Derivatives guy here. Perfectly fine opinion, but two issues.
Why now? This is a general investing issue. Trading costs money, holding a put costs money, so why will the market do what you think in this time frame?
Why are the puts cheap? This could be substantiated with some numbers, esp implied volatility. Are they cheap vs history? I don't know, but the reasoning should show why you think so. Note I'm not looking for breakevens. That can be worked out from the price, but it doesn't tell you whether that is more or less likely than the market's opinion.
In trading you need a catalyst. A reason for why something will happen in a certain time frame. That's the basic premise for how trading works. If you don't have a catalyst then you are just blindly gambling or throwing your money away.
OP gives a bunch of reasons, but no reason why any of that will play out in his particular time frame. So he's not trading. Time will tell if he is gambling or throwing his money away.
Well he may not be saying his reasons timing wise. But if you look at the long term bitcoin graph it looks like it had a peak in may around $62k and could fall to something like $15k based on past peaks https://coinmarketcap.com/currencies/bitcoin/
Also if you look at trading volume, here on coinbase but it's the same for other exchanges, it also seems to have had a peak in may and be going down which also in the past has lead to falls in btc https://nomics.com/exchanges/gdax-coinbase-exchange
Yeah - the closest he comes to providing one is "My best guess is that pretty soon the supply of greater fools runs out." But that's not very scientific.
I suspect the catalyst will be some kind of regulatory action against Tether. But yeah it's really anyone's guess at this stage and as you point out it's knowing the timeframe that is the problem with shorting.
If you are betting something will tank then you don't time the market to get to put at the best price. Buying these puts either pays out a lot if there is a giant dive before they expire or is a cost to cover that time period.
Is he underwater? Aren't the put options that he bought previously just not cheaper now?
On options being underwater: "Underwater stock options have an exercise price which is greater than the market price of the underlying stock." Is that his situation?
To be "short" you can sell borrowed equities, sell calls that you write, or buy put options. Buying put options will cap your risk at the option price (I think underwater just meant "lost lots of money" - more likely to go out of bounds with the first two kinds of short positions)
Those three are all 'bearish' strategies, but "going short" is selling something you don't have. Buying put options isn't short selling, although both are anticipating a decrease in the value of something.
Underwater is the term for a contract or asset that is worth less than its notional value.
If the asset he has bought is now cheaper, then yes he is "underwater" (i.e he has lost money on a mark-to-market basis - if he was to close out he would crystallize a loss)
Except if you believe, as the author does, that the entire market is just scams and insider manipulation there is no meaning to be gleaned from any of the numbers. If it's all a sham it will blow up at some point, it's just a question of when, but that will almost certainly be precipitated by some unpredictable external event.
"Markets can remain irrational longer than you can remain solvent." - John Maynard Keynes
Speculating on options based only on irrational pricing is a risky game. You could be waiting years for the correction to occur and it might never occur if the fundamentals change to make the price more rational.
You can increase your safety level with a known catalyst. In this case, it might be something like an SEC investigation into tether, but you'd have to decide on the timing, the probability that occurs, and how much it could ultimately decrease the related stock prices.
That’s a very bad thesis to trade options on. The author believes that BTC is overvalued, but if you look at their reasons for believing it’s overvalued, some of them could have applied to BTC at any point in time over the past several years, and the rest could have applied to BTC and any point in time since it’s creation.
By buying puts on bitcoin (derivatives), they’re not only betting that they’re correct, but also that something will happen in the next 5-6 months that will catalyze the market to correct that valuation. They don’t have any thesis at all for what’s going to catalyze this correction over the next 5-6 months. Their entire investment thesis is that “[they’d] be astonished if we get through 2021 without an explosion”. The investment described in this blog post is just a crypto-bear yolo play, with less thought put into it than your average r/WSB post.
Edit: looking at the options chain for the BTC ETF they’re shorting, NTM puts are trading at $2, so the underlying has to lose about 1/3rd of its value for that trade to break even. If it goes to $0, their maximum profit is ~$400 per ~$200 contract. That’s certainly not a cheap contract.
Bitcoin, like tesla stock is better predicted by treating it as a religion than a rational investment. So how long are people going to believe a kid who said a god knocked her up to avoid getting stoned?
> So how long are people going to believe a kid who said a god knocked her up to avoid getting stoned?
What you say does not make much sense.
When Jesus came to Nazareth as a grown man, this is what His neighbours said about Him:
“Isn’t this the carpenter’s son? Isn’t his mother’s name Mary, and aren’t his brothers James, Joseph, Simon and Judas?" (NIV Matthew 13:54).
And a few verses later:
"And they took offense at him. But Jesus said to them, “A prophet is not without honor except in his own town and in his own home.”" (NIV Matthew 13:57)
So clearly, Mary – Jesus's mother – was not kept from being stoned because her neighbours believed Jesus was the Son of God, see Luke 1:26-38 for what Mary was foretold by the angel about her birth of Jesus as the Son of God.
Before Jesus was born, Joseph married Mary: "When Joseph woke up, he did what the angel of the Lord had commanded him and took Mary home as his wife" (NIV Luke 1:24).
Jesus became known as our Saviour because of His words, acts, death and resurrection, not because the neighbours thought He was so spectacular when He was born.
> Jesus became known as our Saviour because of His (...) resurrection
There is no evidence for this except what is told in the Bible. Which is the whole point, you are one of those irrational people who are holding onto an irrational asset (Religion). That asset has value to you since others are holding the same asset, if there were no others in the world who believed in the Bible then you wouldn't believe either. So shorting Bible belief could seem rational, it is bound to die sooner or later, but likely it wont die in the next 10 years.
And just to illustrate, a rational belief is belief in something like newtons laws of physics. Although they aren't 100% correct they are still useful for solving many problems so they will likely survive as long as humanity exists. The main difference is that the laws of physics has value even if you are the only person believing in them. Similarly Amazon stock has value even if nobody else wants to buy them. But bitcoins just like the Bible has no value if others doesn't believe in them.
Some great minds in 18th/19th century debated all this in context of rationality. Kant, et al. Some of the discussions were in fact about the "utility" of belief.
As to "rational belief", isn't that an oxymoron? There is 'rational knowledge'. Belief is precisely regarding matters where reason remains mute. Your beliefs and your knowledge are the full content of your world reality.
Religion being true or not does not matter when predicting the behaviour of believers or the people who exploit belief. Trying to predict the price of tesla or bitcoin using their non investment related utility or in teslas case, comparable companies, gives extremely poor results. But if you believe in Tesla and its profit Elon Musk, that does not matter. And if you believe other people believe in Tesla in this way, and that they will keep successfully recruiting, then the price is not just motivated, but possibly kinda low.
Religion being true or not does not matter when predicting the behaviour of believers or the people who exploit belief. Trying to predict the price of tesla or bitcoin using their non investment related utility or in teslas case, comparable companies, gives extremely poor results. But if you believe in Tesla and its profit Elon Musk, that does not matter. And if you believe other people believe in Tesla in this way, and that they will keep successfully recruiting, then the price is not just motivated, but possibly kinda low.
Would you be interested in placing a bet with me that the world gives up on religion before the end of the year? Bets are $200 each, and if there’s 0 religious people left by December 17, I’ll pay 3:1. Any takers?
Though Bitcoin does have brand name recognition. And being listed on major exchanges. Is that what they refer to as network effects, btw?
And if it's akin to religion or a well known brand, it could be easily cloneable but not easily adoptable. I can make a leather handbag or carbonated beverage right now, but unless I slap a Chanel or Coca Cola logo on it, it's not likely to be in demand.
We have the tendency to approach this from a rational perspective - "it's not a currency or store of value", "what about Tether", etc. But I can think of plenty of examples where the name itself is powerful enough. I'm not willing to bet that Christianity (or any major religion) will collapse in the near future. Slow decline, maybe.
Of course, maybe there's only like a tiny minority of true believers, a couple price manipulating whales, some smoke and mirror organizations, and everyone else is a Robin Hood speculator. I don't have the numbers on that.
Being open source it is not a characteristic for value. There are multiple positive and negative examples of things that are open source and (un)valuable
One major caveat; You're not shorting BTC/USD, you're shorting BTC/USDT. As long as Tether is managed by a shady, unregulated corporation with zero transparency or oversight, that has full freedom to create as much artificial liquidity as they see fit, that seems like a very bad bet.
Most people don't know this but Tether and Bitfinex have the same parent company, iFinex. Bitfinex is easily the largest manipulator of BTC price and their wallet holds nearly 1% of the BTC supply.
Together, they practically control the market.
Even Bitcoin maxis agree that Tether's collateral is very risky. It's a house of cards waiting to collapse.
The more I think about it, the more I think that this is actually a pretty genius trade. The price of Tether is effectively capped at 1 USD, so it's not like a short position could blow up in your face. All you'd stand to lose is the interest.
Rather unfortunate that in that movie scene the speaker of that sage piece of advice was cast as the one who was hysterically panicking and its recipient as the calm, reasonable one.
I think there is lot of subjectivity in this trade.
The timing of the trade mostly author's gut feel that bitcoin will soon transition to a seller market as everyone who wants to buy bitcoin will already have one.
Puts being cheap is also a subjective measure. Author might be looking at past prices and making the bet. He isn't looking at greeks at all.
I know to some extent trading stocks is a little like gambling. A lot of things you have no idea about can happen, but there is a lot of data that can help you make an educated guess. Even then a lot of unforeseen factors move a stock price.
Crypto investing seems a lot more like straight up gambling, where there isn’t a ton to go on. Even less to go on than investing in a regular currency, which isn’t very mainstream.
I love this sort of thing. He’s making a bet, explains his reasoning, and does it in the open! That’s great.
I disagree that there’s no tech here. IMO public ledgers that never sleep are far superior(thanks to the hard work of many people over the past decade), and their advantage over retail banking will only increase. My online banks keep getting worse, crypto keeps getting better. Think about this: banks are CLOSED 77% of the time! Need to send a wire? 3/4 times bank will be closed. Capital will just move far more efficiently on block chains.
I have NO idea whether crypto is a good investment. I agree with the OP that insiders dominate it. But the tech has gotten really solid and I don’t see how the rest of banking has a chance, unless our government wants to burn our economic lead down to protect the status quo.
Banks are bad because they charge to much, but they aren't that bad. What kind of unbelievably shitty bank doesn't provide 24-7 money transfers through a convenient phone app? Those transfers always take 0 time within the bank and have legally forced waiting periods between banks and between regions. The time may be legally required to be higher for certain scales of transactions, but they are generally as fast as they can be. Btw if your bank does not provide these services, just switch to one that does.
Another curious thing to note is that the legal requirements on transaction delays are mostly regarding wealth control, scams and ensuring its difficult to launder money. Strictly speaking, if bitcoin was treated as a currency, or even a publicly traded derivative, internationally a lot of them would apply to bitcoin. Bitcoin of course cannot obey these by design, but the more popular it gets, the more countries will try to enforce these, most recently china. That bitcoin is more vulnerable to state actors than people seem to think is pretty funny too. If china turned all its supercomputing clusters to bitcoin mining without building anything new, they might well become big enough to control the blockchain. If they made an investment in asics large enough to match just the recent baidu supercomputer, they would control the blockchain entirely. So good luck getting your assets out when they decide to really enforce their rules. Just kidding, this will only ever be approved when the officials in charge want to really own a lot of bitcoin^^. More realistically they would just simultaneously and long term kill every major exchange via hacking and ddos and asset freezes, but thats just because that would be cheaper.
Eh. Brazil (the government! same one that botched the response to Covid) instituted an universal mechanism to wire any amount of money instantly for free — there goes your use case, not to mention Venmo, etc.
Of note: INSTANTLY. You can pay a random handyman you need in an emergency, or split bar tabs, or pay out-of-pocket expenses with doctors, whatever. I use it in lieu of credit cards for e-commerce too.
Its only interesting when compared with the US. Japan put in instant payments in 1973. And Nigeria, Philippines and many other developing countriesall have local instant payment systems.
I have been using BRL (a stellar based stable token) to pay a programmer from Europe. Zero fee, Sepa instant to PIX. Allows me to pay him daily as that is what he wanted.
You're relying on a nation state to behave in a certain way. This never works out in the long term. The winds of politics change on a whim. That's just history for you.
With Bitcoin you instead rely on the intrinsic properties of the protocol. No ifs or buts.
you still need a way to turn that BTC into cash you can use daily, and that requires an on/off ramp. For any large amount, P2P is out of the question. You will need to go through an exchange which will have to comply with the local laws of the nation state.
The core problem is that no mature economy will have any need to accept BTC payments. Their native currency will likely be stable and they'll also have infrastructure to support fast, cheap payments via legacy means.
There is really no incentive to accept crpyto for any large merchant. In fact, the number of online merchants I've seen who accept crypto has actually gone down over the last few years.
True and that's why I think it'll take many decades. Merchants accepting before the mass adoption of lightning and other layer twos are way too early, and no one wants to spend it before it reaches mass adoption.
Bitcoin only makes sense for emerging market countries with unstable currencies or formerly stable countries going through a crisis. In the former case it takes a long time for those economies to mature. In the latter case, it might be temporarily adopted by their citizens until they can escape to a more stable country or the country manages to turn itself around. These events take decades.
For now, it's just a store of value. You put it in a portfolio like gold as another uncorrelated asset that tends to go up over time as fiat currencies inflate which is what got some of the recent big macro/portfolio construction crowd interested last year and driving up price in this recent run up, and unfortunately the market cap is too low again for more serious allocation to it without driving up price too much.
We're a decade into an adoption curve that was planned to be over a century long
You aren't making a lot of sense here since you are relying on an unelected group of people to behave in a certain way. > This never works out in the long term. The winds of politics change on a whim. That's just history for you.
With a nation state you instead rely on the intrinsic properties of the law. No ifs or buts.
Small incremental changes based on almost universal consensus, yes. Not the same as political change. The big block size guys failed to make a big politically charged change. Bitcoin has shown its resistance to political change very clearly.
> Think about this: banks are CLOSED 77% of the time! Need to send a wire? 3/4 times bank will be closed
Physical branches, sure, but I don't know of any online service that has ever closed, in the UK at least...
We can send payments to other banks and they arrive almost instantly (or within 2 hours) any day of the week. For free.
This is why I wasn't that impressed when US friends were excited about instant transactions using BTC, when we've had this in our banking system for over a decade
And with companies like Wise (previously trasnferwise) I can convert a USD balance into GBP in seconds, and then withdraw to a UK bank in a few more seconds.
Send money to chile and wise charges 5-8%. They mostly only good in OECD countries. Plus they don't support sending money out of hundreds of countries.
I figured that they changed their name to wise as their transfer business was not profitable in anticipation of their ipo.
People who don't get crypto typically live in countries with not corrupt or inept government officials.
I don’t believe conversion from fiat in home country + transfer fees + conversion to fiat again in Chile costs less than 5-8% except for very large transfers.
That's not true everywhere. My transferwise from EU to Asia takes a good week to arrive and still costs more than Bitcoin and significantly more than any altcoin or lightning network.
Right, but with Bitcoin, it can be achieved without having government totally (and arguably quite invasively) integrated into every facet of our society.
You have obviously never tried to move money on the public blockchain. Bitcoin is actually slower and more expensive than it used to be.
Need to send a wire? Locally (within the same currency) I can send 24/7 with an average time to hit the other persons bank account of around 5 seconds - cost is $0. No blockchain involved just old fashioned brick and mortar banks.
I live in Germany, and even local transfers (between different banks) are not guaranteed to come fast - sometimes it's quick, sometimes it's next working day. So what's true for you is not true everywhere even in the Western world.
Yes, certainly some countries need to modernize their banking infrastructure.
But you can do that without a blockchain for a tiny fraction of the energy cost, transaction time, and transaction fee (if there's a fee at all).
Example: twint.ch Instant transfer, no fees, ubiquous (you can pay you train ticket/parking/groceries etc... with it as well as transfer money to anyone). No blockchain.
I still don't get how this solves any major issues. Neither major companies or the vast majority of people need to wire money at 2am. The main utility of banks (and the main profit center) is giving users the ability to spend money on credit.
Crypto doesn't solve that. I feel like everything you said about the upside of crypto would have applied even more so to the invention of 24 hour ATMs. Was it a huge upside to users they could get money at 2am? Yes. Did it change banking - no. Will faster transfer be upside for consumers? Yes. Will it change banking - probably not the existing banks will just get faster at it and things will be marginally better. I can already use zelle to transfer instantly.
My online banks keep getting worse, crypto keeps getting better.
That resonates with me after my bank shut down my ability to transfer money (via eTransfer) because I hit their arbitrary $20,000 limit for the month. I had to wait THREE weeks before I could send another transfer.
It's also worth reflecting on the fact that banking being terrible is predominantly an American problem among the developed nations. Even in 3rd world countries, banking is pretty awesome. Checks have been obsolete for decades, any kind of money transfer takes around 5 seconds after you press send from your bank's app, even during weekends and between different banks. Transfer limits are generally settable from the apps as well. Worst case they sort you out through phone immediately. Waiting for 3 weeks for something like that is unheard of where I live which is a developing country.
And crypto gives the entire world that great experience, without needing a bank or a government. It is hard to say that isn't an amazing technical solution to an organizational problem.
There are worse countries to manage your finances in than the US by the way. Lebanon is in the midst of a terrible bank and currency crises. People literally are not allowed to take money from the bank. This happens repeatedly throughout history.
Every bank will reimburse you in the event of getting hacked or fraudulent withdrawals (to varying degrees), so withdrawal limits reduce their liability.
Bitcoin doesn't provide any protections in the case of your money being stolen, so it doesn't impose any limits.
Send is only 1 leg of the transaction though? Time is money, if I need to move funds across the globe I would prefer to do it as fast as possible. I am pretty sure this is a common sentiment.
"Banks are old and slow, technology is fast and new" so technology will win. That is totally reasonable logic.
But bitcoin provides no protection from fraud by design. If someone breaks into your house or hacks your computer and steals your private key you have no way of getting that bitcoin back. But if someone impersonates you at the bank the bank has ways of refunding you. Maybe some people prefer the bitcoin design, but most people will not.
> banks are CLOSED 77% of the time! Need to send a wire? 3/4 times bank will be closed
Wait, what ? I have never, ever been unable to pay (aka: send money) regardless of the day/time. Wanna order that sweet RTX 3080 on amazon at 3 AM on a sunday ? Got you covered ! My business is also able to charge (aka: receive money) 24/7/365. It's a 100% uptime from my POV). Just need the app on my phone.
And usually the confirmation takes less than 15 seconds. The few payments I made with bitcoin took around 24 hour to be confirmed (granted I just said, "** it, I'll check tomorrow" after waiting for a few minutes).
In my whole life, I have seen one (1) single Bitcoin brick and mortar "store" (basically, an ATM behind a glass, and some bitcoin swag). Funny enough, it was closed when I was there because I was visiting on a sunday. Compare apple to apple and oranges to oranges.
> My online banks keep getting worse, crypto keeps getting better. Think about this: banks are CLOSED 77% of the time! Need to send a wire? 3/4 times bank will be closed.
This is a very American perspective. It's not like this in most places. And even if it was, Blockchain isn't the only solution. By far.
> Think about this: banks are CLOSED 77% of the time! Need to send a wire? 3/4 times bank will be closed. Capital will just move far more efficiently on block chains.
The amount of time it takes for me to move my own money between my own accounts pisses me off mightily. I can pay to have an "instant" transfer but that is just double dipping by the banks for a service that should be provided in the cost I'm already paying for my accounts. Crypto currently has far greater UX challenges but once these are fixed this is where crypto can win.
Free, instant transfers are already the status quo in a lot of the world, as of course they do not require blockchain. SEPA Instant Payment in the EU, for instance. In fact they're way faster than a Bitcoin transaction much of the time - and obviously way less expensive ($0 vs. $5-60).
The US is moving to 24/7 free, instant payments as RTP rolls out. [1]
The US has been quite far behind historically on this front however they are closing this gap, probably motivated in no small part by Bitcoin.
Here in India, I can make transfers via UPI for free. For larger amounts, I can use IMPS which costs INR 5 ($0.067). Both are instant and have highly usable apps from trustworthy providers.
While it's true in some regions, most of the globe banking is still very slow. In any digital currency, like cryptocoins of CBDC it's the same globally, not per region.
Global transfers are slow because they generally undergo some form of manual review for risk and AML/KYC. Crypto is fast because it pretends that this isn't a requirement. That only works as long as it's small enough people don't care. Once people care, things will look a lot different than they do now.
There's no reason whatsoever that a crypto payment would be faster than a traditional payment - in fact, there's a ton of reasons the lower bound is much slower.
This is an intentional process decision, combined with some (replaceable) outdated technology. However, the former strictly dominates the latter.
With Borderless/Multi-Currency it's even cooler, since it grants you local banking details in many different locales, so someone can pay you via ACH, FedWire, SEPA, EFT, etc and have that value reflected in your account almost immediately (depending on the transfer method) and (depending on the transfer method) without charge.
Isn't this convenience at the cost of trusting a third party, I.e. Transferwise, with your money? They can unilaterally hold, delay, or stop you from using your money.
Yes, that is true, however Wise is a heavily regulated entity (in the sense that they are regulated simultaneously by a number of global regulators). Broadly speaking they would have to have a very good reason - a legal one - to preclude you from accessing your money. The flip side is you have a legal pathway to recovering your value in the unlikely situation you describe. Pros and cons.
About the whole GameStop thing, for me the most interesting thing was how old school the whole stock market is. 2 days until you really own the stock?!? And then even some trading companys are just take your stocks and lend it for shorting?!?
They don't "just take" it, it gets lent out to them by your broker, who charges the shorter a fee for this. This fee (amongst other things) subsidizes your free account and low trading costs. For large investors it is possible to share in this income, though not via one of the currently popular retail brokers as far as I'm aware.
Customers who have not read the terms and conditions of a service they are using to store a significant part of their net worth you mean? Every broker I have ever seen very clearly lists in the T&C that they do this.
It was even a discussion here on HN because of an broker frome Sweden ord Norway (I don't remember). So no, it is not allways clear. And no, you may don't own the stock.
I'm of two minds. Cryptocurrency is a beautiful technology. But the current prices have absolutely world-changing speculation already priced in.
I think the price is largely meaningless, and cryptocurrencies are likely to crash hard, but at the same time, I don't really care, because the price is not the beautiful thing about crypto.
Crypto achieved its purpose as envisioned by the cypherpunks that created it, the moment people started using it - for, say, Darknet drug markets: anonymous or pseudonymous exchange of value in a manner that cannot be censored by governments.
Energy use promotes human flourishing. Look up fatalities from climate-related catastrophes in the past hundred years---floods, winter storms, hurricanes, heat waves, crop-failure induced famines---and you'll see a steady downward trend corresponding to increased use of machines. All these machines use energy. Humans are also increasingly capable of working to protect endangered species, especially after human well-being has been secured.
Inadequate energy supply (not enough at the right time in the right place) results in deaths. Energy consumption isn't bad ipso facta.
Developing a monetary system independent of government control and monopoly may be one of the most important human 'machine' systems ever built, at impartial price signaling at a societal scale enables people who don't even know each other to collaborate to solve common problems. Thus bitcoin's energy consumption may actually be one of the best uses of energy to date. Its certainly less destructive than the military power and state/central-bank coercion underpinning existing fiat monetary systems.
Proof-of-stake is basically an oligarchy though, those with funds call the shots, similar to the current mainstream system but without any of the checks and balances (they will be developed for crypto, too, in time, but at a high price for the early small adopters). Another example of crypto not really being that special in the end, if it wants mass adoption - you can ignore the boring realities as long as it's just used by a relatively small club.
> Proof-of-stake is basically an oligarchy though, those with funds call the shots
How is it different from proof of work? People with access to ASIC miners and cheap electricity call the shots, guess who those people are?
Proof is stake actually more fair since you cannot move your investment in the network - you are locked-in and need the network to succeed to not lose your position. With proof of work you can switch all of your investments to a different network at the snap of your fingers.
Proof of stake is naturally designed to produce benevolent leaders since their success is directly tied to the success of the network.
Look at the distribution curve of people and their funds that can be put at stake and compare with the people with access to cheap energy and capital to operate a mining rig, then come back to tell me which one is the real oligarchy.
The threat model of proof-of-stake (PoS) is weaker than that of proof-of-work (PoW). For example, "initial sync" (a new node joining the network, needing to find the sequence of blocks that everyone agrees is the right sequence of blocks) is much simpler with PoW compared to PoS. And, furthermore, with PoS it's possible to compromise this process by stealing private keys from a group that comprises a majority. An attacker can do this silently, and at some later date start publishing alternative chains, thus breaking initial sync by offering multiple, valid chains to new nodes, thus making them unable to decide.
In contrast, it's not possible to steal a majority of PoW mining power, and sit on it for an extended period, without (a) foregoing a large profit, and (b) risking that others acquire more mining power than you have.
One of the Cardano whitepapers [1] contains a good summary of the advantages of PoW over PoS in Section 5.1.1 under "Consequences of PoS vs PoW":
A crucial difference exists between PoS and PoW at the network layer, with significant design consequences: in PoW-based systems, proof-of-work itself gives honest nodes an advantage over adversarial nodes (as listed below), and this enables system designs that are simpler and more modular. There is no such advantage for honest nodes in PoS-based systems such as Ouroboros.
In PoW systems:
• The number of different block headers with a valid PoW that can be constructed (over any given period of time) is bounded by the total available hashing power in the world. In Bitcoin for example this is one header every ten minutes on average.
• The header PoW can be checked with little computational cost. This does not require any significant or recent state, only a vaguely-recent lower bound on the hashing difficulty value is needed.
• Such a cheap and simple test can be easily integrated into existing distributed algorithms such as broadcast algorithms.
By contrast, with PoS in Ouroboros:
• There is no equivalent of the PoW check that is expensive for the adversaries and cheap for the honest nodes: adversaries can create many apparently valid or actually valid candidate headers or whole chains.
• Block headers can only be fully validated with access to a very recent copy of the full ledger state, and the other preceding headers – which is not a simple stateless check.
• Having the full ledger state relies on the other two pieces of Ouroboros functionality: chain validation and chain selection
The first iteration of Ethereum's Proof of Stake protocol, the standalone Beacon Chain, has been working since December 1st 2020:
https://beaconcha.in/
So while not there yet, it's on its way to becoming proven technology. A big test will be how it handles general transaction processing. The Beacon Chain is limited to finalizing Ethereum PoW chain blocks at the moment.
True, but the difference here is that the crypto market is purely speculation driven at the moment. tezos is doing fine adoption wise: https://better-call.dev/stats/mainnet/general
As long as adoption increases it will be fine in the end since all that money that PoW chains spend on those power plants and GPUs goes straight into the pockets of Tezos holders. And the foundation has enough money to support the development for a decade or two.
It's in production on several chains now. A few examples are Cosmos hub (cosmos.network), Avalanche (www.avax.network), Tezos (tezos.com) and Solana (solana.com).
proof of work is the most efficient way to model independent scarce money and it also is the greenest industry around and it's also driving development of green energy capacities. i truly don't understand people with opinion like yours - it's like you didn't even stop for a second to think about it and just jumped to conclusion: energy usage = bad.
sorry, energy usage is great and we should be doing more of it. energy production can be bad, so go rage at dirty energy producers.
Edit: oh and by the way, you made it very obvious that you're biased and can't think straight on this topic by using the term "proof of waste", there is literally zero waste in proof of work.
I'd love to hear the one main argument against it. Throwing 7 arguments (some of them related) is throwing too large of a net. Is he hoping to get people convinced with at least one of the points resonating?
IMO, in order (and happy to be proven wrong, I am curious what others think):
1. I'm not sure why this would matter. Wouldn't that mean that the insiders have all the incentive to sell the bitcoins they own, even in time – so they can make some "real" money? Wouldn't the price have crashed / gone to zero so many times until now? (there were plenty of opportunities to sell). There is def speculation in BTC, I am not denying that.
2. This is incorrect. Some (most?) people view BTC as a store of value, so in essence, transactions can be few and far between. The adage here is "transaction costs too high? – it means you're moving too little BTC". The Lightning network does play a role in transaction costs.
3. This might a good point. I don't know enough about Tether's use but I have heard this argument raised before.
4. Agree with author, but this point is rather vague. It could go either way. Not sure if regulation is as much of a silver bullet as he makes it out to seem.
5. This is a corollary to the above 2 points, so not really a different argument.
6. Is this the main argument? The author does seem to be an environmentalist - but there are plenty of arguments against this point too. I personally disagree with this point.
7. Again, not really a point, just a rant on what the author thinks are the people that own BTC. At this point he's just insulting BTC holders really, so you know, pyramid of argument (attack the argument not the person etc.) makes me discard this point entirely.
Again, curious what others think, lots of smart people here.
Shorting deep into a double-digit correction sounds just as likely to lose money as buying deep into a double-digit expansion.
The author is talking about a short-term trade, not an investment. There's a lot less room for error on the timing, and I suspect the timing here.
On that note, the author says nothing about the halving cycle. Proceed with caution, brave "shorter."
The bigger problem is that all of the author's criticisms have been valid for many years. This is old news. It would be more interesting to read about a complaint that has never been discussed before and to understand why this time will be different for Bitcoin.
I agree with basically every word in the article, but would never ever short Bitcoin. Simply because the market can remain irrational longer than I can remain solvent.
> When will it happen? I dunno. I’ll be astonished if we get through 2021 without an explosion.
Everything he wrote was also true in 2020 or 2019 or 2018 or 2015, and yet there was no explosion. Why does he think Christmas 2021 will be different?
Almost everything except maybe the "fool pool" running out this time? Although even that is hard to speculate about. The crypto business may adjust and make itself even more accessible to a larger "fool pool". There's still a lot of money in the world that's in the hands of people who literally don't know what to do with it. Just create a sort of a Western Union for bitcoin and go to poorer countries... What a terrible, horrible idea that unfortunately might work.
> The crypto business may adjust and make itself even more accessible to a larger "fool pool".
I’ve been seeing more and more ads recently from various companies advertising how easy it is to open an account to trade crypto and I think this is the reason.
One possible difference is that there seem to be an awful lot of supposedly "safe investment" offers out there promising outrageous interest rates for short term loans. I'm not keeping a particularly close eye on that market, but I don't recall that being mentioned in past years, and it would seem to be a sign of the bottom of the sucker pool being scraped.
Puts are fine but the swings will often get you liquidated if you use too much leverage. I personally wouldn't bet against Bitcoin knowing the state of the wider market (stocks at all time highs, inflation fears but also Fed rate hike fears). If inflation fears kick into high gear it could be enough to push BTC back to retest the ATH
> Puts are fine but the swings will often get you liquidated if you use too much leverage.
Isn't that the same as saying "swings will often get you liquidated if you use too much leverage"? Whether puts or whatever else, if you use too much leverage, swings will often get you liquidated.
Also, I don't think the author used any leverage. He just bought puts.
Yes puts or calls can get you liquidated by swings.
I was trying to get across that a lot of people are using high leverage right now to get-rich-quick and, especially in the crypto space, it is risky to the point of being unwise.. unless you have an edge with backtested, medium-term models that adequately account for the wide range of volatility, with automated take-profit / stop-loss in place.
> Yes puts or calls can get you liquidated by swings.
No, when buying puts/calls, you can't get liquidated by swings. The worst that can happen is that they expire worthless.
They could get liquidated if you borrowed money to trade them, but that's not in the nature of the put/call, that's in the nature of borrowing money to trade.
In this specific instance, I understand the author bought puts with actual money, and there's no way he could get liquidated by whatever swing.
I think this is a good strategy if you look at the fundamentals. But the thing that's been making BTC work isn't the market or the technology, it's the behavior of other people. That's something that isn't taken into account in his list of justifications.
People are behaving 'irrationally' and it's been working over and over again. It's created throngs of people who are believers and nothing will change their minds.
BTC isn't going anywhere, despite my reservations about it's use as a tool for financial systems.
Doesn't matter if bitcoin stalls out or even slowly bleeds out in price.
There is a subset of true believers who will hold bitcoin in their portfolio's forever because they value the self sovereignty and globally accessible wealth it provides.
Even the bulls believe that we'll eventually reach a steady state where hyper growth stops and it starts behaving more like gold, tracking inflation and economic growth.
The multiples that Tesla trades at arguably are on the assumption that they’ll crack self-driving first combined with their dominance in absorbing a good chunk of the green credits that they resell to other companies.
The former feels sufficiently far out that the multiple is irrational. The latter will start disappearing as competitors roll out their own EVs and government subsidies start disappearing.
Tesla is the absolute world leader in battery manufacturing. A lot of people are betting on that as well. Tesla has a lot of things going for it if you project what we are going to need in the future.
I’m not saying it is a good/bad investment but their entire car business could fade away and they could still be doing mega-business in other “green” business lines.
I don't believe Tesla manufactures their own batteries at this point, electing to source them from other manufacturers like Panasonic. They, I believe, intend to start making their own at some point in the future.
They invest a lot and not cars catching fire is unfortunately not that uncommon. I'm not sure Tesla is worse than the others. In electric cars, Hyundai and general motors got a few fires from LG batteries. If you think about ICE cars, its really not uncommon for them to burn too.
If you really think Tesla is a pyramid scheme, you should consider reading their financial reports and test drive a recent one. It's perhaps a bit overrated and the full self driving is not happening anytime soon, but it's a solid product.
I don't think you know what a pyramid scheme is. A pyramid scheme is a sales scheme where one person enlists other people to sell their goods because they take a % of the sales of the people below them, which encourages the people below them to hire people below THEM. It also requires a large up front purchase by new members, which is what causes those percentages to trickle upstream, amplifying what the person at the top of the pyramid gets based on how many layers are below. When people at the bottom begin to fail to sign up new members, each layer above them no longer finds it profitable, which causes the pyramid to eventually collapse.
Tesla is in no way a pyramid scheme.
It is, however, a groundbreaking luxury car brand that is disrupting the auto-sales collusion, opening up the possibility of fossil fuel use reduction, highly dependent on blood minerals, and run by an egomaniac tax cheat who doesn't give 2 shits about his employees. Tesla's impact is multi-faceted, both positive and negative, and highly nuanced.
Tesla cars catch far less fire than their competitots's, EV or ICE. This has been debunked years ago, check your sources.
As for credits making their profits, first it's like saying early Anazon could never turn profitable and second, just wait for the P/L report of this 2020Q2. You're in for a big surprise (my bet: profitable without counting credits amd even S/X sales!)
Someone that was predicted to own 5% (1mm) of all Bitcoins just died in Costa Rica
I doubt they had a survivorship and secession plan for their bitcoins and I doubt Bitcoins become less scarce
Shorting Microstrategy and Coinbase via puts are good ideas though. Microstrategy isnt overleveraged yet but its easy for them to be. Coinbase is just a share dump, thats the entire purpose of direct listings. This has nothing to do with Bitcoin.
That is true, unless you believe that the scarcity isn't at all relevant to the price in your anticipated future state. After all, the sacks of garbage in my kitchen are scarce but you don't see people tripping over their shoelaces to pay $30,000 a piece.
You are confusing scarcity and monetary hardness. Its super easy to create more sacks of garbage, and if demand for them shot up, a ton of people would bring their own sacks to market, crashing the garbage sack price. This happened to silver between the two sold wars, and nations that abandoned bimetal standards late lost a lot of monetary value to those on just gold.
Monetary hardness is whether its easy or hard to introduce more supply of a commodity money when demand goes up. More dollars are printed in response to demand, more gold mined in response to rising gold prices, more sacks of rubbish if that's what people clamor for. Dollars are harder money than sacks of garbage (unless we're talking about the failed Zimbabwe dollar), gold is harder than dollars.
However, more bitcoin CAN'T be created than the predetermined, declining schedule. Today, bitcoin's stock to flow is roughly equal to gold, but at its next halving it will double its hardness, and that will double again at every subsequent halving. So, bitcoin will become exponentially the hardest money ever created.
Scarcity is only part if monetary hardness. But perhaps you're right regarding future price: in the future (as is true presently), one bitcoin will be worth exactly 100,000,000 satoshis.
I believe it is relevant as more bitcoin becomes distributed on bridges and in Defi protocols (see burned liquidity pool shares), on lightning and liquid, in longer dated “physical delivery” derivatives contracts and more
Yes, and our friend Pomp left this delightful message on Twitter to mark his passing.
> Mircea Popescu, a Bitcoin OG, has passed away. He likely owned quite a bit of bitcoin. We may never know how much or if they are lost forever, but reminds me Satoshi said: "Lost coins only make everyone else's coins worth slightly more. Think of it as a donation to everyone."
Disgusting. [Edit] To be clear I'm reacting negatively to his choice of framing Micrea's passing in terms of his own enrichment, not quibbling with the mechanics. I've nothing against the idea that supply going down would benefit the community, just the way Pomp chose to address Micrea's passing. I suspect Pomp realized the optics himself as he has since deleted the tweet.
I'm sorry, I edited to clear up what I was referring to.
I was taken aback by Pomp choosing to comment on Mircea's life in terms of how his death would personally enrich him. I've edited to leave this note. I suspect he realized the optics himself as he has since deleted the tweet. To me it read as "Mircea died huh? Well good news, our bitcoin's more valuable now."
I've nothing against the mechanism Pomp was pointing out, per se, other than I suspect any random saunter down the time line results in all coins eventually lost. I'm also aware of the counter-argument that infinite divisibility mitigates this.
> Mircea Popescu, a Bitcoin OG, has passed away. He likely owned quite a bit of bitcoin. We may never know how much or if they are lost forever, but reminds me Satoshi said: "Lost coins only make everyone else's coins worth slightly more. Think of it as a donation to everyone."
So, people are literally betting on the deaths of other Bitcoin holders? Is this supposed to be a joke? If there was a Bitcoin nation then it would execute its richest members...
You follow bitcoiners on twitter? That’s interesting
I would have assumed you had completely segregated yourself from them
Yeah I also believe the coins are lost and the principles of scarcity do apply, this is acknowledgeable with more tact than what Pomp chose to say, its an assumption that can just go unsaid
I do; when I feel really strongly about something I always try and challenge my opinions. I like to hear both sides of the debate and make up my own mind. I'd like to think I have more than a passing knowledge of Bitcoin and crypto and the ecosystem in general. Not as much as some, to be sure. I am open to being wrong, and of course it goes without saying that I've learned a lot from you and our various back-and-forths! :)
I work in payments, and have for a long time now so it's important I have at least something of an informed opinion on cryptocurrency in general. I've also got a few friends who did very well in crypto (and some who haven't done very well at all).
I follow and often engage with Paolo Ardoino too! :) I think in a different life he and I would be great friends.
I agree, Pomp is right about the mechanics, I was referring to the tactless way in which he chose to honor the life of Mircea - in terms of his own enrichment.
Many people die intestate every year and the state takes their net worth. That money, in many ways is a donation to everyone, since it marginally reduces overall tax burden.
that prediction is bogus. they were OG, yes, but it's highly improbable they were able to hold on to all those bitcoins. 2009-2011 was a time when people threw literally hundreds to thousands bitcoins for dumb things like socks and pizzas. and those are real world assets - it was much easier to spend BTC for virtual assets like hosting or vpn or gambling.
no doubt the guy was beyond rich, but i'm almost certain they didn't hold 5% of BTC.
> I doubt they had a survivorship and secession plan for their bitcoins
and why would you doubt it? when somebody becomes billionaire, paying financial management companies and lawyers is pocket change.
Because Mirceau made their trust issues with institutions to be pretty clear
I think he was aware of technological solutions native to Bitcoin, but I just dont think he would have put them in place unless he was terminally ill and had some lead time to do it. This has nothing to do with being a billionaire and is distinct from drowning on vacation as an in shape 41 year old
He’s had an objectively gargantuan sum of money for a very long time, everything you said is true for single digit millionaires too
becoming a billionaire most likely changes your perspective a lot. and he became billionaire 7 years ago. that's plenty of time to think of how to preserve bitcoins such that they aren't lost when one passes away.
and since you say he was technical - well there are tehnical solutions to do that, multisigs, sharded keys, etc.
Just general behavior of that person and their expectations at 41 years old.
You would just add this to other assumptions about unmoved bitcoin, where over time you would look for the days destroyed the metric, aka how many bitcoins have remained unmoved for how long. It is decent news when old bitcoins are moved, and until that occurs they can be assumed to never move, especially when they are in version 1 addresses.
Mircea was (if he is indeed dead and isn't instead pulling a fast one) one profoundly odd bird [1], but he was most certainly not dumb.
He also lived a rather unusual life [2][3] and likelihood of some sort of trouble hitting him at some point were not insignificant.
Also, his death would be a perfect Mircea-type opportunity to create an "event" in the Bitcoin ecosystem. It's quite possible he wouldn't let something like that go to waste.
These taken together, I think assuming he hadn't planned anything in case of his demise is a bit of a stretch.
The only reason I could think of that he didn't was his profoundly individualistic take on life.
But then again, he had folks he cared about [4]
Also, the "old coins moved" metric argument isn't necessarily a good one: if there is a plan in case of his (alleged) death, it does not imply the coins will move right away (not that you even know on which addie they were stored in the first place).
Anyways, RIP Mircea, the world got quite more boring if you did indeed pass away.
You should never base your shorts on solely rational points (long-term rational points, even worse) when going short on bubbly assets.
Things like "Bitcoin is not a viable payment method, it's centralized, possibly manipulated, fueled by the greater fool" is not a valid shorting motive unless you have a triggering event caused by your aforementioned rational point.
Sure he tweets every time he pumps it up but are you confident he’ll give you (and all the rest of his followers) a heads up before he dumps it? I wouldn’t be. And for that reason alone it’s a fatally flawed investment strategy.
he just has to tweet something remotely bearish and the market craters
The last time he cracked a joke about BTC maxis and sure enough, the market dumped. When he talked about BTC's eco impact, it dumped hard as well. You can trace the pumps/dumps to the exact moment of his bearish/bullish tweets.
If BTC price doesn't recover soon and falls further, Microstrategy is what will kill BTC. I don't know why BTC investors are so crazy about Microstrategy buying BTC (This would have never happened back in the early days of Bitcoin), but if BTC price goes down further, Microstrategy will be forced to sell their BTC by their shareholders. Otherwise the Microstrategy stock itself will crash. Also when Microstrategy loses too much money, they may finally have to shut down because they borrowed so much money from people just to buy BTC.
When Microstrategy crashes, along with them, the public sentiment for BTC will go to shit, and that will cause the crash of BTC itself since the whole recent price climb was based on the "institutions are buying up BTC" narrative. This is the scariest scenario. Once the downward spiral happens it will be unstoppable, it will be like the crash Mt. Gox caused, but like 100 times harsher.
Michael Saylor, the CEO, holds 70% of the voting shares.
All the other shareholders can kick and scream all they want, but Saylor controls the ship. The only power others have is to exit the ship by selling.
Every indication is that Saylor would hold bitcoin into the ground, unless he's totally full of shit. Their main business is still generating enough cash to pay the loans, so where's the pressure to sell?
They will have to sell if the Bitcoin price goes down enough that their measly revenue from their obscure enterprise software can't cover the loss from their Bitcoin investment.
He can keep holding, but it will lower the morale of the employees as well as himself. Unless you think Microstrategy has completely become a hedge fund, they have products to build and they will even lose what's left of their customers if things go bad. You really think the guy can keep holding when he lost hundreds of millions of dollars through BTC? (At the moment he's still in the positive even after the crash, but I'm talking about when it goes down further) Also he can and likely will get into trouble with the SEC when things get bad.
We get into the same conversation every time people buy at the top and the price sinks 60-80%. And for the past decade it has only bailed people out. So I don't see any reason speculating what will be the demise of Bitcoin because so far every single cycle has created more HODLers at pretty much any insane price valuation.
What do you mean "recover soon"? Two month? One year? Three years? Ten years? BTC has survived so many crashes, why do you think this is it, the final straw?
Every cycle converts more people, people who will never sell. These are also the same people who will buy hand over fist when the price approaches anything in the ballpark of their cost basis.
This might be a better argument for the crash than any of the 7 the author presented. (later edit: except for the 70% voting rights that Saylor still has – just read this further down)
Your answer only rephrases the question. The only way for it to hit $0 is if nobody is willing to buy the stock. This seems unlikely, given that the Bitcoin they're holding, even at 50% of present value, is still worth significantly more than $0.
Their Bitcoin holdings seems to add up to about half their current market cap, so that seems to make no sense.
EDIT: From [1]:
> “As of June 21st, 2021, MicroStrategy holds an aggregate of approximately 105,085 bitcoins, which were acquired at an aggregate purchase price of approximately $2.741 billion and an average purchase price of approximately $26,080 per Bitcoin, inclusive of fees and expenses.”
From [2]:
> Market cap: $6.08 Billion
So ~half, and average purchase price is still substantially below current BTC price.
> - No covenants -- no one can force a sale of $BTC
> - $MSTR is allowed to raise more debt at the unrestricted BTC co which would be structurally senior to the $3.4B (so original convertible bond holders are potentially getting primed).
>This $MSTR secured bond is just a standard secured bond that has very little to do with $BTC.
> Bondholders basically sold a call option (for 6.125% yield) and a put option... MSTR walks away with a ton of upside optionality, and it has a marginal impact on #Bitcoin
> [5/N] Their main business makes about ~50M in net profit - basically, Saylor makes enough money to cover the annual interest by 10X.
> - This means that from now till 2025 at least, Saylor CANNOT be liquidated as long as he pays the interest on the 0.75% 2025 bond.
> [6/N] But oh no! what if the board forces saylor to sell?
> Saylor himself owns 25% of microstrategy but he also owns the majority of Class B shares which have 10x voting power giving him 72% of the voting power. I.E
Saylor CANNOT be forced by anybody to sell.
> [8/N] In conclusion
> 1. The latest round of purchase will not have the ability to liquidate his previous holdings
> 2. The interest payment on his bonds CANNOT liquidate him
> 3. Nobody has the power to force him to sell. At All.
He's betting on prices going down at the end of the current 4-year Bitcoin cycle, which they historically have done. This is just trying to guess when it'll happen.
Betting against Coinbase, an exchange, is a bit foolish as exchanges make money every time there is a trade, up or down. Their income is unaffected by market crashes, may even go up.
That detailed dig into the past of MicroStrategy is interesting... but I don't know how it applies to today. It has a whiff of a personal grudge and the comment about laser eyeballs reminds me of people complaining about the "Beta" label and the pastel colours of the early Web 2.0 websites.
Don't know why this blog post is important, tbh. But it shows that the crypto craze is in full swing when technologists start writing publicly about their investments.
actually coinbase’s revenue tracks pretty well to bitcoins price. as when the price crashes people lose interest in it and volume goes way down. this is basically what happened between the end of the last bull market and the start of this one
and the same is true for robinhood with stocks. bull market attracts more investors trying to get rich and drives volume. in turn when it crashes the volume dries up as retail loses interest
I am not surprised to learn that, but I will still maintain that exchanges are fairly immune to the fate of the securities/commodites/assests traded on them. Crypto today is a more complex, evolved sphere than four years ago and most of the value is not in the price of this or other coin/token but in the smart contracts. Which is something that Bitcoin does not have, but for some reason people see it as a valuable asset.
The fact is you did not short anything but you bought a put option.
Even if I agree with you on bitcoin having an intrinsic value less than that of toilet paper, these reasons would have been true before the recent high point too. Instead, it reached that high point and an equivalent put would have expired worthless. Meaning you would have lost all of your investment.
I think shorting is a better idea as it relies less on timing. But with the fed pumping massive amounts of money into the us economy, I think you are still not unlikely to get margin called for a bet that the fed will not destroy the value of the dollar faster than the bitcoin goes back where it came from.
Whether the OP is right or wrong, I honestly don’t think the crypto ecosystem is independent enough from critical transactions for it to collapse as described.
So many things wrong with this article. Taking a bet against bitcoin it totally legit but please don’t over simplify things or make false claims.
“No real world use” for bitcoin and other crypto currencies: ok so the goods I bought for years with bitcoin do not exist? And the trading market you are playing on are not a real world use case?
“ These practices have run rampant on every financial market in human history that hasn’t regulated against them fiercely. Why should Bitcoin be any different?”. That’s the ultimate authoritative argument. “Everybody knows”, “obviously”, etc. Please back up with facts and don’t make general claims like that.
USDT: totally agree. But then don’t trade with usdt. Bitcoin not easily convertible to cash ? Maybe you should pickup a more serious trading desk. On boarding is much more restrictive than mainstream platforms like binance but nothing is more untrue that bitcoin is not liquid. You can settle trades in USD (not USDT) instantly with a serious regulated broker.
Limitations of bitcoin: mining, fees, other. Agree, but nothing of these problems makes bitcoin an insider scam. Is there is a problem there is a solution. Who says that these shortcomings can’t be solved ?
I've sold Tether for both USD and CAD without any issue or significant delay. What are the difficulties the author is referencing? (Asking genuinely, not arguing.)
The difference is between exchanging tether and redeeming tether. Exchanging tether is easy as long as there’s a counterparty willing to buy your tether in exchange for USD.
But in principle you should be able to go to the “tether mint”, give them your tethers, and they redeem them 1:1 to USD. Apparently this is not very straightforward to do.
It would seem likely that the tether mint participates in some exchanges and buys or sells to keep the price stable.
This theory is backed up more by the fact the tether price history matches with a script in someone's basement that occasionally crashes and it takes a few hours to repair, during which the price wanders before being clamped 1:1 again.
That's functionally identical to going to the mint directly, and means the mint doesn't require any customer service etc.
The question is about redemptions with Tether Inc, not trading USDT for USD to other traders. Tether should be redeemable for dollars by redemption at Tether Inc, but of course it's not, since they only have 3% of the dollars required to fulfill those redemptions.
Depends, if they see fit to deem you an "authorized participant" (at their sole discretion). Further, they have to decide to actually honor your redemption (they do not need to) and not to delay it an arbitrary amount of time (as is their right). [edit] Also, importantly, US persons are not permitted to redeem USDT. This is all in their terms of service.
And of course, you have to not exceed their liquidity buffer because they themselves admit to only being 3% backed.
Thus far, I don't believe anyone has actually shown any proof that they have actually carried out a redemption of USDT tokens via Tether. Most people who claim to simply traded it.
Yeah, I'm not sure. Even if a direct CAD pairing wasn't available, I've always been able to exchange my tokens for USDT and then exchange that for CAD and eTransfer it to my bank.
Tether will work until the day comes when there is a net outflow from Tether. Then it will all come apart, because the backing assets aren't all there.
No, no, no. Cryptocurrency fans keep making that up.
In fractional reserve banking, the bank uses deposits to make loans. The loans have collateral behind them, often real estate. There are real assets backing the loans.
That's not how Tether works.
Tether is supposedly invested in "commercial paper", but that has to be fake. If they were really buying commercial paper, they'd be in the top 10 commercial paper buyers. The trading desks that trade short term commercial paper would see billions of dollars of transactions from Tether. Traders report they're not seeing that.
No, the assumption is that the collateral can be liquidated at (1-x%) of loan value, and that the bank has x% in loan reserve capital to make up the losses.
Fractional reserve banks have the assets, just not in liquid enough form that all customers can withdraw their deposits at the same time. For example, some of it is loaned out to various businesses that buy industrial equipment with it, lets say an oven for a big bakery. Over the lifetime of the loan, they can use that equipment to make enough money to repay the money with interest but during the lifetime of the loan the value is 'locked up' in the oven and can't be withdrawn. A non-bankrupt fractional reserve bank always has enough assets but (during a bank run) not always enough liquid assets.
The allegations against Tether are that it is not backed by anything at all, not even illiquid assets. It has so far refused to provide any audited proof that it does and other means of trying to find out (such as reporting by trading desks in a sibling comment) also indicates that there does not seem to be enough money in the pot to redeem all the tokens for their fiat counterparts.
Which is why deposit insurance exists, regulated and mandated by governments. Bank regulators also impose audited capital requirements, reducing the risk that an illiquidity problem (a bank run) becomes an insolvency problem.
Tether has no such guarantees. Since it holds cash and cash-equivalents at far less than a 1:1 ratio compared to its liabilities (issued Tether), participating in the Tether ecosystem is placing an implicit bet that Tether's collateral will remain sound. If it doesn't -- for example if its commercial paper loses value -- then a run on Tether can indeed cause insolvency.
>In practice they’re quite difficult to convert to real money.
In practice they're quite easy to convert to real money, they're often the most liquid pairs available and extremely easy to convert close to 1:1 for another USD stablecoin as well, if that's your bag.
I have no idea how easy it is in practice to redeem 1 USDT for 1 USD, but it's very easy to convert even a marginally large sum of USDT to "real money" (fiat).
Where it can get difficult is withdraw limits on centralised exchanges, or overly cautious (hoop jumping) KYC processes. This is regardless of whether you're using USD, CAD or any other currency.
It's difficult to convert to real money if you are not using an exchange – and I guess the author is actively avoiding those.
I think there are very few anonymous crypto-to-cash conversions due to regulations on money-laundering.
He is right on all counts about Bitcoins, Tethers, Lightning and so on, but I still wouldn't short crypto today. Irrationality is still building up and opinions of crypto adepts are "buy". At least I think so by reading forums. If I had to guess crypto will require a large external event to crash - Taiwan annexation, Zeta variant of Covid, Russia invading Eastern Block etc. Something which will prompt one or more large players to get out first, and then it will start falling down like a house of cards because of Tethers (and now USDC are suspect too).
FTA: "I’ve repeatedly criticized Bitcoin specifically and blockchain in general, on the grounds that I’ve seen no practical real-world applications," and "Bitcoin is not usable as a currency because the transaction costs and latency are both too high. (Yes, I know about the Lightning network.)"
"My best guess is that pretty soon the supply of greater fools runs out." -- He's on to something! This is a pretty funny article that is remarkably lucid.
More than 50% of the worlds population live in a countries with currency controls(China, India, Angola, Nigeria etc). They have reasons to avoid currency controls.
Another less nice example is the guy who had 50 million in BTC who went to german jail and they couldnt' recover the funds. This the first time in history you can have a "buried treasure" that you can protect just by memorizing 12 words.
Greece was almost in continual default from 1800 until the EURO. (Reinhart, Carmen M.; Rogoff, Kenneth. This Time Is Different).
I've been hearing this sentiment ever since I heard about Bitcoin in 2011. Bitcoin has been through many huge crashes since, but the long term trend just keeps going up and up. So far the only fools are the one's that didn't HODL.
I think money laundering and ransomware are both very practical real-world applications. Also I read you can use them for buying illegal drugs on the dark web.
To be fair, they can be used for remittances - sending money back home from working abroad, but I'm not sure how practical that actually is on the ground compared to traditional suppliers like Western Union, or modern ones like TransferWise.
I disagree with his beliefs. I think a few of the beliefs he states for his reasoning are incorrect. Incorrect input leads to incorrect output.
Kudos to him for putting his money where his mind is, but frankly when he learns more about bitcoin and his incorrect beliefs are shattered, I'd imagine his conclusion would be altered as well.
The author is talking about buying puts. These have expiration dates and a set price. Not only he believes bitcoin will collapse, he is basically suggesting he has a crystal ball on when it's going to happen.
Puts are speculative gambling if no current position and a hedge if in a current position to the downside.
You can still hold your beliefs without putting on a trade. Why do you want to put on a trade that is inflexible on timing?
Bitcoin can be manipulated by tweets, incoming regulation, news, whales, etc. If you are not privileged to have this info then know you are in a game where you are disadvantaged.
Many traders still predict Bitcoin to be over 100k by the end of the year. December could align with the bubble peak due to Bitcoin‘s investment cycle triggered by the halving events. That could wreck his short position but if he’s lucky, it will burst earlier.
Bitcoin's network started January 3, 2009, so its halving cycles are roughly correlated with US presidential elections. Bitcoin is also global, and countries like France (home to Ledger and active bitcoin communities) have five-year presidential cycles. So I don't see a causal link to US politics.
However, I do think people falling down the bitcoin rabbit hole help them see the state for what it is, which might reduce the importance people place of federal politics, if it increases decentralization and local action.
How can you cite 2021? Your hypothesis was a peak after 1 year and then a bottom for 3.5 years, but it’s only been eight months since the 2020 election.
a) Bitcoin price is extremely volatile, even on a 6-month time horizon, and IMO, given the volatility, this bet is a pure casino play: most of the rationale he puts forward has absolutely no reason to come to fruition within the next 6 months. The OP better pray he's not going to urgently need the money he parked in those puts any time soon.
b) On a longer (years) time horizon, historical trend is telling a clear story: shorting Bitcoin is a very dangerous proposition.
Whether you are long or short on Bitcoin, only play with money you can afford to lose.
so this guy is buying puts on some bitcoin funds. Such a method would have gotten you killed more often than not . nothing in this post suggests he has anything of an edge or a good strategy.
> This is part of this blog’s Investing theme, whose Intro[0] makes it clear that I have no investment expertise and nobody should take this as investment advice, because it’s not. It’s just a bloggy disclosure of some of my own financial positions, which I owe readers anyhow.
So...yeah, no one's claiming he has an edge or a good strategy. This is based on his beliefs, not intended as good advice for you.
As long as it's only a small percentage of their portfolio, seems safe enough. The max loss is the put premium. Are you getting it mixed up with selling puts, where your losses are unlimited?
That's not right either, your downside for selling puts is limited by the strike (worst case is you pay K for a stock worth 0). Short call positions are the ones with unlimited downside (worse case is that you get K but have to cover the cost of arbitrarily high priced underlying).
Suppose you sell 1 put for 1 dollar with a strike of 100 dollars. The worst case scenario is that the asset decreases in price to be worth 0 dollars. The buyer of the put then exercises their option to sell the asset to you for 100 dollars, hence in total you lost 99 dollars.
As a general matter, the most you can lose when selling a put is the strike price - premium.
Buying put options has limited downside in the same sense as buying a lottery ticket. The worst case (and not an uncommon case) is that they turn out to be worthless and you only lose the money you spent.
I think hgibbs is confused between puts (a contract for the ability to sell at a price) and shorting (borrowing to sell immediately and buy back later), but your comment isn't quite right either.
Shorting has unlimited downside, since it may be arbitrarily expensive to buy back the shares/coins that you borrow.
Puts, on the other hand, have a strike price. A contact to be able to sell Bitcoin for $30K is worthless on the expiration date if the market price is $40K. Anybody can sell at a better price than your contract on the open market. The market price going to 0 is the best thing for the owner of a put option. "Stocks can’t drop below 0." is actually a bummer for the put owner. If a stock could go lower, the put owner could sell the asset for even MORE than the market price of the asset.
What hgibbs probably wants to hear is this: The worst case for a put owner is for the put option to expire worthless since the market value of the asset is greater than the strike price when the option expires. The maximum downside is a contract worth $0.
If you want to pay a premium to be able to sell bitcoin at the end of the year for $20K, but the value is still $30K on December 31, your put option is worthless, and that's as bad as it gets.
...UNLESS you're buying puts on margin without a stop-limit.
My question was in relation to the parent comments claim that buying puts can cause unlimited losses - I was pointing out that this was wrong. The original comment seems to be edited now
They can but only if all market participants act irrationally. Just want to make it clear that it’s not a law of nature that stock prices are bounded at 0.
One could imagine a different legal regime in which equity ownership actually carried unlimited liability, in which case negative prices would most certainly be a thing.
By his own analysis, he won't lose much, but enough to get annoyed. Looking forward to it! Anyway, I'll give the post this, though. It prompted some good replies, to no credit to the original author.
I don't know what other people found interesting, but personally I found it mildly interesting to see the reasoning about choice of financial vehicles to "short bitcoin" without actually literally short-selling bitcoin.
The author's opinion about bitcoin is neither here nor there.
I agree. One of the problems with betting on the decline / collapse of an asset is finding counterparties that are likely to pay up if you win (a problem that some investors faced in 2008, e.g.), and while you may quibble with the author's investment thesis that there will be a decline / collapse, I think his choice of counterparties is quite sound.
here is an idea: if you strongly believe in this put all (or a significant chunk) of your money where your
mouth is.
this guy has more money that he ever needs and now he’s seeking attention. this is the guy that quit from being a VP at Amazon out of principle (after he got rich)
all the doom and gloom around bitcoin and all the bad PR I’ve seem lately has a purpose, but it’s not what you think it is.
Summary:
-Bitcoin is not used used as currency
-Bitcoin is extremely wasteful of energy
-Bitcoin is very vulnerable to government legislation
-Bitcoin is mostly a pump and dump by insiders
> high proportion of all Bitcoins are owned by insiders
same as any other asset in the world, think pareto distribution - vast majority is owned by few entities. so since this point applies to everything pretty much equally - it can be discarded.
> Bitcoin is not usable as a currency because the transaction costs and latency are both too high. (Yes, I know about the Lightning network.)
mentions the working solution but chooses to ignore it without reason. not the best strategy in investing.
> There are repeated allegations that Tethers are created out of thin air to prop up the price of Bitcoin
prophecies of Tether collapse have been around so long, even broken clock theory proponents are getting grey in their hair waiting for anything to happen. but more importantly - if tethers are printed without backing, it doesn't mean there isn't demand for BTC. if BTC were bought with USDT, somebody in the world wanted those BTC and somebody else is stuck with USDT. what do you think happens when Tether collpases and USDT starts trading at discount, what do you think people will be dumping their USDT for?
> much of the trading is seriously sketchy, whether that’s based on ad-hoc Tether creation, wash trading, or other well-known pump/dump schemes
best argument not to short bitcoin. highly volatile asset will either trigger your stop-loss during a random 5-minute fluctuation or leave you devastated with debts orders of magnitude larger than your original investment if you choose full-idiot strategy of shorting without stop-loss.
> The net effect is that money flows in from, in effect, suckers and rubes, then into the pockets of the insiders.
again, applies to literally everything.
> Bitcoin’s Byzantine-generals solution, based on proof-of-waste, is unacceptable in the face of the oncoming climate crisis.
in fact absolutely opposite is true. bitcoin mining is the most green industry around and is driving development of green energy capacity faster than anything else. burning coal or oil for mining is expensive even politically (see china driving away all the miners, citing environmental concerns even though the real reason is inability to control flight of capital).
to all people concerned about bitcoin's environmental impact: in the end, it's not your business what i do with the energy i purchase on a market, if you actually cared about the environment - you'd direct your anger at dirty energy producers, go do something useful with your lives instead of faking rage for virtue signalling.
> Since Bitcoin has no practical uses
absolutely false belief in my opinion.
> Puts are pretty cheap. If I’m totally wrong and Bitcoin is still sailing along at the end of 2021, I’ll be annoyed but not impoverished. If it crashes I’ll be sad for the unfortunates who lost their stakes, and entirely unsympathetic to the insider community
the author didn't cover another possible scenario: if bitcoin blows up the other direction, the author loses 100% of their investment (if they are smart) or unlimited amount of money (if they are stupid).
so yeah, the entire belief set is wrong and author is most likely going to lose money unless they get very lucky.
So lets imagine bank run on the tether toilet paper happens. You are quite correct that it will be exchanged for BTC at first because zero exchanges allow to trade USDT for USD (and Kraken will "suddenly" start maintenance in such event).
But do you think it will stop like that? :) World realizes that there are 80 billions of cut paper and BTC will just stay in green? No way, on select exchanges people will immediately start exchanging all crypto, including BTC into money until they can. BTC will tank like brick on exchanges with fiat and market will crash altogether. I can't even start predicting what will happen, but I'm sure "it will be good for bitcoin" (c) :)
USDT crash will hurt USDT holders. If BTC was propped up like it’s hypothesized, it would have dropped long ago because this theory is alive for at least 5 years and has lived through two big crashes already. There is plenty other on ramps for crypto, the times when it was mostly USDT are long past.
> if bitcoin blows up the other direction, the author loses 100% of their investment (if they are smart) or unlimited amount of money (if they are stupid).
Well, he bought put options, so his max loss is the investment he made into that. He's smart.
So I will probably soon buy more Bitcoin as I believe the price will in the long run go up.
Tether (USDT) is a huge liability that could cause a temporary crash. But at the same time you see some regulation changing that e.g. allows banks to be custodians for crypto-currencies. In my opinion this is huge. It means that eventually institutional investors can buy Bitcoin and other cryptos without having to worry about storage, keys, etc... Banks can handle the technical stuff.
I have very little trust in the fiat system of the Eurozone and I'd bet there are investors that feel the same. Investors that will look into ways to spread the risk by adding different asset classes to their portfolios. Cryptos, especially Bitcoin, seems to be a very nice asset class to have in the long run.
Another reason why I think Bitcoin is here to stay is that Bitcoin enables countries to get around US imposed sanctions. Iran is using Bitcoin for this purpose and I am sure other countries do so as well.
Bitcoin as an asset class also offers a few nice features that one cannot find in other asset classes and I believe these features are responsible for most of Bitcoins inherent value:
- You can manage the coin completely by yourself (which can also be a risk of course - if you lose it, it's your full responsibility)
- The value of Bitcoin is not negatively affected by money printing (quite the other way around I'd wager).
- It's a bit easier to hide crypto assets from tax agencies, this might become an especially valuable property if Central Bank Digital Currencies become a thing. For example if citizens are required to keep an account at the central bank and the central bank can at all times see all your CBDCs and impose sanctions on your CBDCs if you're not deemed a good citizen.
- It's very simple to take with you on travel (e.g. by memorising wallet keys or using a hardware wallet like a Ledger Nano) unlike e.g. gold or fiat money (often some limit is imposed).
- It's easy and cheap to transfer (no banks or other middlemen involved).
- On a country level: can help bypass US sanctions.
So I am still a long-term believer in Bitcoin, even though I do believe that USDT could cause a crypto-market crash at some point. I also believe US government agencies will only investigate USDT if they feel the value of Bitcoin is too high (which currently isn't true after the most recent crash) as a way to temporarily control the price of the crypto-currency.
P.S.: I feel the authors' arguments 6 (climate) and 7 (greed) are not valid arguments for shorting Bitcoin. To me these seem mostly emotional arguments and I wouldn't want to make financial decisions based on emotions.
Your listed advantages mostly boil down to two points: speculation (describing it as "asset class" when there is no real value behind it), and facilitating crime (not paying taxes, hiding keys in your laundry to move money across borders without the government knowing it, bypassing sanctions). The only legitimate point is that bitcoin is not affected by money printing as much as fiat currencies are. But that's a property of a wide range of asset classes.
The arguments outlined are not particularly strong unless you are already predisposed to not liking Bitcoin (which is fine, not liking a particular security is a perfect reason not to invest in it - however it's a bad reason to bet against it)
1: BTC is not controlled by insiders. Sure it's a great headline but once you account for the fact that a BTC wallet owned by an exchange that pools large amount of customer funds is not the same as Alice's Ledger nano you will quickly realize that assets are actually reasonably disbursed across many parties. Eg: https://insights.glassnode.com/bitcoin-supply-distribution/
2: BTC by design will take around 10 minutes to confirm a transaction, further you will actually want 3-6 transactions to be really confident in finality. I agree, I am not waiting inline at the grocery for 60 minutes either. However dismissing layer 2 solution like lightening network deserves something better than handwaving. Lightening network works very well in my experience. Also I need to wait 5 days to transfer cash from my broker to my credit union, I wish I could use BTC. Finally wire fees are a trash fire.
3: Tether. Trading tether (or USDC or DAI) into fiat is quick and easy. Converting USDC to dollars is also easy. Yes tether is 'kinda suss' in a bank run scenario. USDC however is audited and regulated. I've seen papers both indicating that loose tether issuance distorts BTC prices and papers that cannot find a correlation. So this feels like a tossup (personally I hope all the fines and scrutiny on tether forces some house cleaning but I am not holding my breath)
4: lack of regulation. Regulation is not a cure all, Madoff pulled the wool over auditors eyes for years, no one was prepared for LTCM, regulators couldn't stop the 08 financial meltdown, and so on. BTC has no native ability for centralized control, however it also has 100% transaction transparency. That it extremely valuable. Finally centralized exchanges need to comply with local rules and regulations (have you seen the travel rule? That's some forceful regulation there).
5: is actually a repeat of 1 and 3. The insiders argument is overblown and turning stablecoin into fiat doesn't require 'good luck'. ( I am a very unlucky person but have done this multiple times myself).
6: PoW is ecologically unfriendly. Yes BTC energy usages should give pause. However it is only fair to talk about them in the context of the ecological effects of fiat money. Fiat printing is the way we have financed the last 20 years of war (whatever happened to war bonds??). If BTC underpinned our currency system there'd be a lot less room for environmentally destructive jingoism.
7: Libertarians are dumb so they must be wrong. Nothing to say here but ad hominem arguments don't seem effect asset prices.
I struggle to find arguments here that would give me conviction to say BTC will crash in 6 months. I am 99.9% convinced that Tim Bray doesn't like BTC as a financial instrument but that has no meaningful impact on BTCs price... (It is not like he's Elon Musk ;) - actually I think Elon's market moving mojo is all gone now)
Bitcoin is pure capitalism. No real work, no real goods and no values of something and not benefit for human kind. So it is just gambling. I've a bad impression of crypto-blockchain-digital-coin stuff which purpose is to make some minority richer. The founders of Bitcoin stated they want free free us from central-bank-money? The central-banks are hopefully the only institution people can trust in stability a little. Politicians should look up their laws, most countries only allow their official currency for trade and should limit exchange to official currencies of other countries.
It's best modeled as a speculative asset. It has none of the hallmarks of a good currency. It's not fungible, it's not predictable, it's not cheap to exchange and its value flails around wildly like a decapitated chicken. That's even before you get into the Keynesian vs. Austrian argument that IMO should be long since settled but apparently, here we are.
You are making up the qualities of good currency, and then conclude BTC has none of them.
Qualities of good money are 1) Durability (not losing value with time), 2) Portability, 3) Scarcity (limited supply), 5) Divisibility, 6) Acceptability and 7) Storability.
BTC has all of them except maybe 6). And I'm no defender of BTC, I don't like it and I don't think it will ever be the main currency. It will be at best like the gold backing the day to day exchanges in another kind of "coin", and used only for clearing.
Money can be, and currently is, as "fungible" as annotations in a ledger. Banks are not that different from BTC, except they don't need "proof" because they limit who can add transactions: a VISA transaction is just "write in the ledger -X for this wallet and +X for this other wallet". No gold, bills or any fungible asset is moved around, exactly like BTC.
C'mon now BTC certainly doesn't have (1) it's down 50% in the last month. I'd quibble with (2) because portability does imply a low cost of portability which compared to USD it does not have. (3) It has. (4) It has. (5) It definitely isn't broadly accepted and (6) it's not great at either, just look at what percentage of the coins have already been lost. 20-30% in a decade. Every random walk down the time line leads to 100% of coins lost.
You misunderstood the terms. Economically Durability refers to an asset that doesn't decay with time. Historically, things like cows, sheeps, wheat and other things were used as money. Those things are not durable: they rot or are consumed. Gold, silver, paper/fiat money and BTC are durable.
Portability refers to the ability/costs to transfer your money from, say, New York to Singapore. Transferring USD is cheap and easy, but transferring BTC isn't expensive either. Specially when compared to transferring cows or a gold bar.
Storability is somewhat related to durability: you should be able to store your money, forget about it, and recover it later without loss. Think of burying gold and coming back for it in five years: all your gold is still there. Wheat seeds or cows not so much. BTC is perfectly storable: the very first mined BTC would be the same BCT for years to come. I would say that paper money loses against BTC and gold in this concept, but then again, fiat money works exactly like BTC.
Losing your wallet is another concept not related to storability: you can also lose a gold coin or a $100 bill.
> Transferring USD is cheap and easy, but transferring BTC isn't expensive either.
I disagree, the sticker price at the moment looks cheap but only because the majority of a transaction cost is socialized in block reward. To look at the actual cost of a transaction you need to sum the direct fees and the socialized fees. After all, the socialized fees are going away over time, so either users will have to pay directly or be subject to a less secure network.
An average block of 2000 transactions costs 6.25 BTC ($225,000) in indirect subsidies plus about $16,000 in direct costs. This means an average transaction costs somewhere in the neighborhood of $120.
At $120, you could probably just overnight a gold bar via FedEx.
This is dramatically higher than competitive solutions.
> Losing your wallet is another concept not related to storability: you can also lose a gold coin or a $100 bill
Yes, but losing a few billion dollars worth is exponentially harder. I would argue that over time your risk of losing all your coins in a step function approaches 100%. Even though it's step, on average it represents a negative storability/durability.
As the total quantity in circulation drops the entire supply could be seen as "rotting."
(1) If you think about the stability of your wealth on the scale of months, you're going to have a bad time regardless of what vehicles you store your money in.
I seriously don't understand "bitcoin has no tech" argument.
These people must be very priviledged and stationary if they never encountered issues with current banking systems. At some places transfering money at local level takes ages and international banking is almost always a complete an utter joke.
I've been waiting for over a month for a new debit card from Revolut while using their highest subscription tier and that's supposed to be the new hip, cool kids bank. It often takes days to move money between countries - even miniscule amounts that should be immune. Even our debit cards are region locked and extremely confusing, your VISA doesn't work the same everywhere. It's just complete and utter chaos if your finances are just slight bit out of the norm.
Even if bitcoin is not the holy grail - it's still extremely useful piece of technology for many of us.
Why now? This is a general investing issue. Trading costs money, holding a put costs money, so why will the market do what you think in this time frame?
Why are the puts cheap? This could be substantiated with some numbers, esp implied volatility. Are they cheap vs history? I don't know, but the reasoning should show why you think so. Note I'm not looking for breakevens. That can be worked out from the price, but it doesn't tell you whether that is more or less likely than the market's opinion.
Totally reasonable points otherwise.