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IMHO, the risk is how crypto is purchased. If purchased via debt, there is a lot of risk if it crashed. If its owned outright, the risk is much less. The housi

IMHO, the risk is how crypto is purchased. If purchased via debt, there is a lot of risk if it crashed. If its owned outright, the risk is much less. The housing crash of 2008 was a drunken debt binge. Housing by its nature is funded by debt and that is why we saw such a massive impact when it cratered. I 'think' that most crypto is being purchased by people who have idle cash on hand. They don't want to invest in debt because the return is absurdly low. They don't want to invest in stocks because the US Fed has poured so much money into the system that stock prices are nuts. Thus, crypto seems like a good deal. Add to that the confidence that you can always spot the top and get out before the crash and voila, you have the crypto surge.

senectus1 5y ago
good lord I hope this isn't happening. I mean, aside from the Tether time bomb.
- a2tech 5y ago
  Copying a comment I made a few days ago that applies to this thread as well: I was just discussing Bitcoin 'investing' with a client last week and one of his engineers overheard us and told us a friend of his (another fresh Lebanese immigrant) maxes out his credit cards on the first of the month buying bitcoin, then sells it on the last day of the month and pays off the credit card and pockets the difference. I just...had no response to that. It seemed so obviously dangerous and irresponsible that I couldn't believe a grown adult would do that. AND THEN he told me about another friend who does the same thing--but with the tuition/living money his family scrapes together and sends him from Lebanon. To me, that was not only stupid, it was a staggering betrayal in trust. Imagine your entire family scrimping and scraping to get money together to send you to college in the US and then you just casually betting it on Bitcoin.
  - senectus1 5y ago
    I mean yeah your points I agree with. horrifying. but the problem i think (hope) is only a small one. isolated people doing silly things. At least its not hiding behind the might of massive banks and being sold as prime stock.
  - nannal 5y ago
    That sounds quite a lot like a gambling problem, the same people could perform the same action with any other asset.
  - ur-whale 5y ago
    > I couldn't believe a grown adult would do that. Much depends on his age and family situation. If he's young, single, able-bodied and with no debt, why not? He can always take a night job at a micky dee's to pay back the credit card debt. It's a gamble I would have taken in my 20s. Way better odds than going to Vegas and same thrill.
  - motohagiography 5y ago
    If your credit card has a low maximum (say $2k), and you don't pay interest on the balance you pay off every month, your downside risk is having to pay the card interest, and your upside is passive currency exchange income. Your acquaintence is going to be very wealthy. Not from this trade, but from the instinct to see the leverage opportunity and take that risk. Sure, bitcoin could go to a small fraction of what it's trading at, and he is out $2k minus whatever he netted on the leveraged trading. The cost to account for it properly outweighs any profits at that level, but it's a scrappy trade by someone who saw the opportunity. As someone who still mainly makes money with labour, I was impressed anyway.
    - lostmsu 5y ago
      > the instinct to see the leverage opportunity What leverage opportunity? He's gonna lose big on any prolonged downward trend.
- gunshai 5y ago
  There are ways to hedge against the tether time bomb. Imo some money will flow out of crypto entirely if tether blows up. But most of it will flow to other stable coins.
  - ur-whale 5y ago
    > There are ways to hedge against the tether time bomb Care to elaborate? Genuinely interested in those. WRT Tether, when (not if) it implodes, it's actually unclear that effect it'll have on BTCUSD. Short term, I think it'll lead to a huge price surge (USDT holders will rush for BTC/ETH as a bridge to get out). Mid term, I believe it'll bring BTCUSD down by a fair bit (likely a 10x hit). Long term, BTCUSD will be back to its unstoppable ratchet up.
    - gunshai 5y ago
      Short answer is algorithmically pegged stable coins. See UST from Luna as an example. The reason I like this idea is that it encourages behavior like people arbitraging the peg and they provide a service to keep it that way. Here is a post mortem on the big crash back in the beginning of the summer and how it affected the UST algo stable coin. https://medium.com/@terra-bites/luna-black-swan-do-kwon-ama-on-what-weve-learned-anchor-action-plan-9d3abdacaf02 https://medium.com/@terra-bites/luna-black-swan-do-kwon-ama-... To me this was quite confidence inspiring, that even while the peg came off more than other stables it snapped right back.
      - ur-whale 5y ago
        Thank you, haven't heard of those yet, will dig in.
chinathrow 5y ago
> ... you can always spot the top and get out before the crash Until you can't.
- gunshai 5y ago
  You are paraphrasing incorrectly. He's saying people believe they can always spot the top.
  - chinathrow 5y ago
    Yes, you're right but what I implied is that lot's of people think they can achieve a perfect timing to get out. Until you can't = when it flash crashes and everyone loses.
    - ur-whale 5y ago
      >everyone loses Not everyone. Crypto has flash crashed a large number of times already in the last 10 years, each time weeding out speculators and weak hands and coming back 10x once business was taken care of. I consider this to be an actual feature of crypto. Anti-fragile.
      - chinathrow 5y ago
        > each time weeding out speculators and weak hands Are you serious? Your username suggest you're a whale. Aren't whales considered being investors too?
        ur-whale 5y ago
        > Are you serious? Very serious. Large volatility swings punish gamblers (day traders) and rewards strong hands / long term players who made a bet they can afford to lose (investors). > Aren't whales considered being investors too? Not sure how that ties into the conversation?
        5y ago
nickparker 5y ago
The tether article a week or two ago described them lending tremendous amounts of USD to exchanges and various crypto bank-like entities with Bitcoin as collateral “ I also learned that Tether had lent billions of dollars more to other crypto companies, with Bitcoin as collateral. One of them is Celsius Network Ltd., a giant quasi-bank for cryptocurrency investors, its founder Alex Mashinsky told me. … Hoegner, Tether’s lawyer, [said] … that its secured loans are low-risk, because borrowers have to put up Bitcoin that’s worth more than what they borrow.” https://www.bloomberg.com/opinion/articles/2021-10-07/matt-levine-s-money-stuff-looking-for-tether-s-money https://www.bloomberg.com/opinion/articles/2021-10-07/matt-l...
zephyr9 5y ago
> If purchased via debt, Wall St: "hold my beer"
- ur-whale 5y ago
  > Wall St: "hold my beer" I'm probably breaking a bunch of HN rules here, but I haven't laughed that hard in a while.
chmsky00 5y ago
What’s great is fiscal debt is just a meme we talked ourselves into believing matters. Economics of real property is one thing, but fiat economics can be ad hoc manipulated in whatever direction the politi-sphere needs. Debt at this point is used to put economic uncertainty in the masses. Cheney even said the quiet part out loud; “Deficits don’t matter.” It’s impossible to prove a negative; all future people need to do is ask “What debt?” and legislate it away. France did this once before. We don’t owe the dead.
- mythrwy 5y ago
  Inflating or not paying creditors makes the currency worth less.
- seoaeu 5y ago
  You are claiming that defaulting on sovereign debt would have no consequences?
  - ur-whale 5y ago
    > You are claiming that defaulting on sovereign debt would have no consequences? First, at the sovereign level, it only has consequences if the lender has more guns than you. Seconds, most "debt" in OECD countries is not owed to sovereign entities, but to the countries population themselves, who if push comes to shove will just have to accept that their bonds are worthless if it is ever legislated to be thus.
    - syshum 5y ago
      >> who if push comes to shove will just have to accept that their bonds are worthless if it is ever legislated to be thus. Yea, the history of the world is full of populations just accepting their governments new policies to screw them over.. There are never any consequences to that, the people just shrug and say them the breaks and go about their day <<sarcasm>>
      - ur-whale 5y ago
nikanj 5y ago
At least the money put into housing actually went into housing - i.e. something that has an actual real-world use, and can reasonably be expected to generate some income at some point. Money put into bitcoin went into buying electricity, just to burn it into heat. Someone is in for a rude awakening when they try to extract income from cryptos, not just sell them to the next fool over.
- syshum 5y ago
  Crypto's biggest problem is treating it as an asset, not an exchange medium, of course if it was widely being used as an exchange medium I think we likely would have already saw regulations to shut it down as governments will not allow anything to compete with their fiat money
- me_me_me 5y ago
  You mean all of those houses that need to be tear down as they deteriorated to the point of ruin? China has so such vast reserves of dollars that they can crash US $ value and cause international panic. Meaning that at any stage you $ saving have chance to be worth nothing. The BTCs do have value and its a cryptographic promise that cannot be broken. People forget that when using all of those tired old arguments. BTC is also a sign of new generations knowing that the game is stacked and unfair, and they refuse to play it. BTC is no a problem is a sign of broken system.
  - nikanj 5y ago
    A promise of what, exactly? Who made that promise? How do I enforce it?
    - me_me_me 5y ago
      Well for once a finite unalterable coins. There is a guarantee of negative inflation. There is noone who can out of blue print 1T of BTCs and give it to rich to stimulate economy. Built in transferability so you dont have to rely on some organisations to facilitate transfers and charge you arbitrary amounts. You don;t have to like those, or agree whether its good or bad but those things are set in stone for BTC.
tomjen3 5y ago
If crypto is purchased via debt then whomever lent the money are morons and need to lose their shirts. But yes there is a problem that there is a lack of safe investments that pay a little above inflation. Bonds used to do that, but they don't anymore, because there are too few people who need money and too many who have it (ironically the price of money has cratered). I suspect that this is linked to our inability to build things anymore. With interest rates in the toilet the various government should have borrowed way more money so that they could invest them in bridges, road maintenance and so forth.

senectus1 5y ago

good lord I hope this isn't happening. I mean, aside from the Tether time bomb.

a2tech 5y ago
Copying a comment I made a few days ago that applies to this thread as well: I was just discussing Bitcoin 'investing' with a client last week and one of his engineers overheard us and told us a friend of his (another fresh Lebanese immigrant) maxes out his credit cards on the first of the month buying bitcoin, then sells it on the last day of the month and pays off the credit card and pockets the difference. I just...had no response to that. It seemed so obviously dangerous and irresponsible that I couldn't believe a grown adult would do that. AND THEN he told me about another friend who does the same thing--but with the tuition/living money his family scrapes together and sends him from Lebanon. To me, that was not only stupid, it was a staggering betrayal in trust. Imagine your entire family scrimping and scraping to get money together to send you to college in the US and then you just casually betting it on Bitcoin.
- senectus1 5y ago
  I mean yeah your points I agree with. horrifying. but the problem i think (hope) is only a small one. isolated people doing silly things. At least its not hiding behind the might of massive banks and being sold as prime stock.
- nannal 5y ago
  That sounds quite a lot like a gambling problem, the same people could perform the same action with any other asset.
- ur-whale 5y ago
  > I couldn't believe a grown adult would do that. Much depends on his age and family situation. If he's young, single, able-bodied and with no debt, why not? He can always take a night job at a micky dee's to pay back the credit card debt. It's a gamble I would have taken in my 20s. Way better odds than going to Vegas and same thrill.
- motohagiography 5y ago
  If your credit card has a low maximum (say $2k), and you don't pay interest on the balance you pay off every month, your downside risk is having to pay the card interest, and your upside is passive currency exchange income. Your acquaintence is going to be very wealthy. Not from this trade, but from the instinct to see the leverage opportunity and take that risk. Sure, bitcoin could go to a small fraction of what it's trading at, and he is out $2k minus whatever he netted on the leveraged trading. The cost to account for it properly outweighs any profits at that level, but it's a scrappy trade by someone who saw the opportunity. As someone who still mainly makes money with labour, I was impressed anyway.
  - lostmsu 5y ago
    > the instinct to see the leverage opportunity What leverage opportunity? He's gonna lose big on any prolonged downward trend.
gunshai 5y ago
There are ways to hedge against the tether time bomb. Imo some money will flow out of crypto entirely if tether blows up. But most of it will flow to other stable coins.
- ur-whale 5y ago
  > There are ways to hedge against the tether time bomb Care to elaborate? Genuinely interested in those. WRT Tether, when (not if) it implodes, it's actually unclear that effect it'll have on BTCUSD. Short term, I think it'll lead to a huge price surge (USDT holders will rush for BTC/ETH as a bridge to get out). Mid term, I believe it'll bring BTCUSD down by a fair bit (likely a 10x hit). Long term, BTCUSD will be back to its unstoppable ratchet up.
  - gunshai 5y ago
    Short answer is algorithmically pegged stable coins. See UST from Luna as an example. The reason I like this idea is that it encourages behavior like people arbitraging the peg and they provide a service to keep it that way. Here is a post mortem on the big crash back in the beginning of the summer and how it affected the UST algo stable coin. https://medium.com/@terra-bites/luna-black-swan-do-kwon-ama-on-what-weve-learned-anchor-action-plan-9d3abdacaf02 https://medium.com/@terra-bites/luna-black-swan-do-kwon-ama-... To me this was quite confidence inspiring, that even while the peg came off more than other stables it snapped right back.
    - ur-whale 5y ago
      Thank you, haven't heard of those yet, will dig in.

chinathrow 5y ago

> ... you can always spot the top and get out before the crash Until you can't.

gunshai 5y ago
You are paraphrasing incorrectly. He's saying people believe they can always spot the top.
- chinathrow 5y ago
  Yes, you're right but what I implied is that lot's of people think they can achieve a perfect timing to get out. Until you can't = when it flash crashes and everyone loses.
  - ur-whale 5y ago
    >everyone loses Not everyone. Crypto has flash crashed a large number of times already in the last 10 years, each time weeding out speculators and weak hands and coming back 10x once business was taken care of. I consider this to be an actual feature of crypto. Anti-fragile.
    - chinathrow 5y ago
      > each time weeding out speculators and weak hands Are you serious? Your username suggest you're a whale. Aren't whales considered being investors too?
      - ur-whale 5y ago
        > Are you serious? Very serious. Large volatility swings punish gamblers (day traders) and rewards strong hands / long term players who made a bet they can afford to lose (investors). > Aren't whales considered being investors too? Not sure how that ties into the conversation?
        5y ago

nickparker 5y ago

The tether article a week or two ago described them lending tremendous amounts of USD to exchanges and various crypto bank-like entities with Bitcoin as collateral “ I also learned that Tether had lent billions of dollars more to other crypto companies, with Bitcoin as collateral. One of them is Celsius Network Ltd., a giant quasi-bank for cryptocurrency investors, its founder Alex Mashinsky told me. … Hoegner, Tether’s lawyer, [said] … that its secured loans are low-risk, because borrowers have to put up Bitcoin that’s worth more than what they borrow.” https://www.bloomberg.com/opinion/articles/2021-10-07/matt-levine-s-money-stuff-looking-for-tether-s-money https://www.bloomberg.com/opinion/articles/2021-10-07/matt-l...

zephyr9 5y ago

> If purchased via debt, Wall St: "hold my beer"

ur-whale 5y ago
> Wall St: "hold my beer" I'm probably breaking a bunch of HN rules here, but I haven't laughed that hard in a while.

chmsky00 5y ago

What’s great is fiscal debt is just a meme we talked ourselves into believing matters. Economics of real property is one thing, but fiat economics can be ad hoc manipulated in whatever direction the politi-sphere needs. Debt at this point is used to put economic uncertainty in the masses. Cheney even said the quiet part out loud; “Deficits don’t matter.” It’s impossible to prove a negative; all future people need to do is ask “What debt?” and legislate it away. France did this once before. We don’t owe the dead.

mythrwy 5y ago
Inflating or not paying creditors makes the currency worth less.
seoaeu 5y ago
You are claiming that defaulting on sovereign debt would have no consequences?
- ur-whale 5y ago
  > You are claiming that defaulting on sovereign debt would have no consequences? First, at the sovereign level, it only has consequences if the lender has more guns than you. Seconds, most "debt" in OECD countries is not owed to sovereign entities, but to the countries population themselves, who if push comes to shove will just have to accept that their bonds are worthless if it is ever legislated to be thus.
  - syshum 5y ago
    >> who if push comes to shove will just have to accept that their bonds are worthless if it is ever legislated to be thus. Yea, the history of the world is full of populations just accepting their governments new policies to screw them over.. There are never any consequences to that, the people just shrug and say them the breaks and go about their day <<sarcasm>>
    - ur-whale 5y ago

nikanj 5y ago

At least the money put into housing actually went into housing - i.e. something that has an actual real-world use, and can reasonably be expected to generate some income at some point. Money put into bitcoin went into buying electricity, just to burn it into heat. Someone is in for a rude awakening when they try to extract income from cryptos, not just sell them to the next fool over.

syshum 5y ago
Crypto's biggest problem is treating it as an asset, not an exchange medium, of course if it was widely being used as an exchange medium I think we likely would have already saw regulations to shut it down as governments will not allow anything to compete with their fiat money
me_me_me 5y ago
You mean all of those houses that need to be tear down as they deteriorated to the point of ruin? China has so such vast reserves of dollars that they can crash US $ value and cause international panic. Meaning that at any stage you $ saving have chance to be worth nothing. The BTCs do have value and its a cryptographic promise that cannot be broken. People forget that when using all of those tired old arguments. BTC is also a sign of new generations knowing that the game is stacked and unfair, and they refuse to play it. BTC is no a problem is a sign of broken system.
- nikanj 5y ago
  A promise of what, exactly? Who made that promise? How do I enforce it?
  - me_me_me 5y ago
    Well for once a finite unalterable coins. There is a guarantee of negative inflation. There is noone who can out of blue print 1T of BTCs and give it to rich to stimulate economy. Built in transferability so you dont have to rely on some organisations to facilitate transfers and charge you arbitrary amounts. You don;t have to like those, or agree whether its good or bad but those things are set in stone for BTC.

tomjen3 5y ago

If crypto is purchased via debt then whomever lent the money are morons and need to lose their shirts. But yes there is a problem that there is a lack of safe investments that pay a little above inflation. Bonds used to do that, but they don't anymore, because there are too few people who need money and too many who have it (ironically the price of money has cratered). I suspect that this is linked to our inability to build things anymore. With interest rates in the toilet the various government should have borrowed way more money so that they could invest them in bridges, road maintenance and so forth.