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People made a version of that argument with mortgages and mortgage backed securities. Mortgages are spread across too many people, too many geographic areas, et
by api 9y ago
People made a version of that argument with mortgages and mortgage backed securities. Mortgages are spread across too many people, too many geographic areas, etc., and there's no way they'll all decline or default at once.
- adamnemecek 9y agoWell they were wrong to make that argument. If for no other reason they were all spread across too many people IN THE US, which kinda invalidates the claim.
- paulmd 9y agoCrashes and recessions can be global. In fact, economic interconnection makes that more and more likely. Globalism is not a zero-sum game, everyone can win at the same time, and in fact everyone can lose at the same time as well.
- diab0lic 9y agoBut you're not wrong to make that argument, right? The point api is making is that they were sure they were right.
- stcredzero 9y agoand there's no way they'll all decline or default at once. This is where Credit Default Swaps came in. What is the cryptocurrency equivalent of a Credit Default Swap?
- rlucas 9y agoIt wouldn't be a CDS, it would just be a swap (like a currency swap). A bitcoin isn't a credit instrument, so there's no possibility of default. (Although it's also true that swaps usually anticipate a currency's local interest rate -- what's that for bitcoins?) And, you probably wouldn't use a swap for hedging bitcoin currency exchange risk, unless you were doing an actual useful transaction where the sources and uses were in different currencies. People with bitcoins are either speculating or taking duration risk approximately equal to the delivery delay of a Priority Mail envelope full of heroin, as I understand it.
- stcredzero 9y agoBut what's analogous to CDS for Bitcoin isn't just a Swap. It's any mechanism which could cause a cascade of loss between the various cryptocurrencies.
- chrisco255 9y agoTo be fair, mortgages didn't all default at once. Some companies over extended themselves with subprime mortgages and that's how we got the real estate bubble. Crypto is nowhere near that, for one, very little of crypto's value comes from loaned money.
- overhang 9y agoHow do you know how much debt is tied to cryptocurrencies?
- chrisco255 9y agoWe don't know for sure, we only know that banks are not lending against crypto, for obvious reasons. What folks are putting on their credit cards, etc, well that is impossible to really track, but shouldn't be any different than retail sales, etc.
- overhang 9y agoYou've obviously left out the people who have taken seconds on their houses, home equity lines, student loans, payday loans, and all the other forms of debt that could finance a purchase. And credit card debt alone could easily explain all the value in all the cryptocurrencies combined.
- chrisco255 9y agoSo, I've heard like 3 accounts of people taking out seconds on their houses. I don't think this is a widespread practice. Do you know how many trillions of dollars were loaned out during the real estate boom? Unless you have data to back up your claims that most of the money in crypto is leveraged on the back of all these lines of credit you quoted, I think that's dubious to say. At any rate, the value of cryptocurrency market isn't a reflection of the amount of money that has been poured into it. The market cap is a product of the last price paid on any given exchange times the circulating supply of currency. So a $500B market cap might be the result of less than $50B worth of cash infusion, so long as the last person who bought in paid $13K for a Bitcoin.