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If you think about the difference between "investing" and "speculating" (ie. gambling), the latter involves no actual value creation, just transfer of assets ba
by LargeWu 6y ago
If you think about the difference between "investing" and "speculating" (ie. gambling), the latter involves no actual value creation, just transfer of assets based on outcomes the speculating party has no influence over. Crypto, meme stocks, penny stocks...just pure speculation. To be fair, hedge funds and HFT are also mostly speculation, just a more sophisticated version.
- dehrmann 6y agoHFT is usually arbitrage, almost the opposite of speculation.
- LargeWu 6y agoFair enough, although one can make a reasonable argument that arbitrage is not a value creating activity either, if the market is already reasonably efficient.
- Tenoke 6y agoIf the market is reasonably efficient there'd be no room for arbitrage in the first place.
- aabhay 6y agoThat’s why it feels so unequal. The arbitrage doesn’t come from market inefficiency, it comes from regulation/government, ingrained asymmetries, and consumer ‘dumb’ money
- RhodoGSA 6y agoarbitrage comes from walled gardens.
- LargeWu 6y agoRoom to exploit arbitrage does not necessarily imply meaningful market inefficiencies. HFT only works because people with deep pockets can build huge fiber lines directly connected to the stock exchange. It's a model where milliseconds matter in order to trade on differences of fractions of pennies. The market would operate just fine in the absence of HFT operators.
- wallacoloo 6y agoDo I create value when I loan another person some asset? What about when I act as a currency exchange, and offer at any moment in time to take either side of any trade along with a 0.3% fee? These are two things I do on Ethereum right now which have analogs in the traditional finance system. Seems to me it matters little whether the activity is done in a traditional space or in cryptoland: they either both create value or neither creates value.
- LargeWu 6y agoLoans would be one of the classic value creating activities, because they allow others to use otherwise idle capital to produce something new. Currency exchange is fuzzier. If the exchange is happening to facilitate commerce, then sure, I would consider that value creation. If it's happening simply in order to support speculation in a different currency, then no, it's not value creating. And it's pretty clear from the data that the vast majority of crypto transactions are just glamorized forex trading - ie buying in order to hopefully sell later at a higher price. Add in the detrimental environmental externalities from crypto mining and you could even make the argument that crypto currency exchange actually creates negative value.
- shusson 6y ago> Loans would be one of the classic value creating activities, because they allow others to use otherwise idle capital to produce something new. Only if people use loans to produce something valuable. Most people I know take loans for houses, which afaik does not produce any direct value to society.
- imtringued 6y agoYou're right, the hope is that people build new houses, but that ship has sailed a long time ago.
- wallacoloo 6y agoAFAIK most of the loans in DeFi go to people who are leveraging their bets one way or another. So if speculation isn’t valuable, then perhaps many of these loans are also also not valuable under that criteria.