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Bitcoin's reliance on Stablecoins? I think the wsj is confused and has this backwards. Additionally, like all mainstream media sources, they cannot seem to unde

Bitcoin's reliance on Stablecoins? I think the wsj is confused and has this backwards. Additionally, like all mainstream media sources, they cannot seem to understand that Bitcoin is what happens on the blockchain and that 99% of the breathless hype about trading and finance bro stuff is completely off chain and only tangentially related to Bitcoin.

davidgerard 5y ago
> Bitcoin is what happens on the blockchain If this was true, nobody would be talking about bitcoin. Here in the real world, bitcoin is the whole system of people, institutions, and the actual money that every aspect of bitcoin is denominated in.
mustafa_pasi 5y ago
In practice people care about what happens off chain as long as it affects the exchange value. And the article is talking about the alleged Tether manipulation of Bitcoin's exchange value.
bdcravens 5y ago
> they cannot seem to understand that Bitcoin is what happens on the blockchain and that 99% of the breathless hype about trading and finance bro stuff is completely off chain and only tangentially related to Bitcoin. The same could be said of crypto advocates who leave their "coins" on an exchange
lvs 5y ago
Not to mention that it's worth only a tiny fraction of bitcoin + all the other cryptos.
- Marazan 5y ago
  How much trading volume does tether have compared to "bitcoin + all the other cryptos"? Answer: a lot, Tether is the unit of account. If something happens to it the crypto space explodes as the volume of real dollar trades in crypto is a fraction of Tether trades.
  - lvs 5y ago
    That would certainly be a novel notion of systemic risk. It's like arguing that the financial system would collapse if TSLA trading were halted tomorrow. There's no shortage of other liquidity channels between market participants, so the loss would be confined to the held value of the security itself and any of its derivatives. I'd argue that the systemic risk of my toy analogy is actually worse than Tether, as the derivatives tied to its debt and futures are almost certainly a huge multiple of its notional value. I would venture that isn't the case for Tether, but I suppose it's possible too.
    - Marazan 5y ago
      There.... there isn't other liquidity channels. Everyone trades in Tethers. Its like if instead of buying stocks for money everyone bought and sold stocks using Enron shares.
- mortehu 5y ago
  It costs $1 to increase the market cap of a fiat pegged stable coin by $1, while changing the market cap of Bitcoin is a lot cheaper because there's no safe way for a market maker to provide substantial liquidity for it. At any time this dynamic can start working in the other direction, and the market cap of Bitcoin can fall below the net value converted to it.
  - lvs 5y ago
    I don't really know what you're saying. It's not much less safe to provide liquidity to bitcoin than to do so for any of the trillions in securities priced vastly in excess of the book value of their underlying assets.
    - deleted 5y ago
      [deleted]
  - Clewza313 5y ago
    Well, no, it costs absolutely nothing to print off another billion Tethers. We only have the vaguest possible assurances that there's something behind each USDT, and they've already admitted it's not actual dollars.
    - mortehu 5y ago
      I guess I should have said "fiat pegged and backed".
    - randomhodler84 5y ago
      Not absolutely nothing — it costs eth gas to call mint().
louloulou 5y ago
They're not confused, they are maliciously spreading FUD. The WSJ does nothing but simp for central banks.
cturner 5y ago
Don’t underestimate the importance of market makers - people who create liquidity on the exchanges by constantly resting buy and sell orders on the book, the modern equivalent of the guys on the exchange floor in the bright jackets. Exchanges without market makers lose business to exchanges with market makers. In general, it is rational to trade on the markets with the tightest spreads. Market makers need mechanisms to move money around and manage risk. When tether did not exist, all this would have been painful, but equally painful for all market makers. This is fine. Tether created a maybe-good-enough mechanism for bridging conventional money into crypto. Once it existed, then each market maker would have needed to make a decision: use it and get the benefit of it whilst losing sleep at night over its risks, or not use it, lose edge to your competitors, and close up shop. You may find that the market makers hate tether, and recognise it for what it is (wildcat bank) but feel compelled to use it to stay competitive.
- agumonkey 5y ago
  I'd really love to learn more about the dynamics of market makers.

davidgerard 5y ago

> Bitcoin is what happens on the blockchain If this was true, nobody would be talking about bitcoin. Here in the real world, bitcoin is the whole system of people, institutions, and the actual money that every aspect of bitcoin is denominated in.

mustafa_pasi 5y ago

In practice people care about what happens off chain as long as it affects the exchange value. And the article is talking about the alleged Tether manipulation of Bitcoin's exchange value.

bdcravens 5y ago

> they cannot seem to understand that Bitcoin is what happens on the blockchain and that 99% of the breathless hype about trading and finance bro stuff is completely off chain and only tangentially related to Bitcoin. The same could be said of crypto advocates who leave their "coins" on an exchange

lvs 5y ago

Not to mention that it's worth only a tiny fraction of bitcoin + all the other cryptos.

Marazan 5y ago
How much trading volume does tether have compared to "bitcoin + all the other cryptos"? Answer: a lot, Tether is the unit of account. If something happens to it the crypto space explodes as the volume of real dollar trades in crypto is a fraction of Tether trades.
- lvs 5y ago
  That would certainly be a novel notion of systemic risk. It's like arguing that the financial system would collapse if TSLA trading were halted tomorrow. There's no shortage of other liquidity channels between market participants, so the loss would be confined to the held value of the security itself and any of its derivatives. I'd argue that the systemic risk of my toy analogy is actually worse than Tether, as the derivatives tied to its debt and futures are almost certainly a huge multiple of its notional value. I would venture that isn't the case for Tether, but I suppose it's possible too.
  - Marazan 5y ago
    There.... there isn't other liquidity channels. Everyone trades in Tethers. Its like if instead of buying stocks for money everyone bought and sold stocks using Enron shares.
mortehu 5y ago
It costs $1 to increase the market cap of a fiat pegged stable coin by $1, while changing the market cap of Bitcoin is a lot cheaper because there's no safe way for a market maker to provide substantial liquidity for it. At any time this dynamic can start working in the other direction, and the market cap of Bitcoin can fall below the net value converted to it.
- lvs 5y ago
  I don't really know what you're saying. It's not much less safe to provide liquidity to bitcoin than to do so for any of the trillions in securities priced vastly in excess of the book value of their underlying assets.
  - deleted 5y ago
    [deleted]
- Clewza313 5y ago
  Well, no, it costs absolutely nothing to print off another billion Tethers. We only have the vaguest possible assurances that there's something behind each USDT, and they've already admitted it's not actual dollars.
  - mortehu 5y ago
    I guess I should have said "fiat pegged and backed".
  - randomhodler84 5y ago
    Not absolutely nothing — it costs eth gas to call mint().

louloulou 5y ago

They're not confused, they are maliciously spreading FUD. The WSJ does nothing but simp for central banks.

cturner 5y ago

Don’t underestimate the importance of market makers - people who create liquidity on the exchanges by constantly resting buy and sell orders on the book, the modern equivalent of the guys on the exchange floor in the bright jackets. Exchanges without market makers lose business to exchanges with market makers. In general, it is rational to trade on the markets with the tightest spreads. Market makers need mechanisms to move money around and manage risk. When tether did not exist, all this would have been painful, but equally painful for all market makers. This is fine. Tether created a maybe-good-enough mechanism for bridging conventional money into crypto. Once it existed, then each market maker would have needed to make a decision: use it and get the benefit of it whilst losing sleep at night over its risks, or not use it, lose edge to your competitors, and close up shop. You may find that the market makers hate tether, and recognise it for what it is (wildcat bank) but feel compelled to use it to stay competitive.

agumonkey 5y ago
I'd really love to learn more about the dynamics of market makers.