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As explained in the post, you have to bite off very high levels of counterparty risk to short. Cryptocurrency exchanges die in something like 20% of exchange-ye
by patio11 7y ago
As explained in the post, you have to bite off very high levels of counterparty risk to short. Cryptocurrency exchanges die in something like 20% of exchange-years, and your estimate of an exchange dying _contingent on me being right_ should be biased towards the high side if they are exposed to the risks of using tether.
This is a subplot of the Big Short, and cost several groups of the protagonists a lot of money: they were so right about their prediction regarding the housing market that e.g. the banks who had brokered their swaps might have gone under, which would have impeded their ability to get paid. (There are several variants of the same thing discussed; the book is marginally clearer than the movie about them.)
- the_watcher 7y agoI read The Big Short when it was first released, when I was 20. Maybe I should read it again, now.
- darawk 7y agoThe big short is a very different situation from crypto exchanges. Banks are highly levered and exposed directly to the assets they are trading. Crypto exchanges do not have this same problem. Secondly, you can use leverage to make these trades, and you can make them on many different exchanges, diversifying your risk considerably. The counterparty risk argument does not imply that the current price should be 1:1 under the assumption that insolvency is obvious.