an inaccurate Crypto article, seems like their editorial standards are non-existent in this sector. Sure that will change once they have bought in.
Quite suspicious the New York Times have come to this incredible revelation now, yet didn’t mention it in Nov 2017 when it was actually a hot topic.
I must admit I find most crypto journalism hard to agree with. Hopefully that will change.
I'm not arguing that the paper is or isn't actually worthy of having this NYT article written about it, but what is your suspicion regarding the timing, exactly?
maybe there is a third option:
3. it was just a bubble pumped by people looking to get rich quick and who are now holding the bag.
And the best that positive report could come up with was:
* serious lack of Tether transparency is not necessarily fraud.
* some correlation with deposit balance in Puerto Rico
I will eat my hat if a respectable audit firm releases a Tether audit showing that Tether has been 1:1 backed by real USD reserves in all of 2017.
Basically the unbacked tether allowed them to purchase BTC and with the great price increases that become worth way more than the unbacked tether allowing them to leverage that to actually get backing for the tether, either via selling BTC or merely promising it.
Thus I believe that tether is likely backed now.
I think it was an impressive scam, very ballsy.
To me, it really looks like Tether was propping up a significant portion of the valuation of BTC for a few months; they were printing enough to buy roughly half of all miner output (and in a market where most coins are in a state of HODL, the miner output and demand for it determines the market price). Probably much of the climb up to 10k was market manipulation by Tether. Yes, lots of dumb money went into the market in response to the climb, but when the printing slowed, the market fell pretty fast.
So, I agree it was ballsy, but I strongly doubt it's fully backed even now. I think when they started printing a hundred million Tethers every few days is when the market began to tip against them, and they were desperately trying to keep the BTC price climbing. They're gonna walk away from this scam multimillionaires, unless they go to jail, but they've never been sitting on 2+ billion USD in cash reserves (I just checked, there are currently 2.5 billion Tethers in circulation). I find that idea literally unbelievable.
Frankly, I'm out of crypto until Tether is, or until there's an audit by a reputable firm which I'd wager will never happen. Somebody's gonna get hosed on the deal, and it's gonna be pretty much everyone involved in crypto who isn't running a massive ponzi scheme, I'd guess. If there's anyone left that meets that description.
Tether isn't redeemable, anyway. You can't go to the Tether issuers and demand a dollar for your Tether token.
Meanwhile, the supply of Tethers rapidly ballooned, from $50 million to $2.2 billion. That led to an increasing number of questions over whether the dollars that were meant to back the cryptocurrency really existed. It was reported in January that both companies had been subpoenaed in December last year by US regulators, who wanted to look into this.
1. Create 1m Tether out of thin air (unbacked).
2. Use them to buy 1000 BTC (when the price was 1000$).
3. BTC Price goes up to 10,000$.
4. Sell 1000 BTC for $10m. Keep $9m, and put $1m into a bank account to "back the tether".
Why should they print more tether if they are already holding them?
2. Even if this was their play from the beginning and they've actually pulled it off (I'm doubtful) why should we trust that they won't hit us with some other scam some point in the future?
1. I have no proof, it is "my theory."
2. I wouldn't trust them in any way.
1. Is not an audit to be used for assurance purposes. The disclaimer at the top states that it "should not be used or relied on by any other party."
2. Is rather old now.
3. Was conducted by a firm that no longer conducts business with Tether, probably because Tether would not comply with information requests needed to conduct an actual audit, which is not as difficult as Tether makes it sound here: https://www.coindesk.com/tether-confirms-relationship-audito...
Or in other words, it isn't proof of anything, and the fact that Tether has not been able to produce an actual audit for assurance purposes in all this time, speaks volumes.
One of my mining rigs was bought by farmer, second was bought by guy selling audio hardware etc. The bubble was so strong, everyone wanted to get in either by buying mining rigs (not understanding how minining/difficulty works) or buying crypto.
All dollars are first-order fake.
The government guarantees that dollars are acceptable for paying taxes. For a promise, that's about as real as you're going to get.
See: Venezuela, Zimbabwe, Germany ~1920
Those events are indicative of scenarios where the market lost confidence in the faith and credit of those nations. When you can't sell bonds anymore, you implicitly borrow by devaluing the money.
That's where the derogatory treatment of "fiat" money by goldbugs and cryptocurrency advocates falls down. A government can declare that something is worth a dollar, but the market determines what a dollar is worth.
So what happens when the government declares that a candy bar is worth a dollar, but the market determines that a dollar is worth half a candy bar?
Tethers are Itchy and Scratchy money.
A fake dollar pretends to be a dollar.
Is it that hard to not to feign ignorance and not be pedantic when you CLEARLY know what it means.
The dollars may be fake but the man with the gun who is standing behind them is very real.
Why own weapons when you can control the people who own them?
As our software systems get more complex and as we become more reliant on them, hackers become increasingly influential politically and economically.
Lawyers, doctors and financiers have had thousands of years to figure out how to gain unfair zero-sum leverage within capitalism, software engineers, on the other hand, didn't exist until recently but it's only a matter of time before they group together and get their leverage.
it's already done. see, for instance:
- the impact of digital campaign outreach in the 2008 election
- various 3letter "cyber" groupos since early 2000s
- anonymous circa 3 years ago
- btc manipulation last year
there are probably more
The cartels found one poster in a local internet cafe. They did their cartel thing. I didn't hear any more about that fight.
Also, the ETH/ETC fork did not technically reverse anything. The fork allowed the inclusion of an "irregular" transaction that moved funds from the DAO account to a "Withdraw" account.
They used a magic fork to create the irregular transaction. They could have removed the original transaction and use the magic to declare the intermediate has valid. (I've seen this "solution" in discussions about what to do if someone puts illegal content in the blockchain.)
So that is literally true, but is it really true from a pragmatic sense? If the US government used their military might to destroy a significant portion of large mining installations, would bitcoin really be in any way resistant to that? If the NSA and DOE used their combined supercomputing power to outhash everyone else, couldn't they take over the bitcoin network and do whatever the heck they want with it?
a more interesting evaluative plot-element might be something like:
how many developers would need to die for bitcoin to be exterminated?
how many economists would need to die for the dollar to be exterminated?
frankly, if some gov wanted digital coins (or their supporting networks) destroyed... I think it would be easier than reducing a traditional, national currency to rubble.
... that's a smidge over 1% of the US military budget.
It's not easy, but it's not impossible (to parent's bombastic assertion).
I believe the Manhattan project spent something like 0.55% of the US military budget (against ~2013USD$900b yearly budgets, which seemed the peak in 1942-45).
And I know what smidge means, I was expressing ire at your attempt to sound folksy.
The complexity of the financial instruments used by the Fed is intentional and serves to obscure the fact that they are essentially giving free money to large banks and corporations.
Corporations are not getting bigger because they're more efficient at delivering value to consumers - They're getting bigger because the Fed makes sure of it.
The Fed is like a river; those who are closest to the source can get the most out of it. In this case it means bankers, financiers and corporations. Regular workers are far downstream, they get whatever is left.
Be real. Between USD and BTC, one has lost 70% of its value over the past ~7 months.
>BTC is worth the same as it was in November 2017
>Between USD and BTC, one has increased ~150% in value over the last year
>Between USD and BTC, only one is worth ten times as much now as it was worth two years ago
At the end of the day I am pretty sure I agree with the point you're trying to make (USD is a lot more stable/predictable/reliable than BTC even taking into consideration inflation) but you shouldn't use arguments that someone who disagrees with you could easily attack.
Deflating currencies are terrible things for economies
A fake dollar is borrowed at interest against thin air, fiat currency, from a private bank called the Federal Reserve. It isn't Federal and there is no reserve. The Federal Reserve Act was written by Samuel Untermyer and others, including the Warburgs (who financed the Bolshevik revolution) and was passed on Christmas Eve. It is said Samuel Utermyer blackmailed president Woodro Wilson with a love letters. The same Samuel Utermyer funded the Scofield bible. But I'm going on to other subjects, hope I sparked interest into our history.
It occurring in a currency affected by actors acting either outside of or in wilfully defiance of the regulations designed to mitigate it is about as impressive as an unlicensed, untrained, underage, blind, drunk driver managing to get into a collision.
There's always a theme of wonderment at the crazy and illegal things people do written from the perspective of an old Wall Street guy.
Every OTC desk I talk to always brags about how much demand there is for large buy orders, especially during the dips. If Bitfinex's Tether works as created, then any surge in demand will result in new tether's being created, this is the only way Tether can sustain it's peg.
IF current cryptocurrency owners are storing value in Tether so they they don't lose money, then more Tether's should be printed.
ELSE IF new cryptocurrency buyers are sending fiat to Bitfinex and get Tether, then new Tether should be printed
The main gotcha is that no Tether's have been destroyed, to my knowledge. And this is from just looking at the OMNI Tether asset on Bitcoin's blockchain. But has demand for Tether ever really dropped?
Tether is supposed to be printed when (and only when) new dollars are given directly to them.
If cryptocurrency owners want to store value in tethers, they must buy existing tethers with their cryptocurrency. That's how this is supposed to work.
If more tethers are printed to fulfil demand for tether by people wanting to sell cryptocurrency, then the peg they claim to have (1:1 backing) is a lie.
> The Tether Platform is fully reserved when the sum of all tethers in circulation is less than or equal to the balance of fiat currency held in our reserve.
That is to say, they offer no guarantee that 100% of USDT in circulation are backed by USD at any given moment.
> Every tether is always backed 1-to-1, by traditional currency held in our reserves. So 1 USD₮ is always equivalent to 1 USD.
It's right there on the front page, a claim that they have 1 to 1 backing.
This seems to me like a blatant lie, along with their claims to audit.
Through our Transparency  page, anyone can view both of these numbers in near real-time.
 - https://wallet.tether.to/transparency
"Our reserve account is regularly audited".
By whom? Where can anyone see these audits, for transparency's sake?
Do you not mean "for the claims made by tether on their homepage to be true"?
Tether can already exist and be in circulation and people can be willing to buy it at a higher price from existing holders. In this event, Bitfinex/Tether needs to be willing to create more Tether, diluting the current supply to offset the greater demand and keep the peg.
To me, it isn't important that "each Tether is backed by USD [in their bank account]", but they may accomplish it that way for consistency anyway. Each Tether is still backed by a notional value and was exchanged for such.
Their willingness to do this could help arbitrageurs try to front run and sell their own Tether when a premium exists.
Their peg is created explicitly by being 1:1, not by manipulating their supply. This is how they create trust that they aren't subject to market conditions or threatened by a run on redeeming their tokens.
To you it may not be important, but it's right there as a bold claim on their home page, and it's why they've been used.
Note that I did not say that their peg could not conceivably work without 1:1 backing, I said that their claims would be a lie. As are their claims to have been subject to frequent audits - they've never completed a single one.
> This method is not conclusive, but it has helped government authorities and academics spot suspicious activity in the past.
I haven’t read the entire 66 page report yet, but assume for a second that the relationship between Tether and US dollars is 1:1. This would mean that during a bull market, when the price started to decline, big players invested money to buy up the available supply. Nothing about that seems suspicious to me. They may have chosen to use Tether instead of US dollars for any reason. Perhaps because there are more exchanges that have USDT trading pairs than there are with USD pairs. Or perhaps because it made arbitrage easier (transferring USDT from one exchange to another is much simpler than USD where you would have to first move it to a bank account then wait days for a new transfer to take place).
There is a chart at the end of the report that shows that the Tether issuance continued to increase even as the BTC price was falling. Also it shows that less than 25% of BTC trading volume came from Tether while over 60% came from USD (page 38).
It is funny that claiming that the price decline in BTC since December is manipulation will lead to you getting flamed here and people will tell you that it is just going to its “natural value of zero”, but the idea that there was a conspiracy to pump up the price last year is greeted with open arms, and everyone latches onto it (The reality is probably somewhere in between). The math regarding Bitcoin’s price increase is actually pretty sound, and I encourage anyone who disagrees to read this article:
As a side note, I think if you said this exact same thing about the stock market, it would not be big news at all: “US dollars were used to pump up the stock market after it experienced big dips”. And meanwhile BTC is 0.3% the size of the stock market.
The article doesn't prove the math is sound except quote some people about price prediction and talk about how pricey bitcoin will get because population, gold market size etc.
And then it also misses why people don't invest in bitcon. It has nothing to do with Kanehman's psychological studies etc but because people still don't understand what is the use case of a bitcoin.
Additionally, it is these kinds of poorly written articles used as proof which dissuade people even more because the narrative is - if prices are going up then it must be good. I am sure many said something similar about housing prices in 2005.
The difference is that the housing prices were clearly in a bubble and banks were intentionally packaging subprime mortgages that they knew were bad and selling them as a low risk investment. This is much much different than Bitcoin. I would argue that Bitcoin is the only asset class that is not currently in a bubble.
> The article doesn't prove the math is sound
I suppose you are right, but I still think it brings up some good points. The Bitcoin market cap is minuscule compared to any other established market. What gives gold its value? It is not that it is used in jewelry. It is that there is a limited supply of it, it can’t be easily created/counterfeited/reproduced, it is divisible, and it can be used to store and exchange value. Bitcoin has the exact same properties, but is even easier to purchase, store, and exchange. I fully believe that Bitcoin and Gold market caps will reach parity some day. Maybe it will take 10 or 20 years, but I believe it will happen.
So, if you have data to backup the fact that bitcoin is not in a bubble, please show that. Until then it is just your gut feeling nothing more.
> What gives gold its value? It is not that it is used in jewelry.
But statistics disagrees with this point:
I haven't calculated but quick eyeballing tells me jewelry beats investment by a far far margin.
Additionally, gold for the most part is a risk-off (safe harbor) asset. As in people rush to gold when markets are crashing because it is supposed to be divisible etc. On the other hand people rush (and encouraged no less) to put money in bitcoin when markets are booming. So my gut feeling is that once we hit a rock in these booming times and S&P drops people will still prefer gold. But let's see how bitcoin performs during a market crash before we talk about it's investment potential in the same breath as gold.
(And you see this kind of rebalancing effect in general when a major asset class declines - eventually it pulls down other, unrelated asset types because as it goes down in price, it becomes a relatively more attractive investment.)
* why would it have an inverse relationship with other assets? It's not a short. It's still valued based on purchase price vs sale price, adjusted for risk. If risk has risen and nothing has changed about purchase or sale price, why would it rise?
* if Bitcoin was at a market-clearing price before a downturn, and other assets are now much cheaper, why would BTC then be comparatively more attractive in terms of expected investment returns?
The reason I believe it will be inversely related is because it is still a relatively new market whose market cap is minuscule compared to other established markets.
During a recession people will naturally look for other places to put their money and gold will be the obvious choice. Bitcoin has all the same properties as gold except it is cheaper to acquire (fees), cheaper to store, has a fixed mining rate (with gold more supply is created when the price increases which drives the price back down), and has only 1% of gold’s market cap. The way I see it, it would be silly not to at least hedge a small amount of money into BTC/crypto.
The other economics reason is pure supply and demand. The supply of Bitcoin is shrinking every day as more people decide to hold it long term. Many more get lost or stolen. Every couple years the block rewards get cut in half as well.
All of that said, the rise and fall in the last year has definitely shaken the public’s confidence so it may take a long time before new money starts flowing into it. All of my timelines are years down the road. (10-20 years)
The nature of a hedge, in particular, is that you do it before a market downturn, not after. Once the market has dropped, you want to unwind that hedge, which in the case of gold or Bitcoin means selling. If you look at gold's performance during recessions since we unlinked it from the dollar, it's as likely to decline as rise. That makes it a poor hedge against recession.
In terms of supply and demand, it's true that supply is constrained, but that's only half the equation. Demand is extremely volatile, as there's no inherent "consumption" of crypto currencies (aside from lost wallets and other breakage), not is there any production occuring that requires btc to continue. The demand is entirely composed of people buying it with the expectation of a future sale at a higher price... that's speculative demand, and it's not a stable or dependable type of demand.
The above article shows that Bitcoin was at the very least, in a bubble last year, and may still be one.
>and banks were intentionally packaging subprime mortgages that they knew were bad and selling them as a low risk investment.
And nearly every coin has an ICO which is a "sure thing". Everyone is selling their coin like it's a low risk investment.
>This is much much different than Bitcoin.
>I would argue that Bitcoin is the only asset class that is not currently in a bubble.
So, you're living in denial then?
No, I believe that Bitcoin is going through a more general adoption wave.
So yes, it was in a bubble last year, but it is all part of a larger adoption pattern. It is the same way Amazon stock was in a bubble from 1998 to 2000 when its value rose from $3 to over $100 and back down to $5, but where is it today?
That's exactly what Bitcoin looks like to me. Places like Goldman Sachs are getting involved in selling Bitcoin derivatives. These are akin to subprime mortgage derivatives; the bankers know their current value is inflated with respect to their fundamental value, but for the time being people clearly want to buy them, so they can make lots of money selling them. Once they are making money selling them, it behooves them to downplay the risk. They can point at a BTC graph, talk about it is the future, draw a line up and to the right, and make it seem like a no-brainer.
The USD pumping up the stock market is undeniably there, but if the Tether pumping up BTC isn't real (real being defined by the 1 USDT = 1 USD), then the price is essentially being pumped up by nothing.
It's a demonstrably fraudulent claim right there on their home page.
> Lack of transparency does not necessarily indicate fraud
Given the little we do know about the company the most reasonable assumption is that it is a slightly reworked Ponzi scheme.
It is very likely the federal reserve is going to do something very similar in the coming years. They will also print more of their coin at will, but no one is going to make a stink about that cause they have already been doing it for a hundred years.
> Given the excruciatingly detailed procedures Friedman was undertaking for the relatively simple balance sheet of Tether, it became clear that an audit would be unattainable in a reasonable time frame. As Tether is the first company in the space to undergo this process and pursue this level of transparency, there is no precedent set to guide the process nor any benchmark against which to measure its success.
It explicitly states on the first page that it cannot be relied upon.
When Tether posted it (https://tether.to/announcement-transparency-update/) they stated " These consulting services do not constitute an audit or attestation engagement, which would include a significantly expanded scope of procedures and take substantially more time to complete."
A bank that, through 2017, raised no questions when they were supposedly depositing multiple hundred million dollars, _multiple_ times a week.
I think the bank argument is a little weak since banks are the exact group that crypto currencies are disrupting and stand to lose the most if crypto currencies succeed. If I were a bank I wouldn’t want to be involved with any company that makes it easier for people to trade US dollars for crypto currencies either.
Fraudulently claiming "frequent professional audits" that don't exist is good evidence of fraud.
So is having a big link "proof of funds" on the home page that links to https://tether.to/wp-content/uploads/2017/09/Final-Tether-Co... which says "not intended to be, and should not be, used or relied upon by [non-Tether parties]".
I agree with you they should have an audit done to prove definitively one way or the other that they are backed by USD to put this entire thing to rest.
As it is now, it keeps coming back up every few months in the media, and the narrative is getting old.
Those are very specific numbers to be touting without anything supporting them.
Tether was FORCED to print, even if they didn't have the USD. The amount of FUD, and active attacks from the traditional banking system suppressed the price of bitcoin. Tether were trying to SAVE us... and so it goes.
It's the opposite. Bull markets are when price starts to increase. Bear markets are when price starts to decline.
Years ago, I had an amazing macroeconomics professor named Alex Kelly. Dr. Kelly was an amazing educator with an incredible sense of humour, a penchant for telling the truth as he saw it, and genuine glee when he'd see students start to understand his material.
I'll never forget the class where Dr. Kelly stood up, did his impression of a bear standing on his hind legs, growling and pushing down the market. Then showing the converse, snorting like a bull and pushing up the market.
Afterwards, he did his usual shrug, reached into his pocket to fish out his everpresent Rolaids, quipped "now if anyone gets that wrong on the midterm..." and shook his head menacingly.
Dr. Kelly could flat out teach and I quote him to this day.
For example last year there was a point during the bull market when the price dropped from $5k to $3k and that was one example of “when the price started to decline”.
Thanks for the story!
- If Bitfinex was buying Bitcoins on their own exchange with fake USD in order to push the price up, they wouldn't do so by printing Tether because USD on Bitfinex is not backed by Tether - it's supposed to be backed directly by USD in Bitfinex-owned bank accounts, with Tether only being minted as necessary to handle Tether withdrawals. (Someone even found externally-visible evidence that there wasn't enough Tether in existence to cover the Bitfinex USD balances - naturally, this was seen as further proof it was a scam.)
- During the period in question, it was Coinbase/GDAX which was pushing the price up, and that exchange never accepted Tether. The price of Bitcoin on Bitfinex and the other exchanges was pretty much always lower than GDAX, or to put this another way, Tether USD was worth more than its face value during the time when Bitfinex was supposedly printing it to push the Bitcoin price up. This is the exact opposite of what should have happened if they were doing so.
It looks, at a quick glance, like this still has the same problems.
Edit: this is more clever than the previous arguments, in that it also uses evidence from round-number trading biases and odd end-of-the-month behaviour of the kind you'd expect if Bitfinex had to make the Tether shortfall disappear for their monthly audit, and also examines outflows of Tether from Bitfinex to other exchanges. (The round-number stuff is less convincing since the divergence between exchanges and even between currencies on the same exchange was particularly bad around round numbers.)
They also attempted to test the hypothesis that the Tether printing was a reaction to demand by comparing the amount of printing with the Tether-USD price. Unfortunately, they used the price on the Kraken exchange which had almost no volume or market depth compared to the potential Bitfinex-Bitcoin-GDAX route. Basically, no-one actually used it, and so it didn't accurately represent how much it'd cost to actually exchange any substantial amount of Tether to USD or vice-versa. It's entirely unsurprising that it wasn't correlated with anything of note.
In addition, a willful design for manipulation of the whole cryptocurrency market would strongly motivate Bitfinex to hide or manipulate public Tether data precisely to make such a link impossible to prove.