18 ms·

Today Matt Levine talks about this paper in his daily column: https://www.bloomberg.com/view/articles/2018-06-13/judge-rules-at-amp-t-merger-will-be-fine https

• ceejayoz 8y ago
  > Creating billions of dollars’ worth of value with a ridiculous perpetual-motion fake-dollar-printing machine is a real innovation. That's silly. Ponzi-style schemes have been around since at least the late 1800s.
  • CyberDildonics 8y ago
    So has caffeine but people still find a way to repackage it.
  • j-c-hewitt 8y ago
    That's also the regular banking system. It's interesting that holders of lots of assets from different angles converged on a similar method for propping up the value of their assets.
  • GuB-42 8y ago
    If anything, Bitcoin is closer to the even older Tulip-mania than to a Ponzi scheme. A Ponzi scheme is a specific kind of fraud based on the promise of an unreasonably high return on investment which is actually payed by late adopters. Bitcoin doesn't make promises and it doesn't have a cover story to hide the source of the money. It may be a bubble, but it is not a Ponzi scheme.
    • jrochkind1 8y ago
      As good a story as tulip-mania is, it seems it may not quite have been what we think. https://theconversation.com/tulip-mania-the-classic-story-of-a-dutch-financial-bubble-is-mostly-wrong-91413 https://theconversation.com/tulip-mania-the-classic-story-of...
    • joosters 8y ago
      The South Sea bubble is by far a better comparison. It even had ICOs (sort of) and token trading!
      • joshuahedlund 8y ago
        See "Memoirs of Extraordinary Popular Delusions and the Madness of Crowds" (public domain on Gutenburg[0]) for both of these and more! [0]http://www.gutenberg.org/ebooks/24518 http://www.gutenberg.org/ebooks/24518
      • notahacker 8y ago
        Someone really needs to do a "For carrying-on an undertaking of great advantage but no-one to know what it is!" ICO
        • joosters 8y ago
          Hey, some ICOs even make it clear that you won't get any of the profits, so perhaps the description can be reduced to just 'For carrying-on an undertaking but no-one to know what it is!'
    • Spooky23 8y ago
      Bitcoin doesn't make promises? It is supposedly rendering money obsolete! The primary market force was pretty obvious -- fraud like cryptolocker and money laundering. Shockingly, fraudulent exchanges and practices were/are pervasive.
    • arisAlexis 8y ago
      could you explain how tulips had a technological innovation? i can't understand how people can even bring it up as a legit comparison
• deltateam 8y ago
  Right, its been the argument for the past year in the crypto space, and this is because of a lack of transparency from Bitfinex, which is the right move for Bitfinex. Many people are just assuming the worse, as they have no proof for the best case or the worst case. Every OTC desk I talk to always brags about how much demand there is for large buy orders, especially during the dips. If Bitfinex's Tether works as created, then any surge in demand will result in new tether's being created, this is the only way Tether can sustain it's peg. IF current cryptocurrency owners are storing value in Tether so they they don't lose money, then more Tether's should be printed. ELSE IF new cryptocurrency buyers are sending fiat to Bitfinex and get Tether, then new Tether should be printed The main gotcha is that no Tether's have been destroyed, to my knowledge. And this is from just looking at the OMNI Tether asset on Bitcoin's blockchain. But has demand for Tether ever really dropped?
  • Nursie 8y ago
    > IF current cryptocurrency owners are storing value in Tether so they they don't lose money, then more Tether's should be printed. Why ? Tether is supposed to be printed when (and only when) new dollars are given directly to them. If cryptocurrency owners want to store value in tethers, they must buy existing tethers with their cryptocurrency. That's how this is supposed to work. If more tethers are printed to fulfil demand for tether by people wanting to sell cryptocurrency, then the peg they claim to have (1:1 backing) is a lie.
    • deltateam 8y ago
      okay, then for your case only the ELSE IF is important.
      • Nursie 8y ago
        For my case? Do you not mean "for the claims made by tether on their homepage to be true"?
        • deltateam 8y ago
• paulpauper 8y ago
  the second choice would be true if tether were fake. the evidence suggests it's backed by real money maybe there is a third option: 3. it was just a bubble pumped by people looking to get rich quick and who are now holding the bag.
  • cstejerean 8y ago
    Which evidence? Because around December when they were printing about a billion dollars worth of tether there was zero evidence it was backed by anything other than wishful thinking. Maybe that’s changed?
    • paulpauper 8y ago
      https://tether.to/wp-content/uploads/2017/09/Final-Tether-Consulting-Report-9-15-17_Redacted.pdf https://tether.to/wp-content/uploads/2017/09/Final-Tether-Co...
      • briatx 8y ago
        This report: 1. Is not an audit to be used for assurance purposes. The disclaimer at the top states that it "should not be used or relied on by any other party." 2. Is rather old now. 3. Was conducted by a firm that no longer conducts business with Tether, probably because Tether would not comply with information requests needed to conduct an actual audit, which is not as difficult as Tether makes it sound here: https://www.coindesk.com/tether-confirms-relationship-auditor-dissolved/ https://www.coindesk.com/tether-confirms-relationship-audito... Or in other words, it isn't proof of anything, and the fact that Tether has not been able to produce an actual audit for assurance purposes in all this time, speaks volumes.
        • arisAlexis 8y ago
          why is it super hard to believe they may have actually the holdings since their intetest is aligned with bitcoin?
    • 8y ago
• gowld 8y ago
  What's the difference between a real dollar and a fake dollar? All dollars are first-order fake.
  • Donzo 8y ago
    Real US Dollars have a very large arsenal with unimaginable destructive powers propping up their value. The dollars may be fake but the man with the gun who is standing behind them is very real.
    • spiorf 8y ago
      This is the internet, and those weapons can't fire down here. Try, instead, to delete a two week old transaction from the bitcoin blockchain. You will find that even with military-sized funding, you can't. That's what is backing up bitcoin's value
      • TeMPOraL 8y ago
        You do not live on the Internet, you live in physical reality. Very much in reach of the police. Or a cruise missile.
      • sethrin 8y ago
        Why is that valuable?
      • Retric 8y ago
        I can't exactly delete a physical transaction with real money, so that provides zero new benefit.
        • grosjona 8y ago
          The Fed can inflate away the value of those transactions anytime they want and not only do you have zero control over this process, it is not even possible to predict it. The complexity of the financial instruments used by the Fed is intentional and serves to obscure the fact that they are essentially giving free money to large banks and corporations. Corporations are not getting bigger because they're more efficient at delivering value to consumers - They're getting bigger because the Fed makes sure of it. The Fed is like a river; those who are closest to the source can get the most out of it. In this case it means bankers, financiers and corporations. Regular workers are far downstream, they get whatever is left.
• Retric 8y ago
  Fraud seems to be easier than you might think. For comparison Bitcoin is about the size Madoff was dealing with. Bitcoin is still loose change in terms of the global economy.
  • binarymax 8y ago
    Too bad it isn't also loose change in terms of global energy use :(
    • nyolfen 8y ago
      a fraction of a percent is pretty much the definition of loose change
      • RIMR 8y ago
        Seriously, the way people talk about it you would think that a third of the world's energy supply was getting pumped into NVidia cards. The global average energy consumption is 110,000TWh. Every cryptocurrency in circulation collectively uses about 55TWh, or 0.05% of the world's energy usage.
        • pshin45 8y ago
          Indeed, as I mentioned in a sibling comment, to put those numbers in context, Bitcoin consumes as much power globally as a single large power plant, and roughly 10% of the world's data centers [1]. To be sure, it's the growth rate of that consumption that is more concerning. But at the same time, there are lots of reasons to believe that Bitcoin's electricity consumption will naturally moderate and flatten over time. If you think Bitcoin has even a 1% chance of changing the world for the better e.g. via increased financial inclusion for lower-income populations, I think that amount of electricity is a reasonable "investment" to make (for now). [1] https://medium.com/@petershin45/bitcoin-is-killing-the-planet-fact-or-fiction-2df23a933f34 https://medium.com/@petershin45/bitcoin-is-killing-the-plane...
          • 8y ago
• captainbland 8y ago
  In either of these situations it seems like hodling until victory pays off. The real loser is, well, the planet as the network continues to consume more and more power.
  • ComradeTaco 8y ago
    Bitcoin could go the way of any number of other cyptos; back to zero. In any case, nobody uses Bitcoin as a currency because it's logistically harder for 99.9% of people, and nobody uses it as a store of value because its insanely volitale. Bitcoin is really just a speculative asset.
    • davnicwil 8y ago
      Nobody uses Linux as an operating system because it's logistically harder for 99.9% of people. It's still incredibly important and foundational, and will continue to be, even supposing this never changes, even if that same 99.9% of people never know what it is. Nobody used the Internet in its early days because it was logistically hard for 99.9% of people. However it made completely new things possible and over time, companies figured out how to make it not logistically hard to use for the majority of people, who enjoyed these new possibilities without having to worry about the complexity of the system underneath.
      • solotronics 8y ago
        Actually everone uses it and you don`t even realize. Cellphones are all linux/bsd derivitives. All financial transactions will eventually be on a cyptocurrency but maybe nobody will realize it.
        • davnicwil 8y ago
          This is exactly the point I was attempting to make :-) Probably not all that clearly though, thanks for clarifying it a bit.
    • vidarh 8y ago
• john_moscow 8y ago
  I'd say there's a simpler explanation. Bitcoin has a limited predictable supply, so its price is mostly a function of the demand. And demand correlates with expectations, that typically follow the hype cycle [0]. I'm not sure how much someone managed to single-handedly manipulate the price, but the plain old human psychology, FOMO and the positive feedback loop for media writing about bitcoin demand definitely played their role. All by the book really. [0] https://en.wikipedia.org/wiki/Hype_cycle https://en.wikipedia.org/wiki/Hype_cycle
  • Bucephalus355 8y ago
    Whenever some kind of good has a truly limited supply, that can fuel the most massive of bubbles by making the “bubble” look rational at first. The bubble hides itself under the guise of being about “supply and demand”. The one thing that leaps to mind is the Japanese real estate speculation in the 1980’s. Everyone claimed, very logically, that Japan is a mountainous island with very limited space, so real estate would be almost sure to go up in value. Ultimately, the market crashed, and hasn’t recovered even 25 years later. Curiously, at the height of the housing crisis homes were about 5.5 times the median national income. In San Francisco right now (another place where supply looks limited by the water) homes there are 17.2 times the median national income.
    • sbov 8y ago
      > Curiously, at the height of the housing crisis homes were about 5.5 times the median national income. In San Francisco right now (another place where supply looks limited by the water) homes there are 17.2 times the median national income. You're comparing national home prices in Japan vs national income in Japan. Then you're comparing local prices in SF to national income in the USA. You're then comparing these comparisons to show SF is super inflated. This makes no sense.
      • jaredklewis 8y ago
        In 2016, it seems SF median household income was $96,677 [1] and that the median house price was $1.31 million [2]. Couldn't find more recent number for income. That a 13.6 median price to income ratio. 2018 median house price is $1.61 million, so for wages to keep up the 2018 median income would need to be $118,382 to maintain the 13.6 ratio. Edit: I agree with parent it probably still doesn't make sense to compare cities with nations. These numbers are just for your entertainment. I think median price-to-income ratio for Tokyo now is now about 4. I am sure in the bubble it was much higher. Though again apples to oranges, it seems that the peak bubble average price to average income ratio for Tokyo was 18 [3]. 1. https://www.deptofnumbers.com/income/california/san-francisco/ https://www.deptofnumbers.com/income/california/san-francisc... 2. https://sf.curbed.com/2018/4/5/17201888/san-francisco-median-home-house-price-average-2018 https://sf.curbed.com/2018/4/5/17201888/san-francisco-median... 3. http://japanpropertycentral.com/2014/08/apartment-price-to-income-ratio-worsens-nationwide-but-improves-in-tokyo-and-osaka/ http://japanpropertycentral.com/2014/08/apartment-price-to-i...
• DINKDINK 8y ago
  >magical fountain of fake dollars The problem though is that if ether really were a "magical fountain of fake dollars" that would be reflected somewhere in the market price of tethers. Look at the price charts for tether->USD it's pretty nominally 1:1 https://cryptowat.ch/markets/kraken/usdt/usd https://cryptowat.ch/markets/kraken/usdt/usd The most contrarian one could argue is that people who sold bitcoin for fraudulent tethers haven't tried to withdrawal them /at all/ and therefore the tetherUSD liquidity hasn't been tested.
  • ufo 8y ago
    One problem with the market price for tethers is that it is actually very hard to sell them for USD. For example, Bitfinex does not allow USD withdrawals, only Bitcoin withdrawals.
    • 456hdsaq234g 8y ago
      not too hard. kraken and bittrex both do USD/USDT pairs (which, at 1.0 is a good metric of USDT health)
      • andrewla 8y ago
        True for Kraken (although their USD withdrawal policies are very restrictive, so not a huge improvement over getting your money from Bitfinex). Bittrex has a public pair between Tether and "True USD" [1], but their fiat USD market is not yet available to the public, and I don't know where we can find pricing data for the non-public market. [1] https://bittrex.com/Market/Index?MarketName=USDT-TUSD https://bittrex.com/Market/Index?MarketName=USDT-TUSD
        • polynomial 8y ago
          > although their USD withdrawal policies are very restrictive What is "very restrictive"? Cap on max amount for a given period?
    • DINKDINK 8y ago
• partiallypro 8y ago
  Washtrades and Bitfinex's tether were no doubt a huge factor. Someone wrote a great article about it back in November-December, but I can't for the life of me remember where/who.
  • existencebox 8y ago
    Probably "bitfinexed". I think I know the article you're talking about, but could only find another quickly peeking through my history, but perhaps it'll serve as a breadcrumb for you. https://medium.com/@bitfinexed/meet-picasso-the-painter-on-gdax-c478ff8f50e5 https://medium.com/@bitfinexed/meet-picasso-the-painter-on-g...
    • partiallypro 8y ago
      That appears to be correct author, all of the pieces are very insightful.
      • makomk 8y ago
        His arguments are pretty terrible to be honest, but people had trouble grasping that cryptocurrency bears can also be wrong. The worst one he successfully pushed on suckers was his claim that institutional investors obviously weren't be paying Bitfinex to create Tether because they could buy it cheaper on one of the other exchanges. There wasn't nearly enough available on that exchange to make this worthwhile, and he clearly knew this because one of his previous arguments was that the shallow order book and low volume there demonstrated Tether was a scam. (I calculated the amount of money the supposed institutional investors were giving up by not using that exchange, and it was around $200 if they bought up every single Tether available for below par. For comparison, Tether was being issued tens millions of dollars at a time.) He knew what he was saying was a lie, said it anyway, and people believed him. A lot of the other stuff was dubious to outright wrong too, but it was harder to prove he didn't genuinely believe it.
• joe_the_user 8y ago
  Creating billions of dollars’ worth of value with a ridiculous perpetual-motion fake-dollar-printing machine is a real innovation. Creating money by printing is not a new thing. Making people believe that the money you've created with whatever hocus-pocus is real and that investment X will just spew money indefinitely is not at all a new thing. It is one very standard old thing. That by itself doesn't prove bitcoin is this. But in analyzing investment that's rocketing up in value, one should remember that what Hyman Minsky called "speculative finance", ie, bubbles, should not be excluded or treated as "something really weird". "Are X many people really that foolish?" Well, how often has this happened before? There is an answer to that question.
  • achompas 8y ago
    > Making people believe that the money you've created with whatever hocus-pocus is real and that investment X will just spew money indefinitely is not at all a new thing. Across so many people, and at BTC's market cap though? I think that's unprecedented. Penny stocks or pyramid schemes, sure, but they never affect this many people or hit 12-digit valuations. (By the way, fiat money doesn't count as an example because it is backed by a variety of government support structures (which are very much not hocus-pocus) and it does not appreciate in value indefinitely relative to the cost of goods.)
    • lazyasciiart 8y ago
      Almost everything that happens today is unprecedented in 'affecting this many people'. It's probably more informative to ask whether it is affecting a larger percentage of people exposed to it than previous examples- and I don't know the answer to that, but I suspect it isn't.
    • copenja 8y ago
      That's an interesting question. Bernie Madoff’s Ponzi scheme is estimated to have lost clients $65 billion. The Bitcoin market cap is nearly double at $107 billion. But Bernie Madoff's $65 billion is all real dollars paid into the scheme. Bitcoin market cap doesn't track the amount of the money that has been paid into the current Bitcoin market. It simply estimates the current market price, then multiplies that number by the total of number of Bitcoins. So the amount currently paid into the current Bitcoin market is going to be much, much lower. Experts estimate that nearly 30% of current bitcoins are 'lost' forever in non-recoverable wallets. Also, the gal who bought 1000 bitcoin at 5 dollars hasn't re-paid another $6 million into the system. But, if Bitcoin crashed to zero today, would you also need to account for dollars lost by investors who built mining stations and gear? I guess we will never know. But, I think it is fair to say that the Madoff scheme is in the same ballpark of Bitcoin.
• cup-of-tea 8y ago
  > Creating billions of dollars’ worth of value with a ridiculous perpetual-motion fake-dollar-printing machine is a real innovation. That's what modern banking is. 95% of money in use is created by the private banks themselves.
  • JumpCrisscross 8y ago
    > 95% of money in use is created by the private banks themselves Through a highly-regulated process. We haven't had a bank run on regulated deposits since the FDIC came into being.
    • cup-of-tea 8y ago
      Have you never been to an ATM that has run out of cash? You can't make a run on the banks any more. They'll just tell you, sorry, they've run out of cash. You'll still be able to pay your bills and taxes using legal tender, though (bank dollars). I've already told you the fact that 95% of money doesn't exist outside of the private banking system. What kind of regulation do you think is stopping everyone from wanting to get paper money for their entire life savings? For those who don't immediately see this, just think for a moment how much of your income ever leaves the banking system. Do you get paid in paper money? Pay your rent in paper money? Did you buy your car with paper money? The answer to these questions for everyone is increasingly no.
      • ceejayoz 8y ago
        > What kind of regulation do you think is stopping everyone from wanting to get paper money for their entire life savings? That's missing the point. The point of regulation is building a society where you don't need to do that. A bank collapse no longer means you lose your money - the FDIC insures a good-sized chunk, and the Feds come in and take over operations temporarily. Bank runs are prevented not by having enough paper money on hand, but by making people feel confident in the entire system - that your money will be there when you need it. Fascinating read on how relatively seamless this now is: https://www.npr.org/templates/story/story.php?storyId=102384657 https://www.npr.org/templates/story/story.php?storyId=102384...
• gtlondon 8y ago
  The original article is a joke. Large buy orders will obviously increase the price, and to describe this as manipulation is completely misleading. There's also zero evidence that Tethers are a scam. I'm pretty sure it would have been discovered by now, and also unlikely that Circle would pay $400m for an Exchange whose main currency is USDT if that was the case. Both NYT and Bloomberg seem to love an inaccurate Crypto article, seems like their editorial standards are non-existent in this sector. Sure that will change once they have bought in.
  • the_mitsuhiko 8y ago
    There is also zero evidence that it’s not a scam.
    • gtlondon 8y ago
      This conversation is 6 months old though. Quite suspicious the New York Times have come to this incredible revelation now, yet didn’t mention it in Nov 2017 when it was actually a hot topic. I must admit I find most crypto journalism hard to agree with. Hopefully that will change.
      • byset 8y ago
        Well, they're reporting on the recent release of a notable paper written by an academic who has a reputation for "uncovering fraud in financial markets," at least that's what the article says. Presumably that paper was released today or this week or something. I'm not arguing that the paper is or isn't actually worthy of having this NYT article written about it, but what is your suspicion regarding the timing, exactly?
• dragonwriter 8y ago
  Levine (assuming he is not being deliberately dishonest) clearly has no knowledge of history of currency because the thing he calls more impressive is a fairly routine failure mode (even when not a deliberate outcome of a planned scam) of privately-issued currencies, especially but not exclusively those pegged to national currencies, and a not infrequent failure mode of national currencies themselves which both the modern government taking a general monopoly on many forms of such currency and the common structure of independent central banks is designed to mitigate, as in part are securities regulations which affect many currency-like instruments that don't fall into the scope of prohibition of government monopolies. It occurring in a currency affected by actors acting either outside of or in wilfully defiance of the regulations designed to mitigate it is about as impressive as an unlicensed, untrained, underage, blind, drunk driver managing to get into a collision.
  • kitrose 8y ago
    His column is sort of a tongue-in-cheek take on the day's financial stories. He's actually very knowledgeable and has the ability to explain some really esoteric financial market shenanigans in a way even a layman can understand. There's always a theme of wonderment at the crazy and illegal things people do written from the perspective of an old Wall Street guy.
• ChuckMcM 8y ago
  While I love Matt's column and read it often I think there is a third possibility. "Real" (as in do it for their day job) foreign exchange traders looked at it and said, "Gee, there are all these tricks we get slapped for if we trying them on manipulating exchange rates, but these noobs either don't know about them or don't care, let's see how high we can push this thing..." Watching the BitCoin saga from Mt Gox to today has often felt like watching a financial crimes historical reenactment society having an annual get together.
• TheSpiceIsLife 8y ago
  I don't see any reason the two are mutually exclusive. It's quite possible (some) people have a (")real(") economic need for a magical fountain of fake dollars. I put the scare-quotes in parentheses because by real I mean a manic need, in the sense of mania - an excessive enthusiasm or desire; an obsession.
• arisAlexis 8y ago
  they do not have any proof. anyone can say anything they like. Tether system cannot keep a value peg without having the reserves and the biggest bank of NL holds an account for them. I think it's time to get suspicious of these articles in times when people can short. I would short for sure before I posted this article online. Easy money, makes me the manipulator though.
• Timpy 8y ago
  > "Of these two explanation the second is possibly more impressive." This is really frustrating to read, this is a false dichotomy, there are plenty of other plausible explanations. It's not limited to "EITHER Cryptocurrency's value is fake magic OR it satisfies a real economic need."