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I'd offer a much simpler explanation. The buzz around Bitcoin reached a critical mass where people at home with no knowledge of cryptocurrencies or blockchain t

by dkrich 8y ago

I'd offer a much simpler explanation. The buzz around Bitcoin reached a critical mass where people at home with no knowledge of cryptocurrencies or blockchain technology suddenly got caught up in a bubble. As the interest increased so did the price so it became a feedback loop. People saw their friends and coworkers talking about huge gains and wanted to get in on it. Coinbase allowed anyone with a smartphone and a checking account to buy Bitcoin which further drove up the price. Meanwhile the supply was only going up incrementally. So you had a huge swell in demand and no corresponding increase in supply. This resulted in the price increase. Then when the supply of buyers slowed down there were more sellers than buyers and the price dropped. This is the most classic form of a bubble and I'm surprised that people are looking for alternate explanations, like the introduction of futures, which I find absurd. If it were so easy to predict a crash simply because you now had a vehicle to short it, everyone would have done so. There are ways to short most securities that are traded and yet not all securities collapse in value. The author cites two examples of extreme bubbles- the subprime mortgage market and Bitcoin in late 2017- and blames the crashes on the creation of vehicles to short them. In reality the mortgage market didn't crash until people started defaulting on debt en masse and the vehicles to short the mortgages existed a long time before the market crashed.

gst 8y ago
> I'd offer a much simpler explanation. The buzz around Bitcoin reached a critical mass where people at home with no knowledge of cryptocurrencies or blockchain technology suddenly got caught up in a bubble. As the interest increased so did the price so it became a feedback loop. Yes. Those bubbles happen regularly in the Bitcoin world. Maybe the futures had some impact, but even without futures a bubble will eventually end in a crash. December was crazy. I had several non-tech friends ask me how to buy Bitcoins. I strongly recommended against buying, but at least one of them still used a leveraged trade on some sketchy platform to buy. Needless to say that it didn't take long until the volatility wiped out 100% of his investment. I'm against regulation but seeing first hand how financially illiterate people behave I'm not opposed to a minimum level of regulation - e.g., why do retail investors need access to leveraged trading?
- michaelchisari 8y ago
  Feels like Cryptocurrencies are recreating 200 years of knowledge of financial markets and regulations and irrationality and need for intervention in 1/20th the time.
- lend000 8y ago
  Non-accredited investors don't legally have access to leveraged trading in the US -- many were using it illegally and/or violating ToS of various exchanges. But overall, leverage was not what caused the bubble or the majority of the losses. The fact of the matter is that trading is mostly a zero sum game, and your typical emotional, uneducated retail 'investor' doesn't stand much chance of scalping a substantial profit from people and organizations who are either A. long term investors that bought very cheap and unloaded during huge rallies and more so B. professional traders that provide liquidity for the market and make extra money when retail emotion and high volume increase volatility. You could ban casinos, the lottery system, as well as a number of economically necessities such as credit cards, publicly traded market systems, etc., and you STILL would be unable to protect some people from their own poor financial decisions. So I say, as long as fraud in these markets is punished and disincentivized, there isn't much more to be done.

by dkrich 8y ago

gst 8y ago

> I'd offer a much simpler explanation. The buzz around Bitcoin reached a critical mass where people at home with no knowledge of cryptocurrencies or blockchain technology suddenly got caught up in a bubble. As the interest increased so did the price so it became a feedback loop. Yes. Those bubbles happen regularly in the Bitcoin world. Maybe the futures had some impact, but even without futures a bubble will eventually end in a crash. December was crazy. I had several non-tech friends ask me how to buy Bitcoins. I strongly recommended against buying, but at least one of them still used a leveraged trade on some sketchy platform to buy. Needless to say that it didn't take long until the volatility wiped out 100% of his investment. I'm against regulation but seeing first hand how financially illiterate people behave I'm not opposed to a minimum level of regulation - e.g., why do retail investors need access to leveraged trading?

michaelchisari 8y ago
Feels like Cryptocurrencies are recreating 200 years of knowledge of financial markets and regulations and irrationality and need for intervention in 1/20th the time.
lend000 8y ago
Non-accredited investors don't legally have access to leveraged trading in the US -- many were using it illegally and/or violating ToS of various exchanges. But overall, leverage was not what caused the bubble or the majority of the losses. The fact of the matter is that trading is mostly a zero sum game, and your typical emotional, uneducated retail 'investor' doesn't stand much chance of scalping a substantial profit from people and organizations who are either A. long term investors that bought very cheap and unloaded during huge rallies and more so B. professional traders that provide liquidity for the market and make extra money when retail emotion and high volume increase volatility. You could ban casinos, the lottery system, as well as a number of economically necessities such as credit cards, publicly traded market systems, etc., and you STILL would be unable to protect some people from their own poor financial decisions. So I say, as long as fraud in these markets is punished and disincentivized, there isn't much more to be done.