The Bitcoin threads could be interesting in the future

[Duke of Marmalade]

...store of value can in some ways be helpful to it establishing itself as a means of exchange.

Absolutely, I think that is called bootstrapping. And certainly Satoshi was keenly aware that his bitcoin needed some form of utility/intrinsic/store of value to make it work as a medium of exchange which was its intended purpose. That is why gold was the primitive choice for MOE, its basic attraction to the human senses was a natural bootstrap, but I don't want to go down the gold rabbit hole.
In his/her thought piece Satoshi suggested that some folk regarding it as a collectors item would serve as the bootstrap - seemed a bit far fetched to me. S/he settled for the rather circular argument that if folk started to use it as a MOE then that of itself would be the utility to bootstrap it as an MOE. Kelleher develops this theme and argues that ultimately the only utility value that bitcoin can have is as an MOE and the only way it can be a sustainable store of value is if it has the underpin of this utility value.
According to my interpretation of JK's argument today's bitcoin price can only be explained as being a speculation that it will ultimately make the grade as an MOE. I suspect that many of the folk dabbling in bitcoin do not bother themselves with such considerations and are simply climbing on a bandwagon out of FOMO. (Not saying you fall into that camp.)

 

[tecate]

Your point /position is very clear by now, Dukey. I'm open to all outcomes but to me, evidence points increasingly towards bitcoin establishing itself as a store of value.

2020 has been most notable for the number of influencial folk from the conventional world who have come out and confirmed a similar belief. Yesterday the CIO of Blackrock (one of the world's largest asset managers) came out and said that crypto is here to stay and that bitcoin can replace gold as a store of value. A few days prior to that, Deutsche Bank confirmed that they're seeing a preference for bitcoin rather than gold from their younger customers.

I suspect that many of the folk dabbling in bitcoin do not bother themselves with such considerations and are simply climbing on a bandwagon out of FOMO. (Not saying you fall into that camp.)

This uptick seems quite different to 2017. I'm not seeing much in the way of euphoria. There's much less 'dumb money' being added to the market and there's no ICO craze in play.

 

[WolfeTone]

I suspect that many of the folk dabbling in bitcoin do not bother themselves with such considerations and are simply climbing on a bandwagon out of FOMO.

I don't get that sense, for sure elements of it are there but it's hard to imagine that €300bn market is being sustained primarily by FOMO.
One of the hallmarks of speculative euphoria is an accompanying media frenzy. In 2017 bitcoin was making headlines all over. It still does, but to a much lesser extent.

 

[tecate]

In an interview earlier today on CNBC, Paypal CEO Dan Schulman spoke to....

1. The inherent value of crypto:

“All forms of money are based on trust and set values that come from that trust.”

&

2. Its utility:

"Early next year, we’re going to allow cryptocurrencies to be a funding source for any transaction happening on all 28 million of our merchants. And that will significantly bolster the utility of cryptocurrencies.”

Meanwhile, over on Bloomberg, the CIO of Saxo Bank stated that:

"We have to focus on the fact that crypto has become a real valid sort of alternative for safe keeping. . . These people want to live in a different system to what we do. . . They trust something else . . . Increasingly we're going to see more and more people like my age group getting involved with that as a safe haven as well".

 

[SGWidow]

I don't doubt that is a reasonable interpretation and for sure the crowd dynamic does not always call it right. But this is what represents value. The interpretation of information and putting a price on it or exploiting the price of the market. I hope you capitalised on it.

Wolfetone,

I really enjoy your posts. I think that you might be a little crazy...…..but in a nice way!

I have money on deposit earning zilch. The temptation to receive 10 plus years interest (at 1.07) within a few weeks is getting to me!!

What should a rationale investor do?

Is rationality in play when a * b > 1, where:

a = Probability of outcome?
b = Value of outcome

In simple terms, if I think that Biden is 98% sure to be the next POSUM, the sum is
0.98 * 1.07 = 1.05ish

What I'm wondering is that here I have a positive expected outcome but people would think I'm mad to go for it whereas folk who bet in bookies (who can count) do so on the basis of a negative expected outcome?

Does it boil down to self-delusion?
What is logical behaviour?
When does the expected outcome for Biden to win the election become compelling (that's what we are betting on, isn't it - as opposed to him surviving/remaining healthy until January)?
Am I just looking for some excitement in these weird times?

Apologies to Tecate and others - not directly related to Bitcoin - although arguably there's some overlap. Also, it crystallises the essence of the investment decision of getting the balance right between maximising return with acceptable risk.

 

[Duke of Marmalade]

13% down. Most manipulated asset ever. As I said the higher it goes the harder it will fall. FOMO-salivating retail suckers hoodwinked by manipulative whales will get shafted as in 2018!

 

[Brendan Burgess]

Hi Duke

Is there any evidence of manipulation? I know it's supposedly limited in supply, but how do they manipulate it?

Sure they talk it up, but that is different.

Brendan

 

[WolfeTone]

I think that you might be a little crazy...…..but in a nice way!

Always happy to receive a backhanded compliment... I think?

What should a rationale investor do?

@SGWidow you should be aware that any rational analysis of my bets in the US Presidential market could only consider that I have been wholly irrational in my betting punts - in hindsight of course.
The only rational thing to do is not gamble what you are not prepared to lose.

Considering bitcoin, my forecast is that it is heading to $34k over the medium term. It is taking a bit of a battering last couple of days.

 

[Duke of Marmalade]

Hi Duke

Is there any evidence of manipulation? I know it's supposedly limited in supply, but how do they manipulate it?

Sure they talk it up, but that is different.

Brendan

I don't know whether Roubini (courtesy @tecate ) has any evidence of manipulation. But certainly if a market can be manipulated it will be manipulated.
A buys from B; B buys back from A - creating false price history. The major stock exchanges are heavily regulated to root such manipulation with full historic transparency of trades. By its nature bitcoin does not have that transparency. Any manipulation will be accompanied by a ramping up of the narrative at the same time.

 

[tecate]

I don't know whether Roubini (courtesy @tecate ) has any evidence of manipulation.

Nouriel finds himself in a difficult position. He's backed himself into a corner and can see the crystalisation of that 'fax machine' moment. Hence his attempt to extract himself via the acknowledgement that bitcoin is a store of value a couple of weeks back (having been wrong on bitcoin as early as 2013 and having said it would go to zero a couple of years ago).

But certainly if a market can be manipulated it will be manipulated.

You've nailed it, Dukey. Manipulation isn't exclusive to this market. It existed long before its existence. Ask George Soros and the Bank of England.
When you zoom out, bitcoins market cap is just a drop in the ocean. As it expands, market manipulation is going to be much harder to achieve.

 

[DazedInPontoon]

“Nouriel Roubini” said:

13% down. Most manipulated asset ever. As I said the higher it goes the harder it will fall. FOMO-salivating retail suckers hoodwinked by manipulative whales will get shafted as in 2018!

Though I've been following this thread, I haven't read any of the linked Nouriel Roubini stuff, I expect anyone who sees the price behaviour since October which is about 80% up and then a 13% correction and takes away from it that bitcoin has "crashed again" is working backwards from the outcome they want and not forwards from the data.

(and for the record, my money is where my mouth is on this. This was a standard correction, in fact maybe not even enough of one, back to 14k would not surprise me. There may be a short or long battle to convincingly breach 20k, but I think it's high likely it will be breached in anywhere from 1 month to a year, but I would expect sooner rather than later. And when it does I expect it will run well beyond it.)

 

[DublinHead54]

You've nailed it, Dukey. Manipulation isn't exclusive to this market. It existed long before its existence. Ask George Soros and the Bank of England.
When you zoom out, bitcoins market cap is just a drop in the ocean. As it expands, market manipulation is going to be much harder to achieve.

This is true and the solution for longer-established markets to stop manipulation is through additional centralized control implemented via regulation. As bitcoin is unregulated and the barrier to entry for establishing an exchange is much lower, manipulation is rife or even just stability of the market is lesser. There was the whole Bitfinex saga of (creating USDT and dubious accounting to manipulate the price), and also more recently the algos reacitng to an April Fools joke causing a spike.

So if Bitcoin is to remain unregulated it will need to find other means to stop manipulation.

 

[tecate]

This is true and the solution for longer-established markets to stop manipulation is through additional centralized control implemented via regulation. As bitcoin is unregulated and the barrier to entry for establishing an exchange is much lower, manipulation is rife or even just stability of the market is lesser.

Within reason. I'd imagine expanding the market will help more. Regulation of centralised entities (exchanges) I don't have so much issue with - as long as there isn't overreach. There are going to be a few years of battles on that front going forward.

There was the whole Bitfinex saga of (creating USDT and dubious accounting to manipulate the price),

I don't like the Bitfinex/Tether setup simply because the possibility is there for bad practice. That said, what has been proven other than that they held 70% reserves as a result of having funds frozen through no fault of their own?

and also more recently the algos reacitng to an April Fools joke causing a spike.

Is that not just symptomatic of a tiny market? Otherwise, how does regulation fix this?

So if Bitcoin is to remain unregulated it will need to find other means to stop manipulation.

The two worlds are colliding to an extent so there will be various attempts at regulation - that's ongoing. Other than that, market grows and there's much less opportunity to manipulate.

 

[DublinHead54]

Within reason. I'd imagine expanding the market will help more. Regulation of centralised entities (exchanges) I don't have so much issue with - as long as there isn't overreach. There are going to be a few years of battles on that front going forward.

In my opinion, it is an incorrect assumption to believe that a larger market will solve infrastructure weaknesses. It will not or else we would not see a need for regulation of trading activity in the financial markets right? As an example, I've played with crypto derivatives and the platforms and level of sophistication are nothing compared to institutional trading platforms, there were clear arbitrage opportunities available.

Is that not just symptomatic of a tiny market? Otherwise, how does regulation fix this?

No, it is symptomatic of poor or unsophisticated/weak market infrastructure, advanced markets experience 'flash crashes' and usually there is a regulator to report to and subsequent changes. Regulation forces a lot of controls or market infrastructure that would otherwise not be built. In a previous life, I have seen institutions wrapped on the wrists by regulators for shortcomings and forced to spend to fix the issue.

 

[tecate]

@Dublinbay12 : I don't have a problem with regulation so long as it doesn't go too far. I don't know where or when you were trading crypto derivatives but there's a CME crypto futures market. They're as professional as you can get although a buddy of mine suggested he wouldn't avail of said market as he didn't like the trading fees. That said, trading fees and infrastructure has improved in crypto since a few years ago. It will need to do so again - it's an iterative process. I would have thought the market growing would bring that about to an extent.

Circling this back to Nouriel's manipulation mention, I don't know what he expects in a nascent/emerging/unregulated market. Google "market manipulation" + "gold" and we see another example that the crypto space doesn't in any way have exclusivity when it comes to such bad practice. Kettle calling pot black from Nouriel.

 

[tecate]

Just published by Bloomberg: 'Bitcoin Fights Back With Power, Speed and Millions of Users'
The piece speaks to bitcoin's growing network effect, hash rate and market depth.

Meanwhile, $270 billion asset manager Guggenheim Funds Trust has filed an amendment with the SEC to allow its $5 billion Macro Opportunities Fund to have the option of gaining a 10% exposure to BTC.

 

[DublinHead54]

@Dublinbay12 : I don't have a problem with regulation so long as it doesn't go too far. I don't know where or when you were trading crypto derivatives but there's a CME crypto futures market. They're as professional as you can get although a buddy of mine suggested he wouldn't avail of said market as he didn't like the trading fees. That said, trading fees and infrastructure has improved in crypto since a few years ago. It will need to do so again - it's an iterative process. I would have thought the market growing would bring that about to an extent.

Circling this back to Nouriel's manipulation mention, I don't know what he expects in a nascent/emerging/unregulated market. Google "market manipulation" + "gold" and we see another example that the crypto space doesn't in any way have exclusivity when it comes to such bad practice. Kettle calling pot black from Nouriel.

What regulation is too far? Regulation is aimed to protect the market and participants.

I have used BitMex and Deribit to play around with options / derivatives on crypto markets on a crypto platforms. CME Futures are cash settled so somewhat removed from the actual crypto market, it is a product in the established markets that references the price of Bitcoin, and not dissimilar to pork belly futures. However, CME is a regulated entity and futures a regulated market, but the main crypto exchanges and the physical trading of crypto is not at the same level of regulation and thus the market infrastructure is weaker.

It is a straight forward fact that the Crypto Market is less advanced than Financial Markets.

 

[tecate]

What regulation is too far?

FATF travel rule and stuff of that nature...aside from the fact it simply won't work. And building on that, regulation that has been designed for an old paradigm and has no place when it comes to a completely new paradigm. The modern day equivalent of the red flag act of 1865....measures that lack understanding of the technology and innovation at hand and apply regulation that destroys that innovation.

Regulation is aimed to protect the market and participants.

Indeed it is. A lot of the time, it can and does achieve exactly that. That doesn't mean that it does so all of the time or that it can't go too far into nanny-state mode (or misunderstand or be unsympathetic to the fintech at hand - as I alluded to above).

However, CME is a regulated entity and futures a regulated market

That's why I suggested it to you. If you want a similar regulatory standard and physically settled, have you tried Bakkt?

It is a straight forward fact that the Crypto Market is less advanced than Financial Markets.

Just in case there's a suggestion that this was being disputed, it wasn't. We're talking about the comparison of a market developed over an age vs. one that's finding its feet. It couldn't possibly be any other way. To expect it to develop any other way is also wayward.

You never did confirm - what was your rationale for holding/speculating on/investing in/trading bitcoin?

 

[DublinHead54]

FATF travel rule and stuff of that nature...aside from the fact it simply won't work. And building on that, regulation that has been designed for an old paradigm and has no place when it comes to a completely new paradigm. The modern day equivalent of the red flag act of 1865....measures that lack understanding of the technology and innovation at hand and apply regulation that destroys that innovation.


Indeed it is. A lot of the time, it can and does achieve exactly that. That doesn't mean that it does so all of the time or that it can't go too far into nanny-state mode (or misunderstand or be unsympathetic to the fintech at hand - as I alluded to above).


That's why I suggested it to you. If you want a similar regulatory standard and physically settled, have you tried Bakkt?

Just in case there's a suggestion that this was being disputed, it wasn't. We're talking about the comparison of a market developed over an age vs. one that's finding its feet. It couldn't possibly be any other way. To expect it to develop any other way is also wayward.

You are missing the point I made.........The CME Futures have little to do with the actual Crypto Market Infrastructure on which I was speaking to. They are cashed settled products that reference the price of Bitcoin, no crypto exchanges are made when purchasing it is USD.

I am left confused on your position, as your first point above makes you seem very anti-regulation and saying regulation can destroy innovation. Yet you point to BTC gaining legitimacy through the likes of CME and BAKKT. However, these are regulated entities and that is a contrast against your position on regulation.

The simple point you have not disproved is that a larger market does not mean a better market. The key way to reduce fraud, stability, arbitrage opportunities is through regulation as proven in the financial markets.

You never did confirm - what was your rationale for holding/speculating on/investing in/trading bitcoin?

This has no relevance to this discussion.

 

[tecate]

You are missing the point I made.........The CME Futures have little to do with the actual Crypto Market Infrastructure on which I was speaking to. They are cashed settled products that reference the price of Bitcoin, no crypto exchanges are made when purchasing it is USD.

I disagree. Clearly they're far from the same thing - its not a physically settled product - but its relevant to the entire sector.

I am left confused on your position, as your first point above makes you seem very anti-regulation and saying regulation can destroy innovation. Yet you point to BTC gaining legitimacy through the likes of CME and BAKKT. However, these are regulated entities and that is a contrast against your position on regulation.

Sorry for your troubles - but all I can say is that you re-read my previous post. In short, regulation can be good and it can also be very bad - it depends on the specifics. Perhaps you think its ok to accept any old regulation that's applied. That's not my position.

The simple point you have not disproved is that a larger market does not mean a better market. The key way to reduce fraud, stability, arbitrage opportunities is through regulation as proven in the financial markets.

I didnt suggest either/or. Other than that, I disagree - market size helps.

This has no relevance to this discussion.

It has every relevance but I don't mind if you don't answer. To my mind, it clarifies plenty based on previous discussion.