5 ms·

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?
- lmm 9y ago
  > wasn't Goldman Sachs caught taking both sides of a transaction in the 2009 financial crisis? Um, no? What are you talking about?
  - samsonradu 9y ago
    Correct me if I'm wrong, but towards the end of the bubble (2008) GS had insured (bet against) the CDOs that it had previously been propping up. [1] https://www.huffingtonpost.com/david-fiderer/the-cdos-that-destroyed-a_b_499875.html https://www.huffingtonpost.com/david-fiderer/the-cdos-that-d...
    - lmm 9y ago
      They had insurance on assets they held, sure. They bought the CDOs from some parties and sold (CDS on) them to other parties, like any middleman in any industry. A wash trade is something quite different: buying something from yourself, with no other parties involved in either transaction, to show a trade that manipulates the price. There's nothing wrong with being in the middle of a line of trades. The crime is when that line becomes a loop and nothing is actually changing hands at either end.
  - dmichulke 9y ago
    Well, the whole "muppet case" is about GS screwing its customers. Sure, it's not "taking both sides of the transaction" but it's still screwing investors as a regulated(!!!) banking entity. https://www.theguardian.com/business/2012/oct/22/goldman-sachs-muppets-greg-smith-clients https://www.theguardian.com/business/2012/oct/22/goldman-sac...
    - lmm 9y ago
      There is no "muppet case"? The article just seems to be unsubstantiated allegations from someone who didn't get a promotion he wanted and is now trying to sell his book? The only substantiated thing in that article is the Abacus case which is quite different: the counterparty there was IKB, who are a sophisticated investment bank, a million miles away from "one of these philanthropies or endowments or teachers' retirement pension funds in Alabama or Virginia or Oregon". They didn't get screwed, they bet on the US housing market and lost.
- gwbas1c 9y ago
  > 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. Which, for the most part, is impossible. The various blockchain currencies aren't scalable enough to do that. IMO, most people investing in cryptocurrency don't understand distributed systems programming and money. The rest of the people are just running pump and dump schemes. Or, what I like to tell people, "if you're investing in cryptocurrency you're either running a pump and dump scheme or you're the sucker."
- amygdyl 8y ago
  wasn't Goldman Sachs caught taking both sides of a transaction in the 2009 financial crisis? This is more common than you think. The official designation for someone who takes both sides of a trade, is a Systematic Internaliser: (From Google) According to MiFID II/MiFIR regulations, 'Systematic Internaliser means an investment firm which, on an organised, frequent systematic and substantial basis, deals on own account when executing client orders outside a regulated market, an MTF or an OTF without operating a multilateral system.
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.

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?
lmm 9y ago
> wasn't Goldman Sachs caught taking both sides of a transaction in the 2009 financial crisis? Um, no? What are you talking about?
- samsonradu 9y ago
  Correct me if I'm wrong, but towards the end of the bubble (2008) GS had insured (bet against) the CDOs that it had previously been propping up. [1] https://www.huffingtonpost.com/david-fiderer/the-cdos-that-destroyed-a_b_499875.html https://www.huffingtonpost.com/david-fiderer/the-cdos-that-d...
  - lmm 9y ago
    They had insurance on assets they held, sure. They bought the CDOs from some parties and sold (CDS on) them to other parties, like any middleman in any industry. A wash trade is something quite different: buying something from yourself, with no other parties involved in either transaction, to show a trade that manipulates the price. There's nothing wrong with being in the middle of a line of trades. The crime is when that line becomes a loop and nothing is actually changing hands at either end.
- dmichulke 9y ago
  Well, the whole "muppet case" is about GS screwing its customers. Sure, it's not "taking both sides of the transaction" but it's still screwing investors as a regulated(!!!) banking entity. https://www.theguardian.com/business/2012/oct/22/goldman-sachs-muppets-greg-smith-clients https://www.theguardian.com/business/2012/oct/22/goldman-sac...
  - lmm 9y ago
    There is no "muppet case"? The article just seems to be unsubstantiated allegations from someone who didn't get a promotion he wanted and is now trying to sell his book? The only substantiated thing in that article is the Abacus case which is quite different: the counterparty there was IKB, who are a sophisticated investment bank, a million miles away from "one of these philanthropies or endowments or teachers' retirement pension funds in Alabama or Virginia or Oregon". They didn't get screwed, they bet on the US housing market and lost.
gwbas1c 9y ago
> 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. Which, for the most part, is impossible. The various blockchain currencies aren't scalable enough to do that. IMO, most people investing in cryptocurrency don't understand distributed systems programming and money. The rest of the people are just running pump and dump schemes. Or, what I like to tell people, "if you're investing in cryptocurrency you're either running a pump and dump scheme or you're the sucker."
amygdyl 8y ago
wasn't Goldman Sachs caught taking both sides of a transaction in the 2009 financial crisis? This is more common than you think. The official designation for someone who takes both sides of a trade, is a Systematic Internaliser: (From Google) According to MiFID II/MiFIR regulations, 'Systematic Internaliser means an investment firm which, on an organised, frequent systematic and substantial basis, deals on own account when executing client orders outside a regulated market, an MTF or an OTF without operating a multilateral system.

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.