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1. I’m incredibly glad this happened on a Friday night. That gives the actual market 2 days of relaxing before they really have to respond to this. 2. It’s int

by soared 4y ago

1. I’m incredibly glad this happened on a Friday night. That gives the actual market 2 days of relaxing before they really have to respond to this. 2. It’s interesting the author is saying the collapse already occurred (60k->20k) but also it will continue to crash. With stocks the company’s actual assets/etc create a price floor, but with Bitcoin the theoretical floor is zero? 3. All eyes on tether, it feels like that may be the final punch for crypto.

IdEntities 4y ago
I would still be more focused on DeFi and maybe large leveraged positions like Saylor's over Tether, which is ultimately backed by Bitfinex, a highly profitable crypto exchange which is probably still doing decent volumes during this down wave. If Tether does fail it might very well come toward the tail end of crypto price declines, when trading volumes have dried up and the incentive to prop it up is gone. Bitcoin has only just reached its marginal cost of production. The dynamics of Bitcoin are probably different (it doesn't take years to shut down or spin up a mine), but when they enter bear cycles, many commodities will trade below the marginal cost of production for years. The marginal cost of production itself could also fall if energy prices decline from here.
adam_arthur 4y ago
There's no way to quantify numerically a fair value for bitcoin like you can with equities. So yes, no fundamental/mathematical reasoning for why it should be 10k vs 20k vs 0. You can assume there will always be some level of interest, so 0 is probably impossible, but can trend towards it.
- davidgerard 4y ago
  My favourite example is that authentic Zimbabwe $100 trillion notes go for >$100 these days on eBay. And I say "authentic," because there's enough of a market that there are forgeries in circulation. (Reproductions are much cheaper, $5-$10.)
- srfilipek 4y ago
  Well, theoretically the value of Bitcoin would be a function of energy costs and mining difficulty, but that hasn’t happened in practice, and would still be volatile anyway.
  - DennisP 4y ago
    The difficulty and energy cost is a function of price, not the other way around. If the price goes down, miners aren't profitable and some have to quit, which makes the difficulty adjust downwards.
  - wcoenen 4y ago
    This is a common misconception. It's the other way around: mining follows the price. Miners can collectively earn a pre-determined flow of block rewards. If the price rices, then those block rewards become more valuable. So then miners can afford to spend more on hardware and electricity as they compete to get those block rewards. Now that the price has dropped, the opposite will happen. Miners can no longer spend the same amount on electricity, so many will be shutting down their mining rigs. Only the miners with the lowest electricity cost can keep operating. The difficulty will drop until it is once again in equilibrium with the price. For real world resource mining, it's different. E.g. if a metal used by industry can't be mined for less than 1 $/kg, then that must put a price floor on the price of that metal (in the long term, ignoring short term price volatility). This dynamic doesn't exist in Bitcoin, which confuses many people.
    - bongoman37 4y ago
    - srfilipek 4y ago
      Yes, in practice mining mostly follows price, but it's still not quite that cut and dry. Miners also need to sell bitcoin to recoup operational costs. They influence the value of bitcoin by being an active trader and setting limits to their sale price. Current price influences future mining. Past mining influences current price.
  - 4y ago
- DennisP 4y ago
  True for Bitcoin. If you want to use applications built on Ethereum, you have to burn ETH, which provides the same sort of demand as for oil.
  - adam_arthur 4y ago
    This can be true if those applications carry some intrinsic value. However whenever I go down this thought experiment, I tend to find that the applications themselves also don't carry intrinsic value e.g. some tie to the real world outside crypto. Are there exceptions?
    - DennisP 4y ago
      Even if the applications are just weird forms of entertainment, that's still demand that people are paying real-world money for, since they have to spend their real money to buy the ETH. Non-blockchain gaming is a fairly big industry and all the money people spend on in-game purchases doesn't have any more connection to the "real world," but is still valid for financial valuations of the gaming companies. There are people (especially at EY) working on using Ethereum as infrastructure for things like B2B transactions, but that's still in early stages. And here's a recent piece by Vitalik on non-financial applications of blockchains: https://vitalik.ca/general/2022/06/12/nonfin.html https://vitalik.ca/general/2022/06/12/nonfin.html
      - JustLurking2022 4y ago
        Yes, plenty of games make money off in-game transactions, and generally they only remain profitable for a few years while they have a large user base, then fade into irrelevance.
        DennisP 4y ago
        But gaming companies can do well for a long time.
  - prepend 4y ago
jjeaff 4y ago
"with crypto the floor is zero?" Yes, because there is no intrinsic value with Bitcoin. If a company has real estate and machinery or whatever, there will always be some value there.

by soared 4y ago

IdEntities 4y ago

I would still be more focused on DeFi and maybe large leveraged positions like Saylor's over Tether, which is ultimately backed by Bitfinex, a highly profitable crypto exchange which is probably still doing decent volumes during this down wave. If Tether does fail it might very well come toward the tail end of crypto price declines, when trading volumes have dried up and the incentive to prop it up is gone. Bitcoin has only just reached its marginal cost of production. The dynamics of Bitcoin are probably different (it doesn't take years to shut down or spin up a mine), but when they enter bear cycles, many commodities will trade below the marginal cost of production for years. The marginal cost of production itself could also fall if energy prices decline from here.

adam_arthur 4y ago

There's no way to quantify numerically a fair value for bitcoin like you can with equities. So yes, no fundamental/mathematical reasoning for why it should be 10k vs 20k vs 0. You can assume there will always be some level of interest, so 0 is probably impossible, but can trend towards it.

davidgerard 4y ago
My favourite example is that authentic Zimbabwe $100 trillion notes go for >$100 these days on eBay. And I say "authentic," because there's enough of a market that there are forgeries in circulation. (Reproductions are much cheaper, $5-$10.)
srfilipek 4y ago
Well, theoretically the value of Bitcoin would be a function of energy costs and mining difficulty, but that hasn’t happened in practice, and would still be volatile anyway.
- DennisP 4y ago
  The difficulty and energy cost is a function of price, not the other way around. If the price goes down, miners aren't profitable and some have to quit, which makes the difficulty adjust downwards.
- wcoenen 4y ago
  This is a common misconception. It's the other way around: mining follows the price. Miners can collectively earn a pre-determined flow of block rewards. If the price rices, then those block rewards become more valuable. So then miners can afford to spend more on hardware and electricity as they compete to get those block rewards. Now that the price has dropped, the opposite will happen. Miners can no longer spend the same amount on electricity, so many will be shutting down their mining rigs. Only the miners with the lowest electricity cost can keep operating. The difficulty will drop until it is once again in equilibrium with the price. For real world resource mining, it's different. E.g. if a metal used by industry can't be mined for less than 1 $/kg, then that must put a price floor on the price of that metal (in the long term, ignoring short term price volatility). This dynamic doesn't exist in Bitcoin, which confuses many people.
  - bongoman37 4y ago
  - srfilipek 4y ago
    Yes, in practice mining mostly follows price, but it's still not quite that cut and dry. Miners also need to sell bitcoin to recoup operational costs. They influence the value of bitcoin by being an active trader and setting limits to their sale price. Current price influences future mining. Past mining influences current price.
- 4y ago
DennisP 4y ago
True for Bitcoin. If you want to use applications built on Ethereum, you have to burn ETH, which provides the same sort of demand as for oil.
- adam_arthur 4y ago
  This can be true if those applications carry some intrinsic value. However whenever I go down this thought experiment, I tend to find that the applications themselves also don't carry intrinsic value e.g. some tie to the real world outside crypto. Are there exceptions?
  - DennisP 4y ago
    Even if the applications are just weird forms of entertainment, that's still demand that people are paying real-world money for, since they have to spend their real money to buy the ETH. Non-blockchain gaming is a fairly big industry and all the money people spend on in-game purchases doesn't have any more connection to the "real world," but is still valid for financial valuations of the gaming companies. There are people (especially at EY) working on using Ethereum as infrastructure for things like B2B transactions, but that's still in early stages. And here's a recent piece by Vitalik on non-financial applications of blockchains: https://vitalik.ca/general/2022/06/12/nonfin.html https://vitalik.ca/general/2022/06/12/nonfin.html
    - JustLurking2022 4y ago
      Yes, plenty of games make money off in-game transactions, and generally they only remain profitable for a few years while they have a large user base, then fade into irrelevance.
      - DennisP 4y ago
        But gaming companies can do well for a long time.
- prepend 4y ago

jjeaff 4y ago

"with crypto the floor is zero?" Yes, because there is no intrinsic value with Bitcoin. If a company has real estate and machinery or whatever, there will always be some value there.