Bitcoin Exchange Had Too Many Bitcoins(bloomberg.com)
bloomberg.com
Bitcoin Exchange Had Too Many Bitcoins
https://www.bloomberg.com/view/articles/2017-08-02/bitcoin-exchange-had-too-many-bitcoins
240 comments
Matt sums it up well in a footnote:
Imagine if I announced tomorrow that I had created a new blockchain,
called Bitcoin Matt, and that everyone who owned a BTC today
will tomorrow own both a BTC and a BCM.
Fine, great, you all own BCMs, congratulations. But also anyone
short a BTC today will be short a BCM tomorrow, and will be
forced to go buy in those BCM shorts.
Even with no economic support for BCM -- with nobody mining
it, or using it, or treating it as a store of value -- I have
magically created demand for it, just because BTC short-sellers
will be forced to buy it in to cover their shorts.
And if no one else is using it, then it will trade very thinly,
and it will be very expensive to cover. (And anyone who does sell
it will make a lot of free money.) Nothing stops me from just
announcing that I've cloned a copy of the bitcoin blockchain
for BCM; the only way to avoid this abuse is for people to ignore
it -- and that means not forcing short sellers to cover it.I hate to be That Guy [tm] but can you please not indent quotes like that? It's a PITA to read on mobile.
Get a better phone browser?
Indentation is for code blocks. Such blocks are supposed to be rendered monospaced and unwrapped. A browser that didn't render them that way would be broken. The solution is to format quotes in a way that's appropriate for quotes, not using code formatting.
(The real solution would be for HN to support an actual quote style, like Markdown's leading > style, but alas....)
(The real solution would be for HN to support an actual quote style, like Markdown's leading > style, but alas....)
Don't post that without an actual recommendation. Which mobile browser renders that legibly?
Otherwise it's just noise.
Otherwise it's just noise.
[deleted]
Asterisks are superior. Quotations with style.
Thank you!!!
I'm not knowledgeable about BTC; this is the part that confused me. If you short a stock, and it distributes dividends or stock or ponies, as Levine says, you have to return that to the borrower. I'm not sure if this is law or just the overwhelming common practice of the markets, but either way we agree on this. You _could_ devise a short agreement where you say "no distributions are owed," but that's not the standard that the big securities-lending market has settled on and I'm not sure why people would demand that instead.
If on the other hand you short a stock, and a third party says "Hey, I'm going to give everyone who owns this stock on this date a bag of cash!" I don't think that shorts would be obligated to cover that. This is, I guess, like what happened with Dole, except that there the third party was a judge, who has the force of law at his back. And this strikes me as similar to what happened to BTC/BCH, except without said force of law. Wherein lies the ability of someone to compel a BTC short to now owe BCH too? What exactly is it that shorts have agreed upon to return to the longs that they borrowed from, and if it's just BTC, isn't returning a BTC enough? If not, what stops someone else from making their own fork and compelling shorts to come up with that too?
If on the other hand you short a stock, and a third party says "Hey, I'm going to give everyone who owns this stock on this date a bag of cash!" I don't think that shorts would be obligated to cover that. This is, I guess, like what happened with Dole, except that there the third party was a judge, who has the force of law at his back. And this strikes me as similar to what happened to BTC/BCH, except without said force of law. Wherein lies the ability of someone to compel a BTC short to now owe BCH too? What exactly is it that shorts have agreed upon to return to the longs that they borrowed from, and if it's just BTC, isn't returning a BTC enough? If not, what stops someone else from making their own fork and compelling shorts to come up with that too?
I would check the notes to see what happened with Dole before drawing a conclusion. There is more at stake here than a judge with backing. One of the problems with Dole was tracking shares with DTC - It takes, I think, T+2 for settlement ie I sell you something today it gets updated two days later in DTC. This coupled with day trading and shorts (where btw "borrowing a share" is hypothetical) can cause a lot of headaches. So the solution is? A blockchain which tracks the share count and movement. That is the point being made in the article.
As for the other part. The whole BTC/BCH thing is like a spinoff. And yes the short sellers are on the hook if Stock A tomorrow becomes Stock A + Stock B. Can they say no, well Stock B is more than I paid for A+B combined so I am not paying? Not really because if that was the case it leaves open the door for someone saying - well stock A has appreciated more than I expected so no payout.
Now in case of forks and whether people can be on the hook for the other fork? Well, depends on how famous the fork is really. If it is as famous as BTC cash, well then that is a risk you have to take as a speculator. If not, then why was someone betting on bitcoin going down the drain after the fork? Were they not clear of the implication of the fork taking off? If not, then that's a lesson learned.
To paraphrase Matt Levine - "The basic appeal of the cryptocurrency revolution, to people like me who are not making any money off of it, is that it is fun to watch people rediscover all of the lessons of financial economics, one at a time, in public. "
https://www.bloomberg.com/view/articles/2017-06-23/buffett-d...
As for the other part. The whole BTC/BCH thing is like a spinoff. And yes the short sellers are on the hook if Stock A tomorrow becomes Stock A + Stock B. Can they say no, well Stock B is more than I paid for A+B combined so I am not paying? Not really because if that was the case it leaves open the door for someone saying - well stock A has appreciated more than I expected so no payout.
Now in case of forks and whether people can be on the hook for the other fork? Well, depends on how famous the fork is really. If it is as famous as BTC cash, well then that is a risk you have to take as a speculator. If not, then why was someone betting on bitcoin going down the drain after the fork? Were they not clear of the implication of the fork taking off? If not, then that's a lesson learned.
To paraphrase Matt Levine - "The basic appeal of the cryptocurrency revolution, to people like me who are not making any money off of it, is that it is fun to watch people rediscover all of the lessons of financial economics, one at a time, in public. "
https://www.bloomberg.com/view/articles/2017-06-23/buffett-d...
It seems like it can be construed as a cash handout to owners of BTC, not a spinoff. At least there seems to be disagreement elsewhere on this thread, and from Levine's article.
I don't think refusing to require shorts to deliver BCH opens the door to any other complications. In fact, I think it's the simplest interpretation. You borrowed one BTC, or share, or pony, or whatever, and later you have to return one BTC. If someone else starts a new currency, fine, but that's nothing to do with your borrowing agreement. There's no mention of the price of anything; for all this simple agreement knows, BTC is the only asset in the world. (Though in practice I'm sure you'd have to post margin. Maybe some ponies?)
For shorting stock, the return of dividends and spinoffs is, I believe, a consensus agreed upon by the market as more closely reflecting what people would want - you can start a different stock-lending market that doesn't do this, but there doesn't seem to be much demand for it. To draw a clean analogy between BTC and an equity spinoff, you have to suppose this kind of agreement exists and the contracts signed. I'm not sure what it is that BTC shorts agreed upon, and it seems there isn't widespread agreement, but to me, the simplest and narrowest interpretation of a short, in case of any confusion, is "I borrow 1 BTC, I must return 1 BTC."
(Again, I have no BTC experience, just finance experience, so if someone out there really is short BTC and has wrangled with this stuff, I'd be happy to hear from them.)
I don't think refusing to require shorts to deliver BCH opens the door to any other complications. In fact, I think it's the simplest interpretation. You borrowed one BTC, or share, or pony, or whatever, and later you have to return one BTC. If someone else starts a new currency, fine, but that's nothing to do with your borrowing agreement. There's no mention of the price of anything; for all this simple agreement knows, BTC is the only asset in the world. (Though in practice I'm sure you'd have to post margin. Maybe some ponies?)
For shorting stock, the return of dividends and spinoffs is, I believe, a consensus agreed upon by the market as more closely reflecting what people would want - you can start a different stock-lending market that doesn't do this, but there doesn't seem to be much demand for it. To draw a clean analogy between BTC and an equity spinoff, you have to suppose this kind of agreement exists and the contracts signed. I'm not sure what it is that BTC shorts agreed upon, and it seems there isn't widespread agreement, but to me, the simplest and narrowest interpretation of a short, in case of any confusion, is "I borrow 1 BTC, I must return 1 BTC."
(Again, I have no BTC experience, just finance experience, so if someone out there really is short BTC and has wrangled with this stuff, I'd be happy to hear from them.)
I had to re-read your post again to understand what you are getting at. It is not about what BTC shorts agreed upon rather what does Bitfinex agreement say about people shorting BTC on their platform. As jackgavigan pointed out - 2010 Global Master Securities Lending Agreement is clear on what the obligations should ideally be.
So did Bitfinex create an agreement along those lines for their short sellers? This requires looking into their T&C. A wild guess is they did not and never included a condition about such situations. That means asking BTC shorts to cover BTC cash had no legal legs at all. The best they could do is to pay the long BTC holders and exempt shorts.
You can bet they must have learned their lesson after this fiasco and updated their terms accordingly.
So did Bitfinex create an agreement along those lines for their short sellers? This requires looking into their T&C. A wild guess is they did not and never included a condition about such situations. That means asking BTC shorts to cover BTC cash had no legal legs at all. The best they could do is to pay the long BTC holders and exempt shorts.
You can bet they must have learned their lesson after this fiasco and updated their terms accordingly.
This is less like an arbitrary handout from a third party and more like a stock split. If you hold a security, you generally have no idea whether its been lent to a short. The idea of "your" stock being lent doesn't even really mean anything - the shares are fungible. So when the stock splits (or a company is spun off as in the paypal example, etc), you'd be awfully surprised to find the value of your stake halve because the new stock went to the short.
BCH _feels_ like a stock split. Where it's not like a stock split is that literally anybody can create a new blockchain just like BCH and give everyone who owns BTC a coin on this new blockchain. In that regard, it _feels_ more like a handout.
It's not really a stock split (where you get multiple shares for the same company) but a company split. If a company splits itself into two parts (e.g. Amazon to be split into retail and AWS) they can distribute shares of both new companies to the shareholders of the old company. In that situation you have the same problem. If the new AWS shares are not traded and you were short Amazon, you would have to cover AWS shares and therefore buy them.
In reality it's not an issue with large companies because it happens rarely and there are so many shareholders that a market would appear quickly.
In reality it's not an issue with large companies because it happens rarely and there are so many shareholders that a market would appear quickly.
It's not that either though. if AWS left amazon that would be value leaving amazon stock and going to the new aws stock. in this case there is no value leaving bitcoin. bitcoin is still the same. someone just decided to start a new coin, and instead of starting from scratch, they are copying the bitcoin blockchain up to this point and giving everyone who has a coin now a new coin that has no real value to speak of yet. it doesn't do anything, isn't accepted anywhere, and currently functions worse in every way (these could all change in time, but for now they are true)
Anyone, anywhere, anytime can fork bitcoin and give away new worthless coins. Forcing shorts to go an buy all the worthless coins is simply unreasonable.
Anyone, anywhere, anytime can fork bitcoin and give away new worthless coins. Forcing shorts to go an buy all the worthless coins is simply unreasonable.
Fair, and Levine points this out in the article. He also observes that part of what makes bitcoin tricky and non intuitive is that if it worked like a company spinoff, not much new value should be created. Post split the price of BTC plus BCC should more or less equal the old BTC price, but that hasn't happened, because these are tulip bulbs.
It's not a stock split (which would issue you more BTC), but a demerger - or a spin-off. This is where a company gives out shares in proportion to existing shareholding. It's like BTC has "spin off" BCH which was part of BTC - but now trades independently. I'd say a LOT of people do not understand this, because the price of BTC should have fallen, which I guess makes sense since this BTC has no entitlements and therefore is driven, a little like gold, on future expectations or speculation.
https://en.wikipedia.org/wiki/Demerger
https://en.wikipedia.org/wiki/Demerger
Except that many people believe these new shares are worthless, so the price drop should be ~$0. Don't assume the market doesn't know this and isn't telling you this already.
(And before you say something about the bcash price not being zero: right now there are no functioning markets where you can deposit any to sell it.)
(And before you say something about the bcash price not being zero: right now there are no functioning markets where you can deposit any to sell it.)
it's not a spin off though. nothing is leaving btc. no value is going away. someone else just created something out of thin air. also, bch was never a part of btc. it's simply something new that is using the past history of btc as a starting point, which creates new coins out of thin air, and distributes them to all the holders of btc.
No part of this makes sense for a short to have to go and buy bch.
No part of this makes sense for a short to have to go and buy bch.
There's no charter of incorporation for bitcoin. To a large extent it is what everyone agrees it is. I think people recognize that BCH is as genuine a "coin" as BTC whereas BCM wouldn't be.
It is most definitely not a stock split, but a free handout. Anyone can create a shitcoin at any time that gives "free shitcoins" to all bitcoin, ethereum etc holders. In fact, that is clever marketing for the altcoins because then the shitcoin gets attention, possible support from exchanges etc.
Is it possible to fork bitcoin in such a way that BTC holders can't get the new coins? If not, then it's not just a handout. The fact that anyone can fork it is an unfortunate property for your money to have that doesn't change what's happening here.
> If on the other hand you short a stock, and a third party says "Hey, I'm going to give everyone who owns this stock on this date a bag of cash!" I don't think that shorts would be obligated to cover that.
With stocks, the question of what the borrower is expected to cover will be addressed in the loan agreement. For example, here is a relevant paragraph from the 2010 Global Master Securities Lending Agreement:
Where the term of a Loan extends over an Income Record Date in respect of any Loaned Securities, Borrower shall, on the date such Income is paid by the issuer, or on such other date as the Parties may from time to time agree, pay or deliver to Lender such sum of money or property as is agreed between the Parties or, failing such agreement, a sum of money or property equivalent to (and in the same currency as) the type and amount of such Income that would be received by Lender in respect of such Loaned Securities assuming such Securities were not loaned to Borrower and were retained by Lender on the Income Record Date.
Here are some relevant definitions of terms used in the paragraph above:
Income Record Date, with respect to any Securities or Collateral, means the date by reference to which holders of such Securities or Collateral are identified as being entitled to payment of Income;
Income means any interest, dividends or other distributions of any kind whatsoever with respect to any Securities or Collateral;
With stocks, the question of what the borrower is expected to cover will be addressed in the loan agreement. For example, here is a relevant paragraph from the 2010 Global Master Securities Lending Agreement:
Where the term of a Loan extends over an Income Record Date in respect of any Loaned Securities, Borrower shall, on the date such Income is paid by the issuer, or on such other date as the Parties may from time to time agree, pay or deliver to Lender such sum of money or property as is agreed between the Parties or, failing such agreement, a sum of money or property equivalent to (and in the same currency as) the type and amount of such Income that would be received by Lender in respect of such Loaned Securities assuming such Securities were not loaned to Borrower and were retained by Lender on the Income Record Date.
Here are some relevant definitions of terms used in the paragraph above:
Income Record Date, with respect to any Securities or Collateral, means the date by reference to which holders of such Securities or Collateral are identified as being entitled to payment of Income;
Income means any interest, dividends or other distributions of any kind whatsoever with respect to any Securities or Collateral;
Except your clone doesn't have miner support, community support, and get listed by major exchanges. I hate that people are acting like anyone can just go and make a fork for free money.
I'm not sure what you're saying here. Are you claiming that Bitcoin Cash doesn't have those things? Or are you saying that those things are important factors which differentiate Bitcoin Cash from other forks?
"Nothing stops me from just announcing that I've cloned a copy of the bitcoin blockchain for BCM"
You can't just make random forks and have them be worth something. This is the culmination of years worth of debate and has a significant community following.
You can't just make random forks and have them be worth something. This is the culmination of years worth of debate and has a significant community following.
Aren't all the alt-coins examples of this happening? That anyone can fork a blockchain and give it their own rules?
The market value of a coin isn't limited to a strict mathematical function of mining power or exchanges backing it. That's the point Matt is making.
The market value of a coin isn't limited to a strict mathematical function of mining power or exchanges backing it. That's the point Matt is making.
You're (understandably) confusing a code fork with a chain fork:
Code fork: taking the source code from one project, modifying it, then offering the result as a new project. This is what the overwhelming majority of altcoins are. For example Litecoin is a five-year-old code fork of Bitcoin. Even though Litecoin's code is nearly identical to Bitcoin's, Litecoin from the beginning created its own blockchain, which shares no data with Bitcoin's blockchain.
Chain fork: taking the blockchain from one project, and adding new blocks to that chain that are not compatible with the chain's original style. Variations of this are soft forks (the block-adding rules are made more strict), and hard forks (the block-adding rules are made less strict). Both this week's BTC-BCH fork and last year's ETH-ETC fork were hard forks.
Complications: obviously, a chain fork requires changes to the relevant code to be able to work, so a chain fork usually comes with a code fork, but not necessarily. For example, theoretically, a completely new code base could be created from scratch in a clean-room kind of environment to add new kinds of blocks to an old blockchain.
Code fork: taking the source code from one project, modifying it, then offering the result as a new project. This is what the overwhelming majority of altcoins are. For example Litecoin is a five-year-old code fork of Bitcoin. Even though Litecoin's code is nearly identical to Bitcoin's, Litecoin from the beginning created its own blockchain, which shares no data with Bitcoin's blockchain.
Chain fork: taking the blockchain from one project, and adding new blocks to that chain that are not compatible with the chain's original style. Variations of this are soft forks (the block-adding rules are made more strict), and hard forks (the block-adding rules are made less strict). Both this week's BTC-BCH fork and last year's ETH-ETC fork were hard forks.
Complications: obviously, a chain fork requires changes to the relevant code to be able to work, so a chain fork usually comes with a code fork, but not necessarily. For example, theoretically, a completely new code base could be created from scratch in a clean-room kind of environment to add new kinds of blocks to an old blockchain.
Before Bitcoin Cash, all (afaik) other alt-coins weren't based on BTC's blockchain history. Ethereum, for example, raised development money by selling off the early coins on the chain.
What about Bitcoin Classic and Bitcoin XT?
Also isn't that splitting hairs about requiring the blockchain history? I don't think Matt said that.
Also isn't that splitting hairs about requiring the blockchain history? I don't think Matt said that.
If you don't share blockchain history, then you don't automatically get some of the new coin by holding some of the previous coin. So there are no issues with exchanges and shorts.
Also if you do share history, it is much much harder to start, because you start off with the previous difficulty which is very hard to mine on. If you start a new altcoin with a clean history, the difficulty starts off very low.
Bitcoin Classic and Bitcoin XT have not actually forked the blockchain. So they are not separate coins yet.
Also if you do share history, it is much much harder to start, because you start off with the previous difficulty which is very hard to mine on. If you start a new altcoin with a clean history, the difficulty starts off very low.
Bitcoin Classic and Bitcoin XT have not actually forked the blockchain. So they are not separate coins yet.
> Also if you do share history, it is much much harder to start, because you start off with the previous difficulty which is very hard to mine on.
You need to fork the code (with your changed rules) anyways and you can adapt the difficulty then. Bitcoin Cash did exactly that. They lowered the difficulty to something like 10% of Bitcoin anticipating 10% of the hashing power. They only got 1% and there was a gap of 9 hours without any new block. They seem to be at ~1h per block now. [0]
[0] http://blockdozer.com/insight/blocks
You need to fork the code (with your changed rules) anyways and you can adapt the difficulty then. Bitcoin Cash did exactly that. They lowered the difficulty to something like 10% of Bitcoin anticipating 10% of the hashing power. They only got 1% and there was a gap of 9 hours without any new block. They seem to be at ~1h per block now. [0]
[0] http://blockdozer.com/insight/blocks
XT and Classic did fork the blockchain and had the history though, meaning for a time they were an alt-coin with history.
That's completely counter intuitive to what you're saying about Matt's example not having a history.
That's completely counter intuitive to what you're saying about Matt's example not having a history.
[deleted]
> all (afaik)
No, this has been done a number of times. Clams, lumens, byteball, this thing: https://bitcointalk.org/index.php?topic=1883902.0 all come to mind.
It isn't done often because it's not seen as a useful technique mostly: you just gave a ton your asset to people who think it's worthless, and who may actively dislike it. Not a great way to maintain a market price.
No, this has been done a number of times. Clams, lumens, byteball, this thing: https://bitcointalk.org/index.php?topic=1883902.0 all come to mind.
It isn't done often because it's not seen as a useful technique mostly: you just gave a ton your asset to people who think it's worthless, and who may actively dislike it. Not a great way to maintain a market price.
[deleted]
Not really. It's 1 mining pool with maybe 1-2% of the total hash rate of bitcoin. I'm not sure it has significant community following or backing. I suspect the majority of the community would have preferred not to have the confusion in the market and avoided the split entirely
The point is, what's the threshold for "enough support"? Already for Bitcoin Cash, different exchanges have come to different conclusions on whether it's sufficiently supported to list on their exchange.
There is no threshold, it's clearly a gradient. Some exchanges want to list it, others don't. Certain exchanges listing it gives it more value than others, and if it's impossible to trade/spend, then the coin has 0 value.
Enough support that someone's willing to exchange cash for a "coin" from your bitcoin fork.
Oh, but they can. Here's what this whole drama has proven:
Any one can fork a coin. Then attach a significant market value to the given fork by promoting it heavily. Or if required they can do it after the fact - They can be on the buy-side and creating an ever increasing bid to pump the fork.
As for the support, you will have human greed play a big role. Everyone holding x coin gets 1 x coin + 1 fork coin with significant value which means it will create some market as well as intice miners to mine a coin with much smaller difficulty.
Any one can fork a coin. Then attach a significant market value to the given fork by promoting it heavily. Or if required they can do it after the fact - They can be on the buy-side and creating an ever increasing bid to pump the fork.
As for the support, you will have human greed play a big role. Everyone holding x coin gets 1 x coin + 1 fork coin with significant value which means it will create some market as well as intice miners to mine a coin with much smaller difficulty.
If you own a big mining pool you can get support. And with a simple propaganda campaign you can get people to support your fork much like BCH.
Couldn't you just set the value to 0 and allow a grace period for those who are long-ing or short-ing the currency to trade before "starting" it?
Could a similar trick be used by a company to screw over short sellers? Say by issuing a class of shares which are essentially worthless, forcing short sellers to buy it to cover their shorts? Or would a short seller simply "borrow" those shares as well?
Not really, because stock prices are adjusted downwards in case of forward splits or stock dilution etc. If they the diluted shares are "worthless" so to speak then it doesn't matter.
What the real scenario is when there is a spin off where Stock A becomes Stock A + Stock B. In that case short sellers are responsible for the value of stock B. Though no one will try going this route just to screw some short sellers. If the spun off division (or company) is worthless, the stock prices will come around to reflect that and even Stock A's price will suffer from this "trick" used by management.
What the real scenario is when there is a spin off where Stock A becomes Stock A + Stock B. In that case short sellers are responsible for the value of stock B. Though no one will try going this route just to screw some short sellers. If the spun off division (or company) is worthless, the stock prices will come around to reflect that and even Stock A's price will suffer from this "trick" used by management.
Yeah, that makes sense. The share class example was a stupid one, but perhaps then it would work with a spin-off company? Although as you say, no one would probably do it, if nothing else because of the probable backlash of PR. Although it does make for an interesting thought experiment.
It seems like it could work with a spin-off company, especially if the market judged the company (minus the spin-off) and the spin-off as being of greater value for whatever reason, e.g. 'focus'.
I don't think that would work. I'm presenting my understanding of things. Please chime in to correct me where I am off.
Let's start with a simple example. A company has a single class of shares. All these shares are fungible. This means that it does not matter that you hold share number 545 our of 1,000,000 or share number 390,056 out of a million. Each of these million shares is identical to the others. Just the same way each $1 bill is identical to each other $1 bill.
A stock split happens. Now there are twice as many shares. However, at the moment of the split, each share is worth half as much. The total market value has not changed. Of course, trading continues and the shares will move up or down in value.
Short holders will need to come up with 1 additional share for each 1 share that they hold. This is because the stock split affects the exact class of shares that the short holder owe.
If a company issues more shares of the same class, short sellers do not need to do anything. Nothing happened to their shares. I would imagine that the value of each outstanding share would drop, and short sellers would actually profit.
If the company issued shares of another class, that would not introduce new responsibilities to short holders.
Short holders are obliged to do things on shares that they actually own. A dividend affects existing shares, hence short sellers need to pay those dividends. A split affects existing shares, hence short sellers need to find extra shares to make the lender whole. A new stock issue does not affect those existing shares: new shares are being introduced.
Another way to think about this is to think what happens if you are long 1 share of a company. If a dividend is paid, then you are paid 1 share's worth of a dividend. If a split happens, your 1 share is now 2 shares (each at half the price of the original). However, if a company issues more stock, you do not get more shares. The same rules govern short sellers. However, they must give instead of receiving.
Let's start with a simple example. A company has a single class of shares. All these shares are fungible. This means that it does not matter that you hold share number 545 our of 1,000,000 or share number 390,056 out of a million. Each of these million shares is identical to the others. Just the same way each $1 bill is identical to each other $1 bill.
A stock split happens. Now there are twice as many shares. However, at the moment of the split, each share is worth half as much. The total market value has not changed. Of course, trading continues and the shares will move up or down in value.
Short holders will need to come up with 1 additional share for each 1 share that they hold. This is because the stock split affects the exact class of shares that the short holder owe.
If a company issues more shares of the same class, short sellers do not need to do anything. Nothing happened to their shares. I would imagine that the value of each outstanding share would drop, and short sellers would actually profit.
If the company issued shares of another class, that would not introduce new responsibilities to short holders.
Short holders are obliged to do things on shares that they actually own. A dividend affects existing shares, hence short sellers need to pay those dividends. A split affects existing shares, hence short sellers need to find extra shares to make the lender whole. A new stock issue does not affect those existing shares: new shares are being introduced.
Another way to think about this is to think what happens if you are long 1 share of a company. If a dividend is paid, then you are paid 1 share's worth of a dividend. If a split happens, your 1 share is now 2 shares (each at half the price of the original). However, if a company issues more stock, you do not get more shares. The same rules govern short sellers. However, they must give instead of receiving.
I imagine it would be no different from how we handle regular stock splits or rights offerings.
I think this is a bit one-sided, that you've created "forced buy in". You've also created a LOT of supply as well, which goes a long way to counter-balance the demand.
Besides, the exchanges do not seem to have implemented this as a demerger spin-off (you were short BTC, but you do not need to return BCH - just bTC), and as a consequence NOT created "forced buy in".
Besides, the exchanges do not seem to have implemented this as a demerger spin-off (you were short BTC, but you do not need to return BCH - just bTC), and as a consequence NOT created "forced buy in".
Except that you haven't created a lot of supply, because people may not be able to sell theirs and if the coin's useless it may not be worth it even if they can. For example, I don't think either of the major exchanges offering shorts (Bitfinex and Kraken) are accepting BCH deposits yet, and they certainly weren't initially after the fork. Even if they were there isn't enough mining power on the chain to make transfers possible in a reasonable amount of time at the current difficulty. So any shorts could only be closed by buying BCH already on the exchanges, which only existed in the same number as there were BTC on the exchange at the time of the fork. This small supply drove up BCH prices squeezing short sellers. There's also been quite a lot of price divergence between exchanges because people can't transfer their BCH between exchanges.
> There's also been quite a lot of price divergence between exchanges because people can't transfer their BCH between exchanges.
Sounds like an opportunity for exchanges to do off-chain transfers using legal contracts.
Sounds like an opportunity for exchanges to do off-chain transfers using legal contracts.
It is significantly harder and more expensive to do those off-chain transfers in practice.
I should know: I'm actively trying to sell BCH right now with just that kind of mechanism. What would have otherwise been a few clicks on a screen is proving to be hours worth of back-and-forth, and that's for a relatively small deal with a large degree of trust on both sides.
I should know: I'm actively trying to sell BCH right now with just that kind of mechanism. What would have otherwise been a few clicks on a screen is proving to be hours worth of back-and-forth, and that's for a relatively small deal with a large degree of trust on both sides.
Probably started by this http://hackingdistributed.com/2017/07/29/bitcoin-impending-a...
Published by another guy worth reading
> As one trader puts it Short 1 btc. Buy 1 btc. Get 1 bcc free :).
Published by another guy worth reading
> As one trader puts it Short 1 btc. Buy 1 btc. Get 1 bcc free :).
[deleted]
It was exactly this kind of fun that led me to stay in my altcoin holdings and not participate at all in BCH. Liquidity puts a serious damper on a lot of slick crypto trade ideas - it's a "tortoise and the hare" kind of scenario.
Thanks for pointing out that it's a Levine article. I need to remember that bloomberg.com articles on HN are likely to be him, and actually click through.
Bit tangential, but I read an interesting theory this morning:
Because there is greatly reduced liquidity of BCH (most exchanges don't support, hard/slow to deposit into exchanges that do), supply of BCH is artificially limited at the moment. Proponents of BCH can trade their BTC for BCH at a rate greater than they believe it is worth to easily pump the value and 'market cap' (most market cap stats have no measure of this 'locked supply') to make BCH appear more popular than it is at a fraction of the price that would be necessary if selling was easy. This could sway more miners to choose to mine BCH over BTC, and in doing so, actually increase the real value of BCH.
From: https://www.reddit.com/r/btc/comments/6ooorn/small_blockers_...
Because there is greatly reduced liquidity of BCH (most exchanges don't support, hard/slow to deposit into exchanges that do), supply of BCH is artificially limited at the moment. Proponents of BCH can trade their BTC for BCH at a rate greater than they believe it is worth to easily pump the value and 'market cap' (most market cap stats have no measure of this 'locked supply') to make BCH appear more popular than it is at a fraction of the price that would be necessary if selling was easy. This could sway more miners to choose to mine BCH over BTC, and in doing so, actually increase the real value of BCH.
From: https://www.reddit.com/r/btc/comments/6ooorn/small_blockers_...
Yes. Price and market cap mean nothing when there is not sufficient liquidity. There was literally a 60% price spread between exchanges yesterday because arbitraging is incredibly difficult/impossible.
If arbitraging is impossible, can we really call it a single market? If I can’t seek exchange A’s BCH on exchange B, and vice versa, aren’t we actually dealing with two instruments, rather than one? Looks to me like multiple different BCH IOU markets currently exist: one for each exchange.
This really has nothing to do with the Bitcoin Cash blockchain, since there’s no connection between it and the tickers on the exchanges (you can’t convert one to the other).
An analogy would be ten different commodity exchanges who all trade “steel” instruments, but neither allow you to either sell “steel” instruments and receive actual steel, or deposit actual steel and receive “steel” instruments. In this case, can we really say these exchanges are trading steel? Why would their steel prices ever reflect the actual price of steel, when the two markets are not connected in any way?
This really has nothing to do with the Bitcoin Cash blockchain, since there’s no connection between it and the tickers on the exchanges (you can’t convert one to the other).
An analogy would be ten different commodity exchanges who all trade “steel” instruments, but neither allow you to either sell “steel” instruments and receive actual steel, or deposit actual steel and receive “steel” instruments. In this case, can we really say these exchanges are trading steel? Why would their steel prices ever reflect the actual price of steel, when the two markets are not connected in any way?
Which exchanges? Why is it difficult?
In the end, we're all pawns in the game of making the super-rich even more wealthy, aren't we? insert defeated sigh of resignation here
[deleted]
"There is no single obviously correct solution to these issues. Instead, each decision was sort of weird and contingent and reversible: not the immutable code of the blockchain, but just humans sitting around and trying to figure out which approach would cause the fewest complaints. In that, it's a bit like the Dole settlement process -- only instead of a neutral judge making decisions based on written contracts and established precedent, it's the people running each exchange making their own judgment calls."
This is what I'm always repeating about blockchains: they're very valuable if and only if you cannot use the protection of contracts and laws when making a transation - for example because you're doing something illegal. In Every. Other. Case. systems based on trust, contracts and law (such as the banking system for example) are more efficient.
It doesn't mean that there isn't room for improving existing systems, just this is probably best done with regular servers and databases rather than a blockchain.
This is what I'm always repeating about blockchains: they're very valuable if and only if you cannot use the protection of contracts and laws when making a transation - for example because you're doing something illegal. In Every. Other. Case. systems based on trust, contracts and law (such as the banking system for example) are more efficient.
It doesn't mean that there isn't room for improving existing systems, just this is probably best done with regular servers and databases rather than a blockchain.
I like that rule, but I would extend ever so slightly:
If existing providers are anticompetitive, blockchains allow you to bootstrap an alternative without the same capital requirements you might need to compete with, say, VISA or Wells Fargo.
I'd also note that transacting across borders can easily make legal remedies cost prohibitive, especially for smaller transactions, even if both countries have mature legal systems. So I expect cross border activity to be more typical than the illegality example in the long run. But that fits your conditions as written, so this is just a quibble.
If existing providers are anticompetitive, blockchains allow you to bootstrap an alternative without the same capital requirements you might need to compete with, say, VISA or Wells Fargo.
I'd also note that transacting across borders can easily make legal remedies cost prohibitive, especially for smaller transactions, even if both countries have mature legal systems. So I expect cross border activity to be more typical than the illegality example in the long run. But that fits your conditions as written, so this is just a quibble.
>they're very valuable if and only if you cannot use the protection [..]
I don't think that's entirely fair. They're also valuable to those who want to transfer money without ridiculous fees, excessive bureaucratic friction, and many mandatory middlemen.
What other system would allow you to instantly be able to accept payments without giving an exorbitant portion of your revenue?
I don't think that's entirely fair. They're also valuable to those who want to transfer money without ridiculous fees, excessive bureaucratic friction, and many mandatory middlemen.
What other system would allow you to instantly be able to accept payments without giving an exorbitant portion of your revenue?
Ridiculous fees, bureaucratic friction, and mandatory middlemen are exactly how I would describe converting the BTC someone transferred to you to a usable form (by exchanging to your local fiat currency).
This is fixed by creating new services and/or fixing regulation where needed. A good example of that is TranferWise which turned what used to be a horrible fee laden process into something as simple as fairly priced as it can be.
Fix the banking system. Make new banks. Whatever. You don't need the blockchain for that.
Fix the banking system. Make new banks. Whatever. You don't need the blockchain for that.
But the "ridiculous fees, excessive bureaucratic friction, and many mandatory middlemen" are what buy you the protection. The fees from necessary middleman seem ridiculous when nothing goes wrong, but that is how Visa pays for a chargebacks or fraud protection. The governments bureaucratic friction might seem excessive, but that is how they ensure people are paying their taxes which goes to fund the court systems that help mediate disputed contracts.
Regulation can greatly improve things.
Within the Single Euro Payments Area, credit transfers (i.e. bank transfers) have been free for almost a decade and will be instant (<10s), effective November of this year. Another regulation, Payment Services Directive 2 will bring more open access to bank accounts as well, requiring banks to provide access to APIs.
Relatedly, the EU also limits interchange fees for credit and debit cards (to 0.2 and 0.3%, respectively). This is the reason why integrators like Stripe charge 1.4% for European and 2.9% for non-European cards.
Payments can be quick, simple and cheap. All you need is some competition, or regulation to favour end-users' interests.
Within the Single Euro Payments Area, credit transfers (i.e. bank transfers) have been free for almost a decade and will be instant (<10s), effective November of this year. Another regulation, Payment Services Directive 2 will bring more open access to bank accounts as well, requiring banks to provide access to APIs.
Relatedly, the EU also limits interchange fees for credit and debit cards (to 0.2 and 0.3%, respectively). This is the reason why integrators like Stripe charge 1.4% for European and 2.9% for non-European cards.
Payments can be quick, simple and cheap. All you need is some competition, or regulation to favour end-users' interests.
Yes, but that comes at a price. It means that banks and financial institutions cannot make the same level of outrageous profits -- or at least not without finding different income streams.
Only a small part of those fees and frictions actually pay for that protection, and in the CC system, a good chunk of that protection is only needed because the system is almost designed to be abused.
But more importantly, that protection money becomes actual protection money, since you can't opt-out. I've bought a lot of used stuff over the years to strangers using cash, deliberately abdicating that protection. Yet if I want to do that online, I can't.
But more importantly, that protection money becomes actual protection money, since you can't opt-out. I've bought a lot of used stuff over the years to strangers using cash, deliberately abdicating that protection. Yet if I want to do that online, I can't.
I'd really love to step into this magical world cryptoconcurrency advocates invented where modern banking is impossibly terrible for most people to utilize, and Bitcoin is easier and has lower fees (it doesn't).
This invention or exaggeration of issues with modern banking just shows how weirdly desperate these people are for a problem their get-rich-quick scheme actually solves.
This invention or exaggeration of issues with modern banking just shows how weirdly desperate these people are for a problem their get-rich-quick scheme actually solves.
Not everyone lives under a strong rule of law that we enjoy and take for granted or has access to stable currency. But, it's kind of ironic that if things turn really south everywhere, the infrastructure needed to maintain blockchains will go also go down. Exactly when such a thing would be pretty handy.
That's why I think our current cryptocurrencies will just get destroyed by government centralized (that is, no block-chain) crypto-money attached to each of their currencies.
But well, governments won't move fast.
But well, governments won't move fast.
It is hilarious watching people try to reinvent financial institutions without any knowledge of or respect for history.
It makes perfect ironical sense too, we should have seen this coming. Developers are some of the best armchair economists, or like to think they are. Add in the libertarian political strain with some VC/startup evaluations and you've got what we have now: an inflated decentralized currency with a market run by a centralized tech company with infighting of developers (miners) over very shaky economics who have formed into political factions over technical decisions to make even worse economic decisions, all while the people who know whats going on profit massively.
... and this is why I didn't get on the Bitcoin train when I was first fascinated by it in 2009. Too much RonPaulnomics in the community, a refusal to discuss Gresham's law and an unwavering optimism in that transaction costs melt away magically.
Then, me and my intellectualism lost big to the australopitheconomists-with-crypto.
Then, me and my intellectualism lost big to the australopitheconomists-with-crypto.
If nothing else blockchain creates tons of entertainment value. Something completely crazy seems to go down every day. It is like a reality show on a criminal channel
Maybe I'm too "left wing", but if you ask me short selling, complex products and high frequency trading are among technological "improvements" that have led actual stock exchange to an ugly mess where biggest profits are made by "scamming" efficiently other users.
Should regulators forbid (or tax more) some (or all) of this mechanisms markets will quickly resume to what they should be, places for people to invest money on companies that produce value.
So yeah pretty impressive to see that currencies based on unicorn blockchains of the future jump right into the old bandwagon of making up complex financial instruments that few people really understand on top of an experimental core concept.
So yeah pretty impressive to see that currencies based on unicorn blockchains of the future jump right into the old bandwagon of making up complex financial instruments that few people really understand on top of an experimental core concept.
I'd say you don't really understand what you're critiquing; you think those things are bad because you heard they were, from someone else who likely doesn't understand it either. There's absolutely nothing wrong with short selling or high frequency trading. Short sellers help keep prices fair and companies honest, HFT makes trading cheaper for everyone.
The markets are worse without them, the market was worse before HFT which is the only thing new here, trades used to cost way more due to wall street middle men taking a big cut of every trade, far far bigger than HFT's take now. The only people who have a logically valid reason to hate HFT are the old school manual traders who were displaced by them and can no long make a living trading chart patterns. As late as the 70's and 80's there were people getting rich with strategies as stupid simple as buy the 10 day high and sell the 10 day low. Those people hate HFT, it took away their cash cow.
HFT is a sign of a healthy free market, better traders came in and offered to take your trades for far less money than the manual traders could, and took over; that's healthy competition, and they competed with each other driving the prices lower and lower until they hit the penny. Now they all fight over that penny to see who can be fastest because congress won't let them compete on price anymore (the sub penny rule) so they compete on speed instead.
The markets are worse without them, the market was worse before HFT which is the only thing new here, trades used to cost way more due to wall street middle men taking a big cut of every trade, far far bigger than HFT's take now. The only people who have a logically valid reason to hate HFT are the old school manual traders who were displaced by them and can no long make a living trading chart patterns. As late as the 70's and 80's there were people getting rich with strategies as stupid simple as buy the 10 day high and sell the 10 day low. Those people hate HFT, it took away their cash cow.
HFT is a sign of a healthy free market, better traders came in and offered to take your trades for far less money than the manual traders could, and took over; that's healthy competition, and they competed with each other driving the prices lower and lower until they hit the penny. Now they all fight over that penny to see who can be fastest because congress won't let them compete on price anymore (the sub penny rule) so they compete on speed instead.
> I'd say you don't really understand what you're critiquing
I'd say that you are assuming that optimizing for price is good, and presupposing how a market should be judged. Cheaper is good when it represents new innovation, less energy waste, and similar improvements. Cheaper can also mean cuts to wages and jobs, or a reduction in quality.
> There's absolutely nothing wrong with short selling
Leverage can be used for good, and sometimes it's used irresponsibly. As this thread's article demonstrates, short selling also creates systemic risk.
> trades used to cost way more due to wall street middle men taking a big cut of every trade
Eliminating middlemen and/or reducing transaction overhead costs do not require high frequency. You're seeing effects of technological improvements and better regulations. The same improvements also benefit "slow" trading.
> chart patterns
> getting rich with strategies as stupid simple as buy the 10 day high and sell the 10 day low
"Buy low, sell high." is the foundation of any successful trading strategy. HFT (when successful) is literally the same thing at much shorter time scales and improved heuristics. Machine learning can probably provide more detailed at a much finer-grain than a simple 10 day sliding window. Again, this does not require high speed.
> HFT is a sign of a healthy free market
It tells you little about the health of the market; HFT is a sign of a market uses short-term transaction ordering heavily when reconciling trades. It's entirely possible to have a healthy market batched trades that all execute at the same unified price.
I'd say that you are assuming that optimizing for price is good, and presupposing how a market should be judged. Cheaper is good when it represents new innovation, less energy waste, and similar improvements. Cheaper can also mean cuts to wages and jobs, or a reduction in quality.
> There's absolutely nothing wrong with short selling
Leverage can be used for good, and sometimes it's used irresponsibly. As this thread's article demonstrates, short selling also creates systemic risk.
> trades used to cost way more due to wall street middle men taking a big cut of every trade
Eliminating middlemen and/or reducing transaction overhead costs do not require high frequency. You're seeing effects of technological improvements and better regulations. The same improvements also benefit "slow" trading.
> chart patterns
> getting rich with strategies as stupid simple as buy the 10 day high and sell the 10 day low
"Buy low, sell high." is the foundation of any successful trading strategy. HFT (when successful) is literally the same thing at much shorter time scales and improved heuristics. Machine learning can probably provide more detailed at a much finer-grain than a simple 10 day sliding window. Again, this does not require high speed.
> HFT is a sign of a healthy free market
It tells you little about the health of the market; HFT is a sign of a market uses short-term transaction ordering heavily when reconciling trades. It's entirely possible to have a healthy market batched trades that all execute at the same unified price.
> I'd say that you are assuming that optimizing for price is good,
No, capitalism assumes that. HFT traders offer a product to the free market, they sell liquidity and they do it cheaper than their old school competition, there are willing buyers, that is the only justification they require to exist.
> Leverage can be used for good, and sometimes it's used irresponsibly. As this thread's article demonstrates, short selling also creates systemic risk.
Leverage and short selling are different issues, that leverage can be dangerous is not a valid critique of short selling, you're trying to move the goalpost, this is a fallacious argument.
> Eliminating middlemen and/or reducing transaction overhead costs do not require high frequency.
No one said it did, however HFT does do that, which is what was claimed, so again, a fallacious and baseless critique.
> "Buy low, sell high." is the foundation of any successful trading strategy. HFT (when successful) is literally the same thing at much shorter time scales and improved heuristics. Machine learning can probably provide more detailed at a much finer-grain than a simple 10 day sliding window. Again, this does not require high speed.
Again, baseless critique, no one said it required HFT. HFT trading sells liquidity cheaper than those old school simple traders, the market chose HFT.
Do you have any actual critique of HFT, or do you simply presume it's bad and then employ fallacious arguments that X doesn't require HFT? You quite literally have added nothing to the conversation. That it's possible to have a healthy market without HFT is irrelevant, it asserts HFT is bad without evidence, HFT traders have the same right to trade that anyone else does, you don't just get to ban them because you don't like them without cause. That something still works without HFT is not evidence against HFT any more than the fact that I can still travel without a car is evidence against cars.
No, capitalism assumes that. HFT traders offer a product to the free market, they sell liquidity and they do it cheaper than their old school competition, there are willing buyers, that is the only justification they require to exist.
> Leverage can be used for good, and sometimes it's used irresponsibly. As this thread's article demonstrates, short selling also creates systemic risk.
Leverage and short selling are different issues, that leverage can be dangerous is not a valid critique of short selling, you're trying to move the goalpost, this is a fallacious argument.
> Eliminating middlemen and/or reducing transaction overhead costs do not require high frequency.
No one said it did, however HFT does do that, which is what was claimed, so again, a fallacious and baseless critique.
> "Buy low, sell high." is the foundation of any successful trading strategy. HFT (when successful) is literally the same thing at much shorter time scales and improved heuristics. Machine learning can probably provide more detailed at a much finer-grain than a simple 10 day sliding window. Again, this does not require high speed.
Again, baseless critique, no one said it required HFT. HFT trading sells liquidity cheaper than those old school simple traders, the market chose HFT.
Do you have any actual critique of HFT, or do you simply presume it's bad and then employ fallacious arguments that X doesn't require HFT? You quite literally have added nothing to the conversation. That it's possible to have a healthy market without HFT is irrelevant, it asserts HFT is bad without evidence, HFT traders have the same right to trade that anyone else does, you don't just get to ban them because you don't like them without cause. That something still works without HFT is not evidence against HFT any more than the fact that I can still travel without a car is evidence against cars.
"Leverage can be used for good, and sometimes it's used irresponsibly. As this thread's article demonstrates, short selling also creates systemic risk."
What critics of short selling are often unaware of is the role that short holdings play in dampening a market crash.
The act of unwinding your short position involves buying the stock which means that for every tick downward in stock price there is new upward pressure on the price as buyers step in to cover their short position.
Were these constant, ready buyers not extant, market downturns can turn into precipitous crashes very quickly.
What critics of short selling are often unaware of is the role that short holdings play in dampening a market crash.
The act of unwinding your short position involves buying the stock which means that for every tick downward in stock price there is new upward pressure on the price as buyers step in to cover their short position.
Were these constant, ready buyers not extant, market downturns can turn into precipitous crashes very quickly.
I should have used more specific language; I'm not trying to argue that short selling is "bad". The benefits - such as dampening a crashing market - are large enough to accommodate some risk. I'm primarily addressing the claim that, "There's absolutely nothing wrong with short selling". Ignoring small, acceptable risks is normalizing deviance[1].
[1] https://www.youtube.com/watch?v=PGLYEDpNu60
[1] https://www.youtube.com/watch?v=PGLYEDpNu60
There are plenty of people that have legitimate concerns about HFT or rather the mechanics they promote (frontrunning trades in particular).
HFT doesn't front run trades, that's a misconception and really just a way to slander HFT as evil. Calling their misconceptions legitimate is an abuse of language. Front-running is a crime, it has an actual meaning and you are misusing the term. Front-running is when a broker buys or sells using advanced knowledge of trades they're making on behalf of their clients, i.e. it is risk free and is theft. HFT does not front run their clients, they attempt to trade faster than their competition at risk, these are vastly different things and to call HFT front-running is dishonest slander.
There are no legitimate complaints against HFT trading that aren't simply misconceptions about what they do or how markets work.
There are no legitimate complaints against HFT trading that aren't simply misconceptions about what they do or how markets work.
Then call it what you want. It's running in front of other trades just that you do it on arbitrary trades and not the ones of your customer.
No, front running is risk free because it uses inside information, that's why it's illegal. Trying to trade faster than someone else is not risk free, requires guessing, is gambling, and is not illegal, and is thus not front running. What you're claiming is simply wrong. So please do explain why you think HFT is doing something wrong. It doesn't matter what we call it, you're claiming HFT is doing something they are not doing, they are making educated guesses and trading on that guess, same as any other legitimate trader.
There is no risk involved in HFT frontrunning. There is however an investment cost for having lower latency connections than others. There are no guesses. And not sure how what I'm claiming is wrong. This has been the entire reason why IEX exists.
> There is no risk involved in HFT frontrunning.
False. If there were no risk, it would be illegal, and your'e still tossing out that incorrect term without explanation as to what you mean by it since you clearly can't mean the illegal practice of front-running that we've already agreed they aren't doing.
> There is however an investment cost for having lower latency connections than others.
Not relevant.
> There are no guesses.
False.
> And not sure how what I'm claiming is wrong.
Because it's simply not true. Once again, you've ignored my question, you still cant' explain what HFT's are doing wrong, my guess is because you don't actually know what you're criticizing so you toss out flash boy hyperbole like front-running without actually being able to explain what you mean.
> This has been the entire reason why IEX exists.
The IEX exists as a reaction to traders who were displaced by HFT creating a desire for an exchange that doesn't allow it; it in no way proves HFT is doing anything wrong. It's nothing more than marketing capitalizing on fear to establish a new exchange, perfectly legal, but it doesn't make the irrational fear against HFT legitimate.
False. If there were no risk, it would be illegal, and your'e still tossing out that incorrect term without explanation as to what you mean by it since you clearly can't mean the illegal practice of front-running that we've already agreed they aren't doing.
> There is however an investment cost for having lower latency connections than others.
Not relevant.
> There are no guesses.
False.
> And not sure how what I'm claiming is wrong.
Because it's simply not true. Once again, you've ignored my question, you still cant' explain what HFT's are doing wrong, my guess is because you don't actually know what you're criticizing so you toss out flash boy hyperbole like front-running without actually being able to explain what you mean.
> This has been the entire reason why IEX exists.
The IEX exists as a reaction to traders who were displaced by HFT creating a desire for an exchange that doesn't allow it; it in no way proves HFT is doing anything wrong. It's nothing more than marketing capitalizing on fear to establish a new exchange, perfectly legal, but it doesn't make the irrational fear against HFT legitimate.
The explain what the risk is.
I did not say HFT is good or bad. I pointed out that not everybody likes it or benefits.
I did not say HFT is good or bad. I pointed out that not everybody likes it or benefits.
The risk is the same risk any other trader takes, they predict price will go one direction based on data they've seen elsewhere and it turns out they're wrong, or the misjudged the volume. HFT is not risk free, you're claiming it is is simply not based in reality, ask any of the many HFT firms that have gone bankrupt how risky HFT is. Claiming someone is trading risk free is essentially accusing them of a crime, where's your evidence to back up this slander?
Once again, you've ignored my question, you still cant' explain what HFT's are doing wrong. It doesn't matter that some people don't like them when those people can't even rationally explain why they don't like them. You still can't explain why you don't like them without falling back on false facts and I've asked many times.
Once again, you've ignored my question, you still cant' explain what HFT's are doing wrong. It doesn't matter that some people don't like them when those people can't even rationally explain why they don't like them. You still can't explain why you don't like them without falling back on false facts and I've asked many times.
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Healthy competition optimizes for value, HFT is just optimizing for profit. These are not the same. It's paperclip maximizing, using an economic Maxwell's demon.
> Healthy competition optimizes for value, HFT is just optimizing for profit.
Value is measured by profit, if what the HFT's were offering was of no value, there would be no profit in it as no one would buy their liquidity. HFT sell liquidity, that there are willing buyers proves their value. Quite simply, you do not know what you are talking about.
Value is measured by profit, if what the HFT's were offering was of no value, there would be no profit in it as no one would buy their liquidity. HFT sell liquidity, that there are willing buyers proves their value. Quite simply, you do not know what you are talking about.
> HFT is just optimizing for profit
And low-frequency trading isn't?
And low-frequency trading isn't?
Short selling is an incredibly important piece of any reasonable stock exchange. It also dates back to 1609 so it's not exactly a new technological innovation.
https://en.wikipedia.org/wiki/Short_(finance)
https://en.wikipedia.org/wiki/Short_(finance)
From the very article you reffered to me :
Short sellers were blamed for the Wall Street Crash of 1929.[15] Regulations governing short selling were implemented in the United States in 1929 and in 1940.[citation needed] Political fallout from the 1929 crash led Congress to enact a law banning short sellers from selling shares during a downtick; this was known as the uptick rule, and this was in effect until 3 July 2007 when it was removed by the Securities and Exchange Commission (SEC Release No. 34-55970).
So one is actually entitled to wonder if regulations are not needed. While the article fail to explain categorically in which way it is "incredibly important".
Short sellers were blamed for the Wall Street Crash of 1929.[15] Regulations governing short selling were implemented in the United States in 1929 and in 1940.[citation needed] Political fallout from the 1929 crash led Congress to enact a law banning short sellers from selling shares during a downtick; this was known as the uptick rule, and this was in effect until 3 July 2007 when it was removed by the Securities and Exchange Commission (SEC Release No. 34-55970).
So one is actually entitled to wonder if regulations are not needed. While the article fail to explain categorically in which way it is "incredibly important".
There's a really big difference between blaming short sellers for the crash, and short sellers actually being the cause for the crash. Short sellers got blamed, but weren't necessarily at fault. There's a further implication that the crash is the cause for the Great Depression, which is likewise fairly unfounded.
If there was short selling that could have been blamed for the crash of 1929 it was what is known as a naked short selling. Since non-market making short selling now requires having a locate, it is impossible to sell short more shares that one can reasonably borrow.
I wouldn't call your views "left wing", just a bit ignorant of market theory, history, and practice.
I mean, the Dutch Tulip Bubble was driven by derivatives (and in particular, a law change forced by the politically connected that retroactively changed some future contracts into option contracts), so if you're looking for some halcyon age prior to "complex products", bailouts, and people using lobbying to reap outsize profits, you're apparently thinking of the 1500s, if not earlier. :)
Similarly, short selling is integral to markets correctly performing their role of allocating investment. Saying "we should ban this thing required for A to work so we can get back to having A work" is...not a compelling argument.
I mean, the Dutch Tulip Bubble was driven by derivatives (and in particular, a law change forced by the politically connected that retroactively changed some future contracts into option contracts), so if you're looking for some halcyon age prior to "complex products", bailouts, and people using lobbying to reap outsize profits, you're apparently thinking of the 1500s, if not earlier. :)
Similarly, short selling is integral to markets correctly performing their role of allocating investment. Saying "we should ban this thing required for A to work so we can get back to having A work" is...not a compelling argument.
Ok so how on earth does the fact that derivatives permitted the tulip Bubble is an argument in favor of derivatives?
It might a question of point of view. Maybe you focus more on tulip frenzy financial opportunities while I focus more on people that have been burned by it...
And yeah if you want to trace it back to 1500 no problem with that, old does not always equal good. It like copyright laws written prior to widespread of computers. Is it right to let them unchanged because they are old while humankind could technically share knowledge and arts at a scale never envisioned just 10 years ago?
It might a question of point of view. Maybe you focus more on tulip frenzy financial opportunities while I focus more on people that have been burned by it...
And yeah if you want to trace it back to 1500 no problem with that, old does not always equal good. It like copyright laws written prior to widespread of computers. Is it right to let them unchanged because they are old while humankind could technically share knowledge and arts at a scale never envisioned just 10 years ago?
> Ok so how on earth does the fact that derivatives permitted the tulip Bubble is an argument in favor of derivatives?
It's not, not was I making an argument in favour of derivatives. (I'm generally in favour of them; I just wasn't making that argument.)
Rather, I was responding to your argument, which I would paraphrase (I hope not unfairly) as "I hate these new inventions, we should go back to before they existed, when markets worked properly!" by which I suspect you meant the 1950s, but really it's the 1550s. :) (And given how different markets were back then, I'd even go further and say there has never been a time when markets worked the way you imagine. I'm not even sure they could.)
In short, if you don't understand the history of financial markets, your conclusions based on your flawed understanding of that history will have greatly diminished value.
> old does not always equal good
Quite right. But it's very different to say "the last 500 years have been a mistake" versus "the last 50 years" or (especially) "the last 5 years". For one thing, it's a lot harder to imagine the counterfactual.
I can guess what the world would be like if the Gramm–Leach–Bliley Act had never passed (probably very similar to the current day, but again, that's a separate argument); I can't imagine what the world would be like without derivatives, because they have been a part of the past 500 years of development of our economy, laws, and culture. A change of that magnitude requires extraordinary justification.
It's not, not was I making an argument in favour of derivatives. (I'm generally in favour of them; I just wasn't making that argument.)
Rather, I was responding to your argument, which I would paraphrase (I hope not unfairly) as "I hate these new inventions, we should go back to before they existed, when markets worked properly!" by which I suspect you meant the 1950s, but really it's the 1550s. :) (And given how different markets were back then, I'd even go further and say there has never been a time when markets worked the way you imagine. I'm not even sure they could.)
In short, if you don't understand the history of financial markets, your conclusions based on your flawed understanding of that history will have greatly diminished value.
> old does not always equal good
Quite right. But it's very different to say "the last 500 years have been a mistake" versus "the last 50 years" or (especially) "the last 5 years". For one thing, it's a lot harder to imagine the counterfactual.
I can guess what the world would be like if the Gramm–Leach–Bliley Act had never passed (probably very similar to the current day, but again, that's a separate argument); I can't imagine what the world would be like without derivatives, because they have been a part of the past 500 years of development of our economy, laws, and culture. A change of that magnitude requires extraordinary justification.
I suspect it is even older than 1550s. I'm a farmer with land who needs seed. Another farmer is willing to front me seed in exchange for grain in the fall. That is a contract.
His point was it isn't a technological improvement, it's something that's existed for hundreds of years, he didn't claim they were good.
Simple derivatives like calls and puts are unbannable.
Observe that I can replicate the payoff of a call option by borrowing money to buy the stock [1] or replicate a put by shorting a stock and lending money.
[1] http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/optionb...
Observe that I can replicate the payoff of a call option by borrowing money to buy the stock [1] or replicate a put by shorting a stock and lending money.
[1] http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/optionb...
But it's way more risky cause you could end up loosing more than the price of the option.
Thus people would be more careful which is an improvement in my point of view.
Re-establishing the uptick rule would be a middle ground between banning totally and current speculative frenzy.
Thus people would be more careful which is an improvement in my point of view.
Re-establishing the uptick rule would be a middle ground between banning totally and current speculative frenzy.
No, you can replicate the option exactly if you keep re-weighting the debt and stock ownership.
Granted, this is only really feasible for large institutional investors, but you can do it.
Granted, this is only really feasible for large institutional investors, but you can do it.
These types of valuations are exactly where we need short selling. There's no logical way to put downward pressure on these cryptos because the liquidity is impossibly thin and there's no real way to short them.
Or it's simply that people that invest in overrated value will get burned someday, instead of randomly anybody due to natural fluctuation being amplified by bots.
For exemple just look at the shape of AAPL in the long run, instead of a steady curve associated with profit growth, you have an unstable mess for no reason. And people that place selling stop (that brokers recommand because they it's "safer") happens to sell/buy at worst possible moment. And this is where profit from HFT actually comes... Not thin air random people getting burned.
If investing in a company mean more thinking because you could effectively bein burned by investing in bad stock I call that the normal state. Because currently the mindset of trader is more that even if it's non-sensical to invest in Unicorn-ass-corp, it still worth supporting it because they can make profits with options anyway as long as there is movement.
For exemple just look at the shape of AAPL in the long run, instead of a steady curve associated with profit growth, you have an unstable mess for no reason. And people that place selling stop (that brokers recommand because they it's "safer") happens to sell/buy at worst possible moment. And this is where profit from HFT actually comes... Not thin air random people getting burned.
If investing in a company mean more thinking because you could effectively bein burned by investing in bad stock I call that the normal state. Because currently the mindset of trader is more that even if it's non-sensical to invest in Unicorn-ass-corp, it still worth supporting it because they can make profits with options anyway as long as there is movement.
> Maybe I'm too "left wing", but if you ask me short selling, complex products and high frequency trading are among technological "improvements" that have led actual stock exchange to an ugly mess where biggest profits are made by "scamming" efficiently other users
Short selling is what keeps the cheerleaders in check.
Short selling is what keeps the cheerleaders in check.
This. The market is supposed to be about circulating information (not necessarily making everyone well-off or saving San Francisco's Castro District or, or, or). And information that something might be overvalued is valuable information.
I'm not radically against regulation -- precisely because too often there are information asymmetries that markets (not only in capital but labor, consumer goods, etc.) can't penetrate -- but most people who think market economics should make things good (and be repressed otherwise) also think reality can be sustainably manipulated by good will, hope and faith in unicorns.
I'm not radically against regulation -- precisely because too often there are information asymmetries that markets (not only in capital but labor, consumer goods, etc.) can't penetrate -- but most people who think market economics should make things good (and be repressed otherwise) also think reality can be sustainably manipulated by good will, hope and faith in unicorns.
> me short selling ... are among technological "improvements"
that's why, to protect the pensions and savings of its citizens from a catastrophic collapse in equity markets a couple of years ago, the chinese government decided to ban short selling. up and up and up, baby!
i think the government should go one step further, and prevent anyone from selling stock lower than the price they paid for it. guaranteed profit for everyone!
that's why, to protect the pensions and savings of its citizens from a catastrophic collapse in equity markets a couple of years ago, the chinese government decided to ban short selling. up and up and up, baby!
i think the government should go one step further, and prevent anyone from selling stock lower than the price they paid for it. guaranteed profit for everyone!
They are just exploring the solution space, with minimal baggage to hold them back. The real problem, is that people are trying to make a living off of something that is still experimental / alpha level maturity.
Seems like the people who do understand banking history are unwilling or unable to make any kind of improvements, at least in regards to the issues that digital currencies are working to address.
Seems like the people who do understand banking history are unwilling or unable to make any kind of improvements, at least in regards to the issues that digital currencies are working to address.
Sure, but their youthful experiments are involving billions of dollars worth of money. Or at least they claim it does.
And why is so much money getting dumped into these constructs? AFAIK, it is speculators that are inflating that economy, not the coin devs hyping it as an investment.
If it's any consolation, money doesn't disappear, it just becomes someone else's. It's still in the economy. Think of it as an overpriced research project, that the media went nuts over.
If it's any consolation, money doesn't disappear, it just becomes someone else's. It's still in the economy. Think of it as an overpriced research project, that the media went nuts over.
If you swap out "the coin devs" for "Ty Inc.", then your comment would be relevant about Beanie Babies.
But if it works...
Not sure if there are billions of dollars involved. For all we know, it could be just speculators trading crypto between each other.
I could not find any stats on the amount of fiat flowing in and out of these "exchanges", which, by the way, have zero oversight and tend to disappear every few months or so.
I could not find any stats on the amount of fiat flowing in and out of these "exchanges", which, by the way, have zero oversight and tend to disappear every few months or so.
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> But BTC hasn't really lost any value since the spinoff, still trading at about $2,700. So just before the spinoff, if you had a bitcoin, you had a bitcoin worth about $2,700. Now, you have a BTC worth about $2,700, and also a BCH worth as much as $700. It's weird free money, if you owned bitcoins yesterday.
Doesn't this throw up any red-flags to the btc/crypto apologist? This type of behavior is not how healthy markets work.
Doesn't this throw up any red-flags to the btc/crypto apologist? This type of behavior is not how healthy markets work.
If you're thinking of this event as a split, dividend, or spinoff, then it doesn't make sense. But it's more like a company cloning itself but adopting a different vision/mission, and awarding shares to all existing shareholders.
They could have started fresh like the zillion other cryptocurrencies that have started up since 2009, some of which appear to have real value. You wouldn't look askance at those, at least from a healthy-market perspective. The only difference here is they distributed initial currency fairly perfectly to the best possible audience of Bitcoin fanatics -- without a single spam email!
Cloning a company makes no sense in the physical world. But when it's a purely digital asset, it can be copied very cheaply.
Why isn't this zero-sum? Because it increases the TAM, rather than competing with its doppelganger in a saturated market. Maybe one ends up killing the other, but for now there's room for both.
They could have started fresh like the zillion other cryptocurrencies that have started up since 2009, some of which appear to have real value. You wouldn't look askance at those, at least from a healthy-market perspective. The only difference here is they distributed initial currency fairly perfectly to the best possible audience of Bitcoin fanatics -- without a single spam email!
Cloning a company makes no sense in the physical world. But when it's a purely digital asset, it can be copied very cheaply.
Why isn't this zero-sum? Because it increases the TAM, rather than competing with its doppelganger in a saturated market. Maybe one ends up killing the other, but for now there's room for both.
> it's more like a company cloning itself but adopting a different vision/mission, and awarding shares to all existing shareholders.
And that doesn't sound... insane to you? I mean, skipping the problems with physics where a "split" company would have to clone its employee talent pool as well: such a company would share the same products and the same markets and the same sales channels and have zero share of all of those at the start. And you're saying that a "healthy market" would be expected to bid up shares of that crazy reincarnated zombie company thing to like 20% or whatever of the original value? Based on "different mission"?
This is crazy, and I want no part of it. The coin community is literally inventing phantom cash and pretending like there's no bubble. How often has that been true in history?
And that doesn't sound... insane to you? I mean, skipping the problems with physics where a "split" company would have to clone its employee talent pool as well: such a company would share the same products and the same markets and the same sales channels and have zero share of all of those at the start. And you're saying that a "healthy market" would be expected to bid up shares of that crazy reincarnated zombie company thing to like 20% or whatever of the original value? Based on "different mission"?
This is crazy, and I want no part of it. The coin community is literally inventing phantom cash and pretending like there's no bubble. How often has that been true in history?
Looks like you vapor-locked on the physical/digital point before you finished reading.
Let's stay with purely digital. There's an app on your phone that you bought for $1, which seemed like a fair deal to you at the time -- you paid $1 for something you thought was worth $1.
The author adds a feature to the app. You like the feature, and now if someone asked you what the app were worth to you, you'd say $2. In effect, a dollar of value just appeared out of thin air. No magic needed so far for this to happen, I hope.
Same situation but you don't care about the feature -- it's something you don't personally use. But now new buyers are more interested in the app, so more people pay $1 for it. Again, some extra wealth got created just by coding up the new feature. Bubble? New paradigm? It's different this time? Nope.
A new feature got added to Bitcoin. The market says it's more valuable now.
Let's stay with purely digital. There's an app on your phone that you bought for $1, which seemed like a fair deal to you at the time -- you paid $1 for something you thought was worth $1.
The author adds a feature to the app. You like the feature, and now if someone asked you what the app were worth to you, you'd say $2. In effect, a dollar of value just appeared out of thin air. No magic needed so far for this to happen, I hope.
Same situation but you don't care about the feature -- it's something you don't personally use. But now new buyers are more interested in the app, so more people pay $1 for it. Again, some extra wealth got created just by coding up the new feature. Bubble? New paradigm? It's different this time? Nope.
A new feature got added to Bitcoin. The market says it's more valuable now.
It's no different than all the third world countries inventing phantom cash every time they trot out a new currency because the old one suffered astronomical inflation.
All money is funny money. The US government regularly invents phantom cash out of thin air in order to maintain the desired 3% annual inflation. That's hundreds of billions of dollars every year that just poof into existence.
I'm basically with you though, but just out of having not had any need for it yet.
If a need arises, I'll get some just like I had to get 8 different currencies while traveling Europe before the EU. Those leftover bills feel pretty much like funny money to me. There are lots of people who would trade me US currency for them, but I still subjectively value them as basically worthless because ... well it doesn't really matter why (truth is, I'm too lazy/"busy" to go to the bank).
The value of a currency, any currency, (like any other object) is subjective to the holder.
All money is funny money. The US government regularly invents phantom cash out of thin air in order to maintain the desired 3% annual inflation. That's hundreds of billions of dollars every year that just poof into existence.
I'm basically with you though, but just out of having not had any need for it yet.
If a need arises, I'll get some just like I had to get 8 different currencies while traveling Europe before the EU. Those leftover bills feel pretty much like funny money to me. There are lots of people who would trade me US currency for them, but I still subjectively value them as basically worthless because ... well it doesn't really matter why (truth is, I'm too lazy/"busy" to go to the bank).
The value of a currency, any currency, (like any other object) is subjective to the holder.
Some of us remember way back when the crypto dorks were claiming that bitcoin would be the first unfunny money :)
Why do you say "zero share" of the same sales channels? It's literally the exact same audience/"customers" as BTC. 100% share.
A spin-off (or more correctly, demerger) is almost exactly what you describe: a company cloning itself but adopting a different vision/mission, and awarding shares to all existing shareholders.
With companies it is usually done with a particular division, or business area - but in the case of an anti-trust settlement (go and compete with yourself) it would be exactly what you describe and be implemented as a demerger.
With companies it is usually done with a particular division, or business area - but in the case of an anti-trust settlement (go and compete with yourself) it would be exactly what you describe and be implemented as a demerger.
Except even people not owning shares in the company can split it.
Could be that people are more confident in BTC after they decided to do something about the slow confirmations. As in the value of the original Bitcoin jumped at the time of the split but was offset by the split.
Also possible that the split generated free publicity that made some people invest in it.
Also possible that the split generated free publicity that made some people invest in it.
Regular stocks almost always go up after a split, due to price anchoring. Doesn't that throw up a red flag about the stock market? That's not how healthy markets work...
Seriously, though, there's all sorts of weird psychological stuff like that going on in all markets. This isn't really any stranger. (Plus, the $700 seems to be illusory. Hardly anyone (or no one) managed to sell them at that price.)
Seriously, though, there's all sorts of weird psychological stuff like that going on in all markets. This isn't really any stranger. (Plus, the $700 seems to be illusory. Hardly anyone (or no one) managed to sell them at that price.)
I don't know if I count as a Bitcoin apologist, but I'm intrigued why you would say so?
If I gave away a tulip bulb so every Alphabet shareholder, would that diminish the value of Google stock? What if I gave away a sports car?
It's weird free money, sure, but that's because someone is willing to speculate against you. The reason it's initially given away instead of sold is marketing. There are new coins being made every week and you have to stand out.
I don't see any more red flags than with every other altcoin out there. If anything the fact that Bitcoin value hasn't changed means the market doesn't value this new coin very much. It's unfortunate that Levine repeats the $700 value because it's not possible to trade in the open market yet.
If I gave away a tulip bulb so every Alphabet shareholder, would that diminish the value of Google stock? What if I gave away a sports car?
It's weird free money, sure, but that's because someone is willing to speculate against you. The reason it's initially given away instead of sold is marketing. There are new coins being made every week and you have to stand out.
I don't see any more red flags than with every other altcoin out there. If anything the fact that Bitcoin value hasn't changed means the market doesn't value this new coin very much. It's unfortunate that Levine repeats the $700 value because it's not possible to trade in the open market yet.
There is at least one viable theory that says that by removing the risk of an "even bigger problem" (malicious rollbacks and double spends caused by warring miners battling over a single chain, etc), and by allowing all camps to pursue their vision in relative peace, the BCH fork has legitimately increased the value of the Bitcoin* ecosystem. Perhaps a case of the baby being worth more now that it's been successfully cut in half.
> This type of behavior is not how healthy markets work.
You cannot deposit Bcash in any exchanges. Make sense now?
You cannot deposit Bcash in any exchanges. Make sense now?
The market expected BTC to fall by about as much as BCH increased. It did not. The market was wrong by about ~25%. At least in that moment.
That is a massive jump in a very short period of time.
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The market expected BTC to fall by about as much as BCH increased.
How can that be measured?
How can that be measured?
I really don't see how this fork is going to go down as anything other than a boondoggle. Right now the value of BCC is being propped up by having almost no way to actually sell it, but once an actual market opens I fully expect its price to crash hard.
This also explains where the "missing" (negative) value actually exists: in non-tradable BCC.
This is pretty funny though - it turns out that you don't need to control 50% of the mining pool to mess with it - you only need enough to start a half-credible fork that presents BTC holders with enough paper-losses to make them angry and potentially expose exchanges to lawsuits.
This is pretty funny though - it turns out that you don't need to control 50% of the mining pool to mess with it - you only need enough to start a half-credible fork that presents BTC holders with enough paper-losses to make them angry and potentially expose exchanges to lawsuits.
You can say the value of BTC was propped yesterday by that logic too since many exchanges froze transactions.
BCC is far from pointless since it serves those who have a different ideology. Whether it remains as valuable is uncertain. Whether it is already valuable to some, is clear.
BCC is far from pointless since it serves those who have a different ideology. Whether it remains as valuable is uncertain. Whether it is already valuable to some, is clear.
This line of argument makes little sense. In the markets that do offer a way to buy and sell it, there's still a market setting the price. This idea that there will be totally different market forces at work once more people have access to the market is silly. I would not buy a $400 BCH today if I wasn't also willing to buy a $400 BCH when transaction volume is 1000x what it is now. If anything the fact that there's not an insane selling frenzy from those "lucky enough" to have access to their BCH on an exchange shows that there's a real demand for BCH as a currency.
There seems to be a lot of propaganda out there trying to marginalize and minimize Bitcoin Cash. The belief that literally everyone will instantly sell their BCH as soon as they can seems to be one of the messages of that propaganda rather than a reflection of reality.
There seems to be a lot of propaganda out there trying to marginalize and minimize Bitcoin Cash. The belief that literally everyone will instantly sell their BCH as soon as they can seems to be one of the messages of that propaganda rather than a reflection of reality.
People who want to buy BCH have relatively unrestricted access to the market since most of the exchanges have reopened BTC deposits. (Of course, whether they can withdraw that BCH is another story entirely.) Most people who want to sell do not have access since BCH deposits are either not available or require multiple days worth of confirmations. Can you see the problem here?
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You're saying that people buying BCH right now aren't aware that there's a huge glut of supply waiting to flood the market, and aren't taking this into account in their buying decisions?
There is no need for anyone to have BCH in hand today, no reason for someone to value a BCH today more than a BCH in a week. If they thought that thousands of people selling BCH once they are able will lead to a drop in price, they would just buy at the lower price.
There is no need for anyone to have BCH in hand today, no reason for someone to value a BCH today more than a BCH in a week. If they thought that thousands of people selling BCH once they are able will lead to a drop in price, they would just buy at the lower price.
I think the average cryptocurrency trader is much lower-information than you are estimating.
There are hundreds of rubes who see "Bitcoin Cash" and think that because it suddenly jumped to the 3rd largest cryptocurrency by market cap, lots of people are talking about it, and its cheaper than Bitcoin, this could be their chance to get the elusive short-term 3x+ crypto ROI. Many of these people have no concept of the locked supply.
I'd estimate that roughly 1/4 of buyers are informed BCH proponents, the other 3/4 are low-information get-rich-quick hopeful speculators.
There are hundreds of rubes who see "Bitcoin Cash" and think that because it suddenly jumped to the 3rd largest cryptocurrency by market cap, lots of people are talking about it, and its cheaper than Bitcoin, this could be their chance to get the elusive short-term 3x+ crypto ROI. Many of these people have no concept of the locked supply.
I'd estimate that roughly 1/4 of buyers are informed BCH proponents, the other 3/4 are low-information get-rich-quick hopeful speculators.
Pretty much. BCH bulls who find out about the supply issue have been assuming that it can't be that much of a big problem, that most people who wanted to sell must've done so by now anyway, and of course there's no way to tell how much supply is actually locked up. BCH bears are mostly irrelevant to the price since, unless they expected it to be worth enough to justify locking their BTC in less reputable exchanges during the fork, they can't actually sell yet. Anyone who isn't following the online discussions closely probably simply doesn't know about this - the news articles I've seen haven't mentioned that issue, and it took many hours for this information to even percolate through the discussions. Claims like "3rd largest cryptocurrency by market cap" have been a lot more prominent everywhere. (Also, if you want an idea of what BCH supporters are thinking right now, the front page r/btc is currently a good place to look.)
There's thousands of people like me checking every minute if we can deposit bch to sell. There's millions waiting and I'm hoping to be the first.
Fair enough, we'll all find out in due course. The constant flow of comments where people are trying to equate this particular hard fork (the end result of a very long and messy civil war) with any old Joe creating his own BTC fork is clearly just grinding my gears a little too much. There's a reason to expect BCH to end up as more than just a boondoggle (to the extent that any cryptocurrency can be said to be more than just a boondoggle): Bitcoin with larger blocks has been desired by many people for a very long time.
I'd guess a lot of the BCH volume is from well informed momentum traders riding the volatility wave.
The "it's priced in" argument doesn't hold for in my experience. The halving was supposedly "priced in" as well. This is still a small market with inexperienced players.
> You're saying that people buying BCH right now aren't aware that there's a huge glut of supply waiting to flood the market, and aren't taking this into account in their buying decisions?
Why do you think buyers even exist right now... with the tiny amounts available it's just as likely that it's a few people painting the ticker trading with themselves at more or less arbitrarily high prices.
Why do you think buyers even exist right now... with the tiny amounts available it's just as likely that it's a few people painting the ticker trading with themselves at more or less arbitrarily high prices.
The volumes purchased are very low so far, it is relatively easy and cheap for a whale to manipulate the price.
So I'm not a bitcoin nor market expert but jandrese laid down his opinion, which sounded like it made sense to me. I was hoping for a well informed response but your comment just reads like you wanted to call names versus explain your reasoning why you think jandrese's argument doesn't make sense.
Perhaps's that's not what you intended but if you had an explanation for why parent's response doesn't work I'd love to read it.
Perhaps's that's not what you intended but if you had an explanation for why parent's response doesn't work I'd love to read it.
My point is that there is no driver for the price to crash. There will not suddenly be a surprise supply of BCH found that will flood the market. Everyone knows that there is 1 BCH for every BTC out there, and that almost none of that is currently able to be exchanged on a market. That includes every single person who is driving up the price of BCH by purchasing it in the limited markets where it is available.
People trading BTC for USD seem to think otherwise. The BCH fork had no serious impact on the value of BTC. Holders of BTC are not confident that BCH will be successful.
Yet, if we were to take BCH's $400/coin at face value, then splitting BTC into BCH just created $340 of value, per coin in existence.
If I gave everyone who currently had a US dollar a 'Vkou-dollar', would I have created even a penny of value? What if there was one exchange, where Vkou-dollars were trading at 20 cents (With no liquidity)? Would you accept that valuation uncritically?
If so, I'm looking for a co-founder.
Yet, if we were to take BCH's $400/coin at face value, then splitting BTC into BCH just created $340 of value, per coin in existence.
If I gave everyone who currently had a US dollar a 'Vkou-dollar', would I have created even a penny of value? What if there was one exchange, where Vkou-dollars were trading at 20 cents (With no liquidity)? Would you accept that valuation uncritically?
If so, I'm looking for a co-founder.
Having Big Blockers off on their own chain instead of causing headaches for the Bitcoin legacy chain is probably increases the value of BTC by about 15%, so the math works out. (I'm being a little flippant here, but on a serious note we have no idea how the value of BTC was affected because 15% daily swings aren't something anyone even bats an eye at anymore.)
Multiple large holders have publicly said they'll dump their BCH. Grayscale, plenty of others have made their trading preference public. Of course that's not the same as hearing the market and putting your money where you mouth is- but right now the market is being restricted due to deposit issues.
Grayscale also seems to have chosen Ethereum Classic. Interesting tastes.
Interesting. I don't understand how all of the BCH and BTC stuff works so I guess I should read up on it but thanks for further explaining your position :)
There's thousands of people like me checking every minute if we can deposit bch to sell. There's millions waiting and I'm hoping to be the first..
We've seen the same thing play out time and again when deposits or withdrawals are prevented on an exchange- the order book gets eaten through.
Not trying to minimize BCH, but if you don't see that, look at what happened when people had trouble withdrawing from Gox, or when BitFinex had issues with USD withdrawals. It leads to pressure on the price.
Not trying to minimize BCH, but if you don't see that, look at what happened when people had trouble withdrawing from Gox, or when BitFinex had issues with USD withdrawals. It leads to pressure on the price.
I always really enjoy Matt Levine's columns in Bloomberg. Very detailed and technical but always very carefully explained and readable.
You're probably subscribed to his newsletter then, it's the only newsletter in my inbox.
Good call. I've only ever read this and, interestingly, the semi-related Dole article, but they were both superb. Subscribed.
Don't miss out on the incredible "Arbitrage Discovered", one of the best things he has ever written: https://www.bloomberg.com/view/articles/2015-02-27/arbitrage...
I want to hear the epilogue to that story, but disappointingly the story seems to have gone quiet since it was reported.
Is Max-Hervé George still making 68% ROI per year at Aviva's expense? Did Aviva weasel out of it? Did they pay him off at a level he deemed acceptable? Did they go with the economical alternative of hiring a hit-man?
Is Max-Hervé George still making 68% ROI per year at Aviva's expense? Did Aviva weasel out of it? Did they pay him off at a level he deemed acceptable? Did they go with the economical alternative of hiring a hit-man?
> To use an imperfect analogy from corporate finance, you could think of the fork as a spinoff. For most of PayPal’s life, it was owned by eBay. Holders of the EBAY ticker owned the parent company eBay, which encompassed eBay proper as well as PayPal. On the day of the spinoff, eBay stockholders received, for each EBAY share they owned, one PYPL share. At the same time, they got to keep their existing EBAY shares.
This is a misleading analogy, because EBAY holders can only be granted PYPL shared because EBAY owned PYPL. So unless BCH was an existing entity before the fork, which was covered under BTC already, this analogy doesn’t capture what happened here.
We’re not talking about companies, were talking about distributed databases. Databases contain information, and can be copied, as opposed to a company. A better analogy would be someone scraping Twitter, making a copy called Twooter with all past tweets from Twitter, and then forking off from there with their own “twoots”. In other words: it’s a copy, not a stock split.
This is a misleading analogy, because EBAY holders can only be granted PYPL shared because EBAY owned PYPL. So unless BCH was an existing entity before the fork, which was covered under BTC already, this analogy doesn’t capture what happened here.
We’re not talking about companies, were talking about distributed databases. Databases contain information, and can be copied, as opposed to a company. A better analogy would be someone scraping Twitter, making a copy called Twooter with all past tweets from Twitter, and then forking off from there with their own “twoots”. In other words: it’s a copy, not a stock split.
Yeah if you were paying attention to the short vs long interest for BTC on Bitfinex right before the hard fork, BTC shorts went up like crazy and everyone thought ppl were hyper bearish on BCH. It was actually because ppl were pulling this funny business to get free BCH from Bitfinex.
Hedging against a clearly inflated asset is "funny business"?
The funny business is that people were creating a position guaranteed to pay out free money, assuming bitfinex actually followed their own policy.
That's not true, I performed calculations beforehand to decide whether it was more profitable to hold BTC in the margin wallet as opposed to other assets (which I knew would rise after the fork). The core question is whether altcoins would rise more than the price ratio of BCH/BTC. Alts went up 20% while BCH/BTC is ~0.15, meaning you were better off skipping the BCH altogether and just holding alts. The tradeoff is the increased risk.
This would have been so much more fun if the contracts were all smart contracts using Ethereum.
How would you set up a btc lending (for shorts) contact with eth?
If you created a 2-way pegged bitcoin ERC20 token, you could use something like EthLend.
Excuse my ignorance, but this seems like the obvious solution to me:
Distribute 1 BCH to each (actual) BTC holder on the exchange, completely ignore margin orders. So shorts don't owe and also longs aren't credited BCH.
Fair and no way to game. Why aren't exchanges doing this?
Fair and no way to game. Why aren't exchanges doing this?
There's no such thing as "actual" BTC holder. All the BTCs in the exchange are fungible. A holder of BTC doesn't know if that BTC was loaned to someone else or not.
In a sense, what you suggest is exactly what the exchange did: They calculated the number of "actual" BTCs in the exchange, and split the appropriate number of BCHs evenly among everyone.
In a sense, what you suggest is exactly what the exchange did: They calculated the number of "actual" BTCs in the exchange, and split the appropriate number of BCHs evenly among everyone.
What in your mind is the difference between "Holders" and "longs"? They're the same thing. Holding an asset is being long on that asset, just as being short on an asset is owing that asset.
It makes sense to me, I might be wrong.
Random: there two YouTube live streams during the fork - WorldCryptoNetwork and Cryptoverse - both with 3000+ liveviewers - both featured on YouTube home page in technology section.
Massive event!
Random: there two YouTube live streams during the fork - WorldCryptoNetwork and Cryptoverse - both with 3000+ liveviewers - both featured on YouTube home page in technology section.
Massive event!
So I had some bitcoins at time of the fork. Do I have the other new coins as well? How can I spend, sell or buy them? Is there a multibit for bitcoin cash?
IT depends. If you own your keys, then yes, you have an equal number of BCH now. If you don't it's up to your exchange to decide if they will support the fork, and therefore, weather or not you now have an equal number of BCH.
Yes, but it's hard to trade them right now unless you had Bitcoins in an exchange that auto-balanced at the time of the fork.
There are some new wallets that support BitcoinCash, but being new, they are not trusted yet. Here's the official procedure to safely use the Electrum Cash (fork) wallet according to the non-fork creators: https://electrum.org/bcc2.txt
Even after you do that, most exchanges are not yet supporting importing BitcoinCash into their accounts. Once everyone is able to do so, the price is expected to tank. I guess we'll see...
There are some new wallets that support BitcoinCash, but being new, they are not trusted yet. Here's the official procedure to safely use the Electrum Cash (fork) wallet according to the non-fork creators: https://electrum.org/bcc2.txt
Even after you do that, most exchanges are not yet supporting importing BitcoinCash into their accounts. Once everyone is able to do so, the price is expected to tank. I guess we'll see...
did you have it on a wallet online or in a wallet you created with a software locally?
if its locally created, then good news. you should download Electron Cash and import the existing wallet and you shall see your BCCs.
Should I sell my BCC so I can collect the cash in case it fails? And then assume I will still have my BTC..
If you don't want to own BCC, and you don't expect it to rise in price, you should sell it.
The same can be said for everything you own.
The same can be said for everything you own.
That's a common question right now. So is, "should I sell my BTC in case it fails, and assume I will still have BCH?" The market might help you make that decision when the exchanges open BCH withdrawals and deposits.
If you had those coins on Bitfinex or Kraken then yes your account will have an equal amount of BCC. As they are on your exchange account, you can trade them for BTC and go about spending those the usual way. You can also withdraw BCC but it'd take days.
you do have the new coins now. you load them into a wallet that supports bcc
So what's the explanation for the combined coins shooting up in value (if only for a little bit)?
BCH has no liquidity. It's price is largely irrelevant now. You can't just look at market caps.
That is only true if the market is unable to recognize it and price coins accordingly. Maybe the market is purely irrational, but it's certainly not a given.
I won't claim to know any more than you, mostly because ~80% of bitcoin use is in Asia and i know little about it. All of China and Japan and 2/3 of korean exchanges offer withdrawals or trading of BCH.
I won't claim to know any more than you, mostly because ~80% of bitcoin use is in Asia and i know little about it. All of China and Japan and 2/3 of korean exchanges offer withdrawals or trading of BCH.
It's a mixture of things - it was very difficult yesterday to trade either. There could also been an influx of fiat into BCC. Also the supply of BCC is constrained by the exchanges which don't want to "interact" with it. There could be more to it.
There's thousands of people like me checking every minute if we can deposit bch to sell. There's millions waiting and I'm hoping to be the first...
You've commented this on like 4 other replies. I'm largely uninvolved in cryptocurrency-politics, but do you have an agenda? It seems absurd that you want your voice to be heard so much that you would literally copy paste your reply into a myriad of comment trees...
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There are shades of the 'what happens to my self if I could be teleported without the destruction of the original me?' philosophical conundrum.
Good article. A blockchain can only protect systems that it encodes directly. And for the simple cash transactions that's easy enough. But humans can, have, and will devise all sorts of derivative financial instruments to amplify the utility of assets, and no mathematical system can encode all the arbitrary possibilities that implies into their structure beforehand.
Instead, we're back where we started where legalities and regulations matter and the reliability of your durable ledger is limited to the transactions it actually captures.
Instead, we're back where we started where legalities and regulations matter and the reliability of your durable ledger is limited to the transactions it actually captures.
This is veering off-topic, but is anyone else finding the Bloomberg menu nearly impossible to use/borderline broken? It activates on hover, but to actually click on a story you have to get past a secondary list of categories that also acts on hover (hiding the story you intended to click on). If you move the mouse diagonally instead, chances are you'll activate a different top-level menu. I felt like I had to dodge around menu elements just to be able to click on anything.
> The way short selling works is that X borrows a share from Y and sells it to Z. So Y owns one share, and Z owns one share, and X owes one share, and everything balances out and there's only one share outstanding.
Is that really true? That would mean that both Y and Z should get dividend payment, which doesn't make sense. I always assumed that when X borrows one share from Y, the Y does not own that share any more.
Is that really true? That would mean that both Y and Z should get dividend payment, which doesn't make sense. I always assumed that when X borrows one share from Y, the Y does not own that share any more.
Why wouldn't it make sense? If you buy a stock don't you expect to get dividends? You may have bought it from a short seller. Or you may have loaned it to a short seller (brokers often do that without your knowledge, but with your permission). Everything balances out because the company will pay to Z and X will pay to Y. What doesn't make sense is for both Y and Z to vote, for example.
@kgwgk well, the company obviously doesn't want to pay the dividend twice. So indeed they will only pay to Z. If X pays Y I presume that's just the terms of the lending agreement.
> What doesn't make sense is for both Y and Z to vote, for example.
Very good point. But it just confirms that it makes no sense to say that Y still owns a share.
> What doesn't make sense is for both Y and Z to vote, for example.
Very good point. But it just confirms that it makes no sense to say that Y still owns a share.
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Apparently, X will have to supply Y with all dividends thus making Y's position exactly the same as owning a share. I think the only difference is that Y can't sell the share? Then again, it can sell the IOU of the share to someone, and it probably costs the same as the share...
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The article seemed to indicate a short squeeze condition without actually naming it that way, strangely enough. If so, it could get vicious for the short sellers. I am not invested in it, just thought to add my 2 cents
Seems to me the problem is with the exchanges, not the bitcoin.
From the BCH Token Distribution Announcement:
All BTC wallet balances will receive BCH
They did not issue another post saying that this would not be the case and broke their distribution terms. Regardless of whether it was "free money" (it wasn't if you consider opportunity cost), they did not respect this simple and clear statement from their terms.
https://www.bitfinex.com/posts/212
All BTC wallet balances will receive BCH
They did not issue another post saying that this would not be the case and broke their distribution terms. Regardless of whether it was "free money" (it wasn't if you consider opportunity cost), they did not respect this simple and clear statement from their terms.
https://www.bitfinex.com/posts/212
Here's what people tried to pull off:
1. Set up an account, borrow one bitcoin, sell it short, collect $2,700.
2. Set up another account, buy a bitcoin, spend $2,700.
3. When the fork happens, your long account ends up with +1 BTC and +0.8 BCH.
4. Your short account ends up with -1 BTC and -0 BCH (because Bitfinex doesn't require you to come up with the BCH).
5. Net, you have $0, 0 BTC and 0.8 BCH.
6. The 0.8 BCH were worth as much as $560.
7. That money was totally free.
1. Set up an account, borrow one bitcoin, sell it short, collect $2,700.
2. Set up another account, buy a bitcoin, spend $2,700.
3. When the fork happens, your long account ends up with +1 BTC and +0.8 BCH.
4. Your short account ends up with -1 BTC and -0 BCH (because Bitfinex doesn't require you to come up with the BCH).
5. Net, you have $0, 0 BTC and 0.8 BCH.
6. The 0.8 BCH were worth as much as $560.
7. That money was totally free.
This is the most clear and concise explanation I've seen. Bravo Mr Levine[1]. It's worth noting that some people tried to pull this off because Bitfinex's official communications seemed to clearly state that this is how Things Would Work, at least until after the fact when they realized what a mistake that would be.
[1] Ninja edit to specify to whom credit is due.
[1] Ninja edit to specify to whom credit is due.
You might consider reading the article, it's actually Matt Levine's words copy+pasted.
Disclosure: Bitfinex robbed me of BCH according to the terms of the agreement, which was not amended until after the fact.
The money wasn't totally free. There was a huge opportunity cost to holding BTC at that time, and even having any in the margin wallet was a huge liability as opposed to funding your margin account with altcoins. Any serious trader knew that alts would rise immediately following the fork and Bitcoin would drop.
And regardless of whether it was free, their terms explicitly stated that those with a BTC balance in their wallets would receive BCH [1]. They did not issue a follow up post clarifying that hedging was strictly not allowed and thus robbed people. After how they handled both this and their hack, I urge/beg people not to use this exchange.
[1] https://www.bitfinex.com/posts/212
The money wasn't totally free. There was a huge opportunity cost to holding BTC at that time, and even having any in the margin wallet was a huge liability as opposed to funding your margin account with altcoins. Any serious trader knew that alts would rise immediately following the fork and Bitcoin would drop.
And regardless of whether it was free, their terms explicitly stated that those with a BTC balance in their wallets would receive BCH [1]. They did not issue a follow up post clarifying that hedging was strictly not allowed and thus robbed people. After how they handled both this and their hack, I urge/beg people not to use this exchange.
[1] https://www.bitfinex.com/posts/212
1. Try to make free money in a totally unregulated market when an organization publishes a foolish policy.
2. Get mad when said organization amends policy so you can't get your free money.
If you're gonna try to profit in the wild west it looks kind of unseemly to get mad when your scheme doesn't go off quite as easily as you had hoped.
2. Get mad when said organization amends policy so you can't get your free money.
If you're gonna try to profit in the wild west it looks kind of unseemly to get mad when your scheme doesn't go off quite as easily as you had hoped.
1. Organization implements foolish policy
2. Thousands of people make trades according to foolish policy
3. Organization changes terms of foolish policy, telling nobody.
4. Organization then waits until after the fact to tell everyone that they have changed the policy, which dictate d the actions of a non trivial percentage of their customers.
If you're going to try to look like a legitimate exchange, this kind of thing looks pretty unseemly.
2. Thousands of people make trades according to foolish policy
3. Organization changes terms of foolish policy, telling nobody.
4. Organization then waits until after the fact to tell everyone that they have changed the policy, which dictate d the actions of a non trivial percentage of their customers.
If you're going to try to look like a legitimate exchange, this kind of thing looks pretty unseemly.
If you're going to try to look like a legitimate exchange, this kind of thing looks pretty unseemly.
Oh I agree! The whole thing has bitfinex looking a little foolish. It was step #1 that was the problem though. Steps 3 and 4 were them fixing it as best they could. Those parts weren't mistakes, it's just them keeping you from stealing Bitcoin Cash from their other customers.
Oh I agree! The whole thing has bitfinex looking a little foolish. It was step #1 that was the problem though. Steps 3 and 4 were them fixing it as best they could. Those parts weren't mistakes, it's just them keeping you from stealing Bitcoin Cash from their other customers.
I don't really see how it's stealing from their other customers when anyone with a nonzero BTC balance could have shorted BTC with BTC in their margin account.
Somehow I'm penalized for trying to maximize my profit based on the terms that were stated, even though that's what every single other person on the exchange is doing. Basically they chose to favor those who didn't understand the terms or what was going on in favor of those who did.
Somehow I'm penalized for trying to maximize my profit based on the terms that were stated, even though that's what every single other person on the exchange is doing. Basically they chose to favor those who didn't understand the terms or what was going on in favor of those who did.
A bunch of people did what you did. That (before their correction that has you so riled up) lowered the coefficient used to distribute BCH from 0.8539 to 0.7757.
The BCH you attempted to acquire for no cost would have come from other customers in the form of that smaller coefficient.
The BCH you attempted to acquire for no cost would have come from other customers in the form of that smaller coefficient.
Steps 3 and 4 were not fixing it as best as they could. They are just doing another wrong thing trying to cover the earlier mistake by sacrificing another group of their customers instead of Bitfinex itself. This group of their customers are also innocent as they are just lured by the foolish policy. They could transfer their BTC to the personal wallet to get BCH if they were not lured. Everyone playing game in Bitfinex is trying to maximize profits based on its policy, robbing or being robbed. The one who breaks the policy or changes the policy without notifying is the nasty one.
You are ignoring the underlying sense of fairness that bitfinex was trying to achieve and overfocusing on the precise letter of what they wrote. This is a common problem among engineers. It turns out that the former is more important than the latter to the vast majority of humans.
Yeah, really. At this point, I don't think anyone should be surprised that an investment involving bitcoins is high-risk.
If Bitfinex violated it's own terms with this change, then there might be a case for suing in civil court, but something tells me that Bitfinex covered this with their lawyers before making the change.
If Bitfinex violated it's own terms with this change, then there might be a case for suing in civil court, but something tells me that Bitfinex covered this with their lawyers before making the change.
I certainly agree. tpallarino seems a little surprised though!
Translation: I took on a tangible amount of risk in order to exploit a loophole I discovered in order to profit at the expense of an exchange and its legitimate customers, and I am upset that they circumvented my attempts.
I am (no longer) a legitimate customer. I was told by the service that I would receive BCH if I had BTC in my wallet, which I did. That service then did not make good on their word. They lied, simple as that man.
If only there was some kind of governing body to manage currencies and disputes.
Finex may have played this badly, but it was clearly stated in their statement on how they were handling the fork. If you didn't like their approach, all you had to do was move your coins off the exchange and split them yourself. It wasn't (too) difficult to do, and I say that as someone who isn't really technical, but can follow simple instructions.
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This is a concise and accurate description of the fun that occurred with Bitfinex's handling of the BCH fork.
At least, it's fun if you weren't involved. If you naively held BTC on Bitfinex and were hoping to receive an equal amount of BCH you probably didn't think it was fun. If you carefully read Bitfinex's statements and decided to take advantage of their policy to acquire risk-free BCH, you probably think it's even less fun. But for the rest of us, it's fun.