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> In such a market the price of any coin may not even be set by a plurality of participants. Since you can take/give physical delivery of the coin that is not

by 21 9y ago

> In such a market the price of any coin may not even be set by a plurality of participants. Since you can take/give physical delivery of the coin that is not entirely true. Meaning that if you force the price to an unsustainable level (either too high or too low), other smart people will definitely take the other side of the trade.

nsainsbury 9y ago
Not when the buyer and seller are one and the same person. There's extensive evidence to suggest wash trading, as it's known, is endemic in the crypto space.
- nostrademons 9y ago
  It's worth remembering Ben Graham's 1949 parable on Mr. Market: https://www.fs.blog/2013/11/mr-market/ https://www.fs.blog/2013/11/mr-market/ Basically, every market is basically an insane, irrational, manic-depressive, uncaring business partner who gives you the option to buy his share or sell yours every day, as long as market hours are open (in the age of cryptocurrency, this is 24/7). You are under no obligation to take the transaction, though. If you believe the price is too high, sell. If you believe the price is too low, buy. If you don't believe anything, hold. Crypto and the stock market are no different in this regard. The short-term price is equally irrational in both. (There's pretty good evidence that wash trading is endemic in the stock market as well - wasn't Goldman Sachs caught taking both sides of a transaction in the 2009 financial crisis? And many derivative strategies explicitly rely upon being both long and short at the same time.) The difference is that stock market investors have mostly figured out how to value stocks on fundamentals: the intrinsic value of a stock is all the discounted value of all future cash flows accruing to the equity investors. The intrinsic value of crypto is zero, unless, of course, it manages to replace the dollar as the world's reserve currency, in which case its intrinsic value is infinite, or more accurately the dollar's value is zero. Your estimate of the fundamental value of a cryptocurrency should be based on your assessment of the likelihood that it will replace the dollar as currency.
  - aserafini 9y ago
    If cryptocurrency replaces the dollar, there's no reason it can't replace the Euro, so maybe a valuation should be extended to the likelihood it replaces all global currency.
    - sgt101 9y ago
      A cryptocurrency could replace the dollar; if the Fed decided that it should. My guess would be that this would be called The Dollar, but that some of The Dollar would be issued via the banking system and some of The Dollar as crypto. For this to happen the Fed would need to see that there was a non bank system use case that was economically positive. I see no usecase right now but someone else might think of one. The same for The Euro - they won't be the same crypto just as they aren't the same fiat now. Whatever, the chances of Ripple, Ether or Bitcoin being the new dollar or euro are 0, regulators and governments would be literally insane to attempt this, and would be nearly immediately replaced, imprisoned and executed if they did try. So you are correct the valuation for these based on them being the new dollar or new euro or both is the same.
      - solotronics 9y ago
        I think it is possible for the fed to make a crypto for a couple reasons. 1) hyperinflation in the regular dollar and they need a method of escape 2) to combat cryptos if they really take off, they would make bitcoin illegal and provide their alternative
        sgt101 9y ago
        Not sure how a new crypto would help in scenario 1, unless is was a "limited tokens" deal like bitcoin, but if cryptos really did go mainstream 2 is likely for me - and a strong reason to be very bearish about the current crop.
      - aserafini 9y ago
        I'm not sure the Fed needs to decide if Bitcoin can replace the dollar. Did someone 'decide' that html, http and smtp would become a worldwide standard for citizens interacting with governments and business, covering ~95% of those usecases?
- fthssht 9y ago
  Are you referring specifically to certain Chinese exchanges where this could be done without a commission? Have there ever been any accusations that U.S. exchanges like Coinbase and Gemini engaged in wash trading?
- zodiac 9y ago
  Are you claiming that in an unregulated market, because of wash trading, it can become generally known that an asset is mispriced such that the mispricing is arbitrarily high? It seems to me that the market efficiency of unregulated markets depends on many things and your claim is too strong.
notyourwork 9y ago
This doesn't apply in exchanges really either. They maintain their own ledger so what comes in and out of the blockchains publicly can be whatever they decide. You would need an accurate ledger from inside the operation.
- fthssht 9y ago
  It applies to all these transactions: https://coin.dance/volume/localbitcoins https://coin.dance/volume/localbitcoins
  - nosuchthing 9y ago
    There's no way to verify those transactions are actually real, or any indication that multiple people are participating or buying. Many sting operations have targeted traders on localbitcoin as illegal money transmitters and money launderers.
fthssht 9y ago
I think "not entirely true" is an understatement. Bitcoin has a 115 Billion dollar market cap and is traded all around the world in arms length transactions for local currencies and is treated as fungible. Like to gold market people loudly insist that its manipulated but I don't understand how it could be to any large degree when I can go to a pawn shop and buy or sell it anywhere in the world. I'm not sure what central regulatory body would give any greater confidence than that fact.
- anonymouz 9y ago
  What's the point of market cap here? It's just (current price)*(number of bitcoins), so if some speculators drive the price up, even if there are low volumes on the exchanges, the market cap will rise by a corresponding percentage. Hypothetical example: If there is a single trade at say twice the current price, the market cap will double. It absolutely does not represent how much adoption Bitcoin has. I would like to see how much "actual" usage there is to Bitcoin as a currency (i.e., sending bitcoin to another person in exchange for goods or services). You seem to believe it's a lot; I don't believe that.
  - fthssht 9y ago
    My point only is that the total value is relatively very high and its price would be as difficult for one individual to move around as a large cap stock. Your hypothetical 1 trade a day isn't reality. Click this link and look at the depth chart. You would need millions of dollars to move the price from 6925 to 6950. https://www.gdax.com/trade/BTC-USD https://www.gdax.com/trade/BTC-USD I don't think its used a lot as a currency now. I think there is a lot of investment in it based on the belief that it will be used as a currency in the future or that it can act as a store of wealth.
    - nosuchthing 9y ago
      You would need millions of dollars to move the price from 6925 to 6950. That's not entirely true, the operators of Bitfinex, tether, or any of the early adopters who control a major percentage of BTC could push the market with the amount of influence on the ecosystem they control. Traders and bots will attempt to arbitrage other exchanges which have unverifiable volume and possibly large amounts of counterfeit capital.

by 21 9y ago

nsainsbury 9y ago

Not when the buyer and seller are one and the same person. There's extensive evidence to suggest wash trading, as it's known, is endemic in the crypto space.

nostrademons 9y ago
It's worth remembering Ben Graham's 1949 parable on Mr. Market: https://www.fs.blog/2013/11/mr-market/ https://www.fs.blog/2013/11/mr-market/ Basically, every market is basically an insane, irrational, manic-depressive, uncaring business partner who gives you the option to buy his share or sell yours every day, as long as market hours are open (in the age of cryptocurrency, this is 24/7). You are under no obligation to take the transaction, though. If you believe the price is too high, sell. If you believe the price is too low, buy. If you don't believe anything, hold. Crypto and the stock market are no different in this regard. The short-term price is equally irrational in both. (There's pretty good evidence that wash trading is endemic in the stock market as well - wasn't Goldman Sachs caught taking both sides of a transaction in the 2009 financial crisis? And many derivative strategies explicitly rely upon being both long and short at the same time.) The difference is that stock market investors have mostly figured out how to value stocks on fundamentals: the intrinsic value of a stock is all the discounted value of all future cash flows accruing to the equity investors. The intrinsic value of crypto is zero, unless, of course, it manages to replace the dollar as the world's reserve currency, in which case its intrinsic value is infinite, or more accurately the dollar's value is zero. Your estimate of the fundamental value of a cryptocurrency should be based on your assessment of the likelihood that it will replace the dollar as currency.
- aserafini 9y ago
  If cryptocurrency replaces the dollar, there's no reason it can't replace the Euro, so maybe a valuation should be extended to the likelihood it replaces all global currency.
  - sgt101 9y ago
    A cryptocurrency could replace the dollar; if the Fed decided that it should. My guess would be that this would be called The Dollar, but that some of The Dollar would be issued via the banking system and some of The Dollar as crypto. For this to happen the Fed would need to see that there was a non bank system use case that was economically positive. I see no usecase right now but someone else might think of one. The same for The Euro - they won't be the same crypto just as they aren't the same fiat now. Whatever, the chances of Ripple, Ether or Bitcoin being the new dollar or euro are 0, regulators and governments would be literally insane to attempt this, and would be nearly immediately replaced, imprisoned and executed if they did try. So you are correct the valuation for these based on them being the new dollar or new euro or both is the same.
    - solotronics 9y ago
      I think it is possible for the fed to make a crypto for a couple reasons. 1) hyperinflation in the regular dollar and they need a method of escape 2) to combat cryptos if they really take off, they would make bitcoin illegal and provide their alternative
      - sgt101 9y ago
        Not sure how a new crypto would help in scenario 1, unless is was a "limited tokens" deal like bitcoin, but if cryptos really did go mainstream 2 is likely for me - and a strong reason to be very bearish about the current crop.
    - aserafini 9y ago
      I'm not sure the Fed needs to decide if Bitcoin can replace the dollar. Did someone 'decide' that html, http and smtp would become a worldwide standard for citizens interacting with governments and business, covering ~95% of those usecases?
fthssht 9y ago
Are you referring specifically to certain Chinese exchanges where this could be done without a commission? Have there ever been any accusations that U.S. exchanges like Coinbase and Gemini engaged in wash trading?
zodiac 9y ago
Are you claiming that in an unregulated market, because of wash trading, it can become generally known that an asset is mispriced such that the mispricing is arbitrarily high? It seems to me that the market efficiency of unregulated markets depends on many things and your claim is too strong.

notyourwork 9y ago

This doesn't apply in exchanges really either. They maintain their own ledger so what comes in and out of the blockchains publicly can be whatever they decide. You would need an accurate ledger from inside the operation.

fthssht 9y ago
It applies to all these transactions: https://coin.dance/volume/localbitcoins https://coin.dance/volume/localbitcoins
- nosuchthing 9y ago
  There's no way to verify those transactions are actually real, or any indication that multiple people are participating or buying. Many sting operations have targeted traders on localbitcoin as illegal money transmitters and money launderers.

fthssht 9y ago

I think "not entirely true" is an understatement. Bitcoin has a 115 Billion dollar market cap and is traded all around the world in arms length transactions for local currencies and is treated as fungible. Like to gold market people loudly insist that its manipulated but I don't understand how it could be to any large degree when I can go to a pawn shop and buy or sell it anywhere in the world. I'm not sure what central regulatory body would give any greater confidence than that fact.

anonymouz 9y ago
What's the point of market cap here? It's just (current price)*(number of bitcoins), so if some speculators drive the price up, even if there are low volumes on the exchanges, the market cap will rise by a corresponding percentage. Hypothetical example: If there is a single trade at say twice the current price, the market cap will double. It absolutely does not represent how much adoption Bitcoin has. I would like to see how much "actual" usage there is to Bitcoin as a currency (i.e., sending bitcoin to another person in exchange for goods or services). You seem to believe it's a lot; I don't believe that.
- fthssht 9y ago
  My point only is that the total value is relatively very high and its price would be as difficult for one individual to move around as a large cap stock. Your hypothetical 1 trade a day isn't reality. Click this link and look at the depth chart. You would need millions of dollars to move the price from 6925 to 6950. https://www.gdax.com/trade/BTC-USD https://www.gdax.com/trade/BTC-USD I don't think its used a lot as a currency now. I think there is a lot of investment in it based on the belief that it will be used as a currency in the future or that it can act as a store of wealth.
  - nosuchthing 9y ago
    You would need millions of dollars to move the price from 6925 to 6950. That's not entirely true, the operators of Bitfinex, tether, or any of the early adopters who control a major percentage of BTC could push the market with the amount of influence on the ecosystem they control. Traders and bots will attempt to arbitrage other exchanges which have unverifiable volume and possibly large amounts of counterfeit capital.