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Eh 20-ish years ago the shit happening on Island and Archipelago would blow most people’s minds. Undocumented, conditional, non-displayed order types. Routine w
by benreesman 5y ago
Eh 20-ish years ago the shit happening on Island and Archipelago would blow most people’s minds. Undocumented, conditional, non-displayed order types. Routine wash trading. Shear-but-don’t skin multi-venue arbitrage. The ECNs were the Wild West. Smoke-filled dark pools.
Island and Arca are NASDAQ and NYSE now.
But Ben, US equities have intrinsic value unlike this BTC garbage! Well unless they pay no dividend, have dual-class share structure, and IPO without a profitable quarter. What’s a share of SNAP entitle you to exactly? Ah right, you think someone will buy it for more.
Crypto will have it’s 2001-style GC cycle, the useful stuff will stick around until Goldman owns it and the SEC makes a show of regulating it, the tulip garbage will wash out leaving behind a bunch of rich guys who are really annoying because they never built anything, and we’ll go back to arguing about programming languages.
- dheera 5y ago> US equities have intrinsic value Really? My impression is that many US equities in 2022 are more like Reddit up/downvote scores than a reflection of intrinsic value. Which isn't a bad thing in my opinion, by the way.
- benreesman 5y agoI mean if they pay a dividend (and you believe it will continue) you can do math that treats it like a bond coupon and do a present-day valuation. If they have attached voting rights you can get together with other investors and vote yourself a bigger dividend (though same goes for Uniswap v2), or a share buyback. But yeah, mostly it’s a Keynsian Beauty Contest.
- cillian64 5y agoI think of it like this. If you suddenly owned 100% of Bitcoin, then you wouldn’t actually have anything valuable - nobody would buy it off you. If you suddenly owned 100% of Tesla then you’d be able to extract a lot of value.
- benreesman 5y agoI’ll start the bidding at 1 USD to own all BTC. Anyone want to go higher?
- foxhill 5y agohmm. it might be a bit more subtle than that - if you were to own all 21 million bitcoin (i.e, nothing can be mined or otherwise created), it’d pose an existential crisis for the currency. miners would have no reason to mine, transactions on the small scale couldn’t happen, etc. at the very least i expect other coins would pop up with a different genesis block. or maybe some form of hard fork (again, i might add). owning them all might be problematic. 99% might not be. that said, i don’t think it can be done for >100 years yet..
- dheera 5y agosure, 2 USD, bring it on
- coderintherye 5y agoSorry, but that's provably false, just look at all the Bitcoin knockoffs that forked off the main chain and the amount of money people put into them. If someone managed to somehow own 100% of Bitcoin, it would make it worth much less, but it would not make it without value.
- Tenoke 5y agoIf I suddenly own 100% of Tesla the stock would crash. I'll extract some value but it would be a pittance.
- fullshark 5y agoFirms used to give out dividends, that would make it easier to claim it had intrinsic value (future cash flows discounted). Now it appears the only intrinsic value is how much another firm would pay to acquire the company and do X with it.
- ratsmack 5y agoThere are plenty of companies that give dividends. I own about a hundred different stocks and 99% of them are dividend bearing to the tune of about $200K per year.
- dheera 5y agoDividends are worthless. Stocks go down every time they give out dividends so you never really make anything. And you will never beat inflation with dividends. Dividend investing is stuff of 1980's folklore. These days it's all about modelling and executing on hype. We're entering an era where hype is intrinsic value. I'm not advocating for a world like that, but it's the world we live in now whether we like it or not.
- Liron 5y agoNo… Your claims are typical of how people talk during peak bubbles. It's very similar to how people talked about buying any tech IPO stock in 1999, even when the companies had hopeless business models. The way I expect they'll get disproved is simply when the market cycle turns. Right now there's a powerful illusion that asset prices have become unmoored from expected returns, but at some point macroeconomic conditions change and the demand to liquidate the assets becomes significantly higher than the demand to keep buying them at their previous prices. Like if S&P P/E multiples begin a steady slide from 30 to 15 due to less liquidity in the economy, everyone's stock portfolio will feel like a bloodbath. In such an environment, demand for all these crazy coins also dries up and prices plummet (so much for being a "store of value"), since there are no cashflows that reward the purchasers and set a floor on the price; it's entirely - as you say - a function of the current “hype” i.e. buy-side demand level.
- vitaflo 5y ago
- alecst 5y agoA counterpoint would be that what some call the intrinsic value is the expected future share price based on expected future revenues. There might or might not be future revenue for SNAP, but there is no revenue for a digital currency. But I do think digital currency has intrinsic value, in that for now, it affords you anonymity to commit crimes in a way that ordinary currency does not. I’m not happy about it, but this is a form of value.
- benreesman 5y agoFTX claims they buyback FTT based on financial results. Their business model has more historical precedent than e.g. Uber’s (and is arguably less legally grey). What difference am I missing?
- deleted 5y ago[deleted]
- shawabawa3 5y ago> but there is no revenue for a digital currency Isn't there? Ethereum kind of has revenue in that transaction fees for smart contract execution are burned (effectively a stock buyback) It has around ~$19B in revenue extrapolated at the current rate (although it's issuing more than $20B a year for now, planning to reduce issuance some time later this year)
- pakitan 5y agoThat's like MSFT issuing MicrosoftDollars to pay their dividents.
- chollida1 5y agoIts not uncommon to pay dividends in comapany stock.
- benreesman 5y agoThe MicrosoftDollars they issue to pay their employees seem to be getting them some talent!
- wpietri 5y agoI truly appreciate your experience and cynicism here. People who haven't worked in financial markets have a hard time appreciating how deep the muck can get. Which makes them especially valuable suckers for the unregulated markets.
- cobertos 5y agoStill remember going to a crypto meetup and met an older guy who worked at Arthur Andersen (auditor of Enron). Told me "you know what those Oak Doors stand for right? Your financial secrets never leave the firm." Was blown away
- ckastner 5y ago> People who haven't worked in financial markets have a hard time appreciating how deep the muck can get. That's the main reason why I find the battle cry of "decentralization" so comically ironic. No government can control crypto, how awesome and empowering! When the truth is that the vast amount of control that we've seen develop in the past century (and especially in the past two decades) were just to protect people from said muck. [Edit] Or, as a practical comparison, think of the act of raising money from investors. Centralized: Please file a detailed report with the relevant authority in which you list, among other things, all possible risks and challenges that you foresee and how this could harm investors. Decentralized: LOL YOU APES, DIAMOND HANDS TO THE MOON!
- benreesman 5y agoYou have a lot more faith in the IPO underwriting process than I do. They don’t call it a “pop” for nothing.
- SavantIdiot 5y agoAll I want to know is: will the annoying guy at my gym who put brags about putting all of his retirement into Bitcoin this summer provide me with some decent schadenfreude at some point?
- iso1631 5y agoIf he put it in in June when it was 31k, he'd have increased it 30% now, double if he sold in November. Not too bad
- benreesman 5y agoIf I knew that I’d be trading it :) But there’s a fairly active BTC derivatives market (depending on what passport you carry), so you could hedge against him getting/staying rich by getting a little creative with long-dated DOOM stuff. Depends on how annoying he is I guess ;)
- dmw_ng 5y agoLooming rate hikes combined with ever increasing correlation of Bitcoin to equities suggests you may even get your day this year.
- notch656a 5y agoIt's sad to see people genuinely wanting to watch others lose wealth so they can relish in it.
- guiomie 5y agoTulip garbage? Tulip Mania lasted like 6 months, Bitcoin has been running for over 13 years. Don’t get me wrong tho, I do agree anything not being Bitcoin is garbage.
- benreesman 5y agoOh I’m not opining on this or that coin being tulips. A lot of it is by volume.
- StreamBright 5y agoI think the reference is about the phenomenon not the actual comparison between BTC and tulip.
- cuteboy19 5y agoTulip trading existed for many years before Tulip mania, and it was a profitable business that continues even today. Only the mania part was crazy
- kaashif 5y ago> Well unless they pay no dividend, have dual-class share structure, and IPO without a profitable quarter. What’s a share of SNAP entitle you to exactly? Ah right, you think someone will buy it for more. I think the idea would be like what happened to Apple: they eventually grew so much, became so successful, accumulated huge piles of cash bigger than they could possibly spend, that they had to start paying a dividend. And there is a difference between a company with an inherently unprofitable business model, and a company that would be profitable if they didn't spend so much on growth. Admittedly, it is pretty hard to distinguish those sometimes, especially with the endless rounds of Series D, E, F, G, H, I, etc funding some startups are getting. That is all speculative, but it's not unproductive beanie babie trading. It is pretty close, especially when the only rationalisation I can think of involves Apple paying dividends, which they didn't do for decades, and Facebook and Google still don't. Even tulip selling is actually a real business, the tulip mania wasn't as bad as crypto from the "real value" perspective, I think.
- sjtindell 5y agoDo you consider running a poker table a “real business”? Assuming there were no addicts present, what about a casino? Is that “real”?
- jayd16 5y agoIsn't a casino with no addicts just an arcade? I'm not sure what your point is, though. The addicts are pretty inextricable.
- sjtindell 5y agoPerhaps let's just talk running a poker table. It's a platform where people can play a zero sum game against each other. To me, that's what cryptocurrency is. People want to play these games. That, to me, is real value.
- SgtBastard 5y agoNitpick: the House rake makes poker not zero sum amongst players.
- tyrfing 5y agoWith crypto these days alpha is still very easy since it's a small backwater. Microstructure is all complete bullshit (and has been as long as these markets existed), and leverage is basically unlimited. A huge sell order is more likely to indicate buying than selling, for example. At least liquidation cascades don't literally hit 0 like they have in the past, which is an improvement. There are also all sorts of unpublished arrangements like colocating servers for privileged partners; you will _never_ trade into an order they don't want you to when you have 5ms latency and they have microseconds. On the one hand, people have never really understood just how dirty it is. On the other, most of that is now just the long flat line on the chart...
- benreesman 5y agoHaha, Alameda or Wintermute? :)
- syntheweave 5y agoWhen I got into crypto back in 2013 I resolved myself to long-term holds with self-custody(before HODL was even a meme) precisely because I had seen how bad things got in pink sheet trading a few years prior and had the losses to prove it - I already had no faith in regulated markets, therefore I knew it was only going to be more blatant in crypto. But if I held over the long term and carefully looked for the macro picture, I would sidestep manipulation, because it's ultimately the product of people sitting in front of a whiteboard trying to make their play happen within the span of the next business quarter, whereas my bet is on crypto as an asset class. The plan has worked reasonably well; it's had huge ups and equally huge downs, so I have not quite "won" yet, but I have definitely not lost.
- arberx 5y agoThis comment is gold
- nathanvanfleet 5y agoHaha, we might all die on this tired exploited rock from heat death before that
- wyre 5y agoWhat is the reference to Island and Archipelago? I'm not familiar and my DDG skills aren't helping.
- reubenmorais 5y agohttps://www.investopedia.com/terms/a/archipelago.asp https://www.investopedia.com/terms/a/archipelago.asp (also talks about Island)
- muttantt 5y agoSo, I take it you missed out on Bitcoin?
- arcticbull 5y ago> But Ben, US equities have intrinsic value unlike this BTC garbage! Well unless they pay no dividend, have dual-class share structure, and IPO without a profitable quarter. What’s a share of SNAP entitle you to exactly? Ah right, you think someone will buy it for more. Folks always levied these criticisms about Apple. So long as the company is growing and can do better re-investing the capital in itself, it should do so. Companies intentionally avoid creating profits to avoid paying taxes, electing instead to re-invest that capital tax-free. The idea of going public without a "profitable quarter" is meaningless if they could just be profitable at will. Apple has paid over $1B in dividends to Warren Buffet alone since he took his stake, and returned just around $100B to investors last year between $85B in buybacks and $15B in dividends. Buying shares you are paying for a combination of the present intrinsic value and your estimation of its future assets and cash flows. That doesn't mean your appraisal of these future outcomes are correct, and that's the risk. But equities are fractional ownership stake in businesses whose value increases through non-investor participants. You know, customers? That's the difference between a positive-sum game and a zero-sum game like futures and options, or a negative-sum game like crypto assets. With especially proof of work crypto assets, value is constantly being removed by external participants, rather than added. Yes traditional assets are mired in garbage behavior, but that doesn't mean that crypto is better - far from it. Decentralization makes it borderline impossible to control the behavior of bad actors while providing essentially zero material value to anyone beyond a few edge cases. And as usual, folks mention there will be some crypto folks who create value left behind after some wash-out. 14 years later, zero value created. It is true that not all equities are good investments (of course), in the fullness of time, zero crypto token investments as we see today will ever be good investments.
- choppaface 5y ago> US equities have intrinsic value unlike this BTC garbage! One major difference is the US Gov & public (e.g. pension funds) have much more leverage for holding US equities liable vs holding crypto liable in a Financial-Crisis-type leverage implosion. While I agree with the suggested notion of "common stocks have no real intrinsic value," when it boils down to opportunity cost, the retail shareholder has probably one to two orders of magnitude less downside in common stocks versus crypto. Unless the U.S. ends up bailing out crypto ... (in exchange for catching tax evasion?)
- majormajor 5y ago> What’s a share of SNAP entitle you to exactly? Ah right, you think someone will buy it for more. Ultimately you think someone will pay more for a future share of SNAP than of [OTHER THING] because you think SNAP's growth story is better, business model is promising, blah blah blah. We may be trading on the derivatives of the fundamentals, or even the hope of future fundamentals, but even that's turning back some as it's been harder to get a big huge IPO purely on hope than it was in the recent history. Throw WeWork in against Snap there, even. Gambling but against numbers that will eventually be reconciled with performance with customers, not just other gamblers. Though personally I'm certainly hoping that some of that "eventually" starts to turn back into a backlash against dual-class stocks. The equities market is still ultimately betting that at some point, the business results will keep the stock comparatively more attractive. There's vague talk about "the backbone of future banking systems" or such for crypto as having similar fundamental value, but I haven't been convinced. Particularly, I'm not convinced today's big chains would be what the future would be built on - why pay the huge transaction costs and help the current crypto-rich get richer, instead of making purpose-built chains for your future applications?
- wallacoloo 5y ago> why pay the huge transaction costs and help the current crypto-rich get richer, instead of making purpose-built chains for your future applications? the most convincing arguments i’ve heard for reusing an existing chain is 1) easier access to users, 2) easier to deploy and 3) if your application needs decentralization, a mature blockchain will be more secure (attacks like 51% attacks have higher cost) and reliable (in the uptime sense) than something you can deploy yourself. > There's vague talk about "the backbone of future banking systems" or such for crypto as having similar fundamental value another argument is that many cryptos are valuable because of “regulatory arbitrage”. bitcoin/monero/zcash are all easy ways to (partially) shelter your money from tax and legal regulations (hence why they are/were largely associated with drugs).
- chii 5y agoThe regulatory arbitrage is a lie they tell themselves. Sure, drugs could be paid for by cryptos, but the ultimate utility of that money requires it to be transferred to fiat (aka, laundering). Unless all of your goods and services can be purchased using only crypto, the tax man and the gov't will always have this weak spot to target.
- lvl100 5y agoThis has to be one of the best comments I’ve read on HN.
- bogomipz 5y agoMight you or someone else explain what these things and how they are used/exploited? > Undocumented, conditional, non-displayed order types. Routine wash trading. Shear-but-don’t skin multi-venue arbitrage.
- benreesman 5y agoSo electronic financial markets (whether ARCA/NYSE or Binance) have a number of ways that they can advantage certain participants at the expense of others. One of many is to make certain types of orders difficult or impossible for certain actors. Broadly speaking lots of very conventional order types are "conditional" (limit orders are technically conditional), but various exchanges have at various times allowed the condition to effectively become "execute this order if I make money on it", which is a wealth transfer from those who can't place that order to those who can. "Displayed" or "displayed size" basically means that other market participants can see roughly "someone is offering to buy X amount at Y price, if I move quickly I can take them up on that". "Hidden" or "non-displayed" means that an order might execute in front of another but other participants can't see that before they act. "Non-displayed" isn't necessarily a bad thing either, but it creates scope for sophisticated participants to further set up advantages for themselves. The "undocumented" part is the real killer: that's basically the idea that there's a secret API for playing with cheat codes that the exchange only makes accessible to certain actors. That's straight fucked up (and tends towards illegal as markets become more mature). "Wash Trading" is roughly the idea that (typically) via intermediaries of one kind or another that an actor effectively trades with themselves. An actor might want to do this for several reasons, but a big one (maybe the main one) is to create the appearance of market activity where there isn't any legitimate commerce going on. "Arbitrage" I think is technically defined as something like: "a transaction or transactions guaranteed to be profitable", but in practice the term gets applied more loosely than that. In the sense I meant: if gold is 100 quibbles in Foobarnia and 50 quibbles in Boofarnia, someone will buy a ton of gold in Boofarnia and ship it to Foobarnia and pocket the 50 quibbles, raising the price in the cheap place and lowering it in the expensive place and fairly quickly this gets you to 75 quibbles in both places (or whatever, there are transaction costs). There's an old quip: "you can shear a sheep many times, but you can skin him only once". If an arbitrageur has unique access to one or both markets, they can play the long game and just bleed profit out without actually providing the social utility of equalizing prices. People do all this shit and more in practically every electronic market on Earth. It's quite a bit more regulated and monitored in mature markets like US equities and quite a bit more flagrant in e.g. crypto DeFi exchanges but how much net "rich connected people taking non-rich, non-connected people's money" goes on in one vs. the other is quite the controversy, as you can tell from the other comments in this thread.
- heavyset_go 5y ago> But Ben, US equities have intrinsic value unlike this BTC garbage! Well unless they pay no dividend, have dual-class share structure, and IPO without a profitable quarter. Should the company's assets be liquidated, shareholders are entitled to that value after creditors. If BTC tanks, there is little value to extract from liquidation.
- epolanski 5y ago> the useful stuff will stick around There's none though. The markets and especially crypto lunatics themselves clearly show nobody cares about decentralization.
- benreesman 5y agoSo there's a question fairly deep in the thread asking me to define what I meant by the terms in the first paragraph. I'm reposting my answer up here to both clarify what I meant if it's not clear, and to invite those more knowledgable than myself to correct any ways in which I'm misusing the terminology or otherwise saying something untrue: So electronic financial markets (whether ARCA/NYSE or Binance) have a number of ways that they can advantage certain participants at the expense of others. One of many is to make certain types of orders difficult or impossible for certain actors. Broadly speaking lots of very conventional order types are "conditional" (limit orders are technically conditional), but various exchanges have at various times allowed the condition to effectively become "execute this order if I make money on it", which is a wealth transfer from those who can't place that order to those who can. "Displayed" or "displayed size" basically means that other market participants can see roughly "someone is offering to buy X amount at Y price, if I move quickly I can take them up on that". "Hidden" or "non-displayed" means that an order might execute in front of another but other participants can't see that before they act. "Non-displayed" isn't necessarily a bad thing either, but it creates scope for sophisticated participants to further set up advantages for themselves. The "undocumented" part is the real killer: that's basically the idea that there's a secret API for playing with cheat codes that the exchange only makes accessible to certain actors. That's straight fucked up (and tends towards illegal as markets become more mature). "Wash Trading" is roughly the idea that (typically) via intermediaries of one kind or another that an actor effectively trades with themselves. An actor might want to do this for several reasons, but a big one (maybe the main one) is to create the appearance of market activity where there isn't any legitimate commerce going on. "Arbitrage" I think is technically defined as something like: "a transaction or transactions guaranteed to be profitable", but in practice the term gets applied more loosely than that. In the sense I meant: if gold is 100 quibbles in Foobarnia and 50 quibbles in Boofarnia, someone will buy a ton of gold in Boofarnia and ship it to Foobarnia and pocket the 50 quibbles, raising the price in the cheap place and lowering it in the expensive place and fairly quickly this gets you to 75 quibbles in both places (or whatever, there are transaction costs). There's an old quip: "you can shear a sheep many times, but you can skin him only once". If an arbitrageur has unique access to one or both markets, they can play the long game and just bleed profit out without actually providing the social utility of equalizing prices. People do all this shit and more in practically every electronic market on Earth. It's quite a bit more regulated and monitored in mature markets like US equities and quite a bit more flagrant in e.g. crypto DeFi exchanges but how much net "rich connected people taking non-rich, non-connected people's money" goes on in one vs. the other is quite the controversy, as you can tell from the other comments in this thread.