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Thread: All Information About Bitcoin

  1. #41
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    Bitcoin Is an Emerging Systemic Risk

    Recent news stories make it pretty clear that the new people in bitcoin have no idea what they’ve gotten themselves into.

    Bitcoin is the Gom Jabbar of high finance. Cypherpunks who have populated the space to date hold the line because they do not care about money, and therefore do not fear.

    These new people are different. The only reason they are here is the money.

    They reek of fear.

    When we consider that money from fresh, naive amateurs is flowing into the sector at a rate of millions of people per month, we should also understand that these amateurs are more susceptible to the animal spirits than their stoic, abrasive, less-socially-adept, battle-hardened forebears.

    They will be prone to cut and run.

    As such, a shock to the system, such as an exchange being taken down in a necessary and overdue enforcement action, could lead to a loss in confidence in the entire cryptocurrency ecosystem as a whole and a stampede for the exits the likes of which bitcoin has not seen to date.

    In a recent post on my own blog, I pointed out that bitcoin, by setting itself up as a sort of decentralized bank, was also creating an unreasonable expectation to its new "depositors" that they will always be able to redeem their assets at par, given a wild mismatch between its $200 billion "market cap" and new investor money – which is clearly well shy of that number.

    This expectation is dangerous as it means, in the event of a liquidity crunch, people will behave not as people necessarily behave when there’s a sharp sell-off in a stock, but more along the lines of when their bank’s solvency is being called into question. Remember bank runs?

    As bitcoin qua decentralized bank is running a fractional reserve with a chronic shortage of dollars, a shock therefore has the potential to not just drive the price of bitcoin down a little bit, but also lead to a major liquidity crunch and abject panic.

    Credit comes to crypto

    In my post, I wrote:

    "In the current environment, there are a number of ways such a shock could arise. To begin with, I seriously question the intermediaries’ and traders’ ability to top up their USD holdings quickly enough to catch up with their depositors’ and counterparties’ paper gains in bitcoin. There is also the possibility that, in the event of a correction or an enforcement action, a risk-averse bank to a major service provider withdraws either credit or banking services to that provider, compromising that service provider’s ability to convert BTC into dollars, provide margin lending, or even to hold fiat deposits at all."
    I had a hunch people were lending into the sector. I just didn't know the degree of alacrity with which this lending was taking place.

    Fortunately, I was reading CoinDesk this afternoon and the reporting from the Consensus:Invest conference delivered:

    "Dan Matuszewski, the head of trading at Circle Internet Financial, said during a morning panel that there is a ‘real strong need’ for the ability to borrow in this market.

    It would not only facilitate short positions but also provide working capital for trading desks to make markets, he said.

    During his talk, Boonen of B2C2 acknowledged the irony of the situation given that bitcoin was born as a reaction to the 2008 credit crisis.

    ‘Bitcoin enthusiasts really, really do not like credit,’ he said. But, he added, ‘for better or for worse, credit is an important part of a functioning and liquid financial market…’

    …Even before the institutional money started flowing in, he noted, 'by necessity, credit did creep back into bitcoin and crypto markets in general,' with the major exchanges offering leverage to the early retail investors."
    So someone's lending directly into the market, we just don't know who, nor how much, nor where the liquidity for these lines of credit is ultimately coming from.

    Leverage sneaks into the ecosystem in other ways, too; for example, Coinbase accepts credit cards, which is basically margin trading for grandmas, without collateral and with 20%+ rates of annual interest.

    Given that rather a lot of people seem to be interested in buying bitcoin in this way, and that platform is racking up a few hundred thousand new users a week, there’s undoubtedly systemic risk building up there.

    Then there’s Bitfinex and Tether, which I do not intend to discuss save to share this passage from The New York Times:

    "One persistent online critic, going by the screen name Bitfinex’ed, has written several very detailed essays on Medium arguing that Bitfinex appears to be creating Tether coins out of thin air and then using them to buy Bitcoin and push the price up."
    Long story short, these neophyte masters of the universe, too young (or too busy working as a dev in California) to know what a financial crisis feels like, and too dilettantish to find out, are successfully (a) getting buyers to leverage to buy coins, in some cases probably up to the hilt, or (b) convincing institutions to lend into this titanic, one-way, unhedged, $300 billion insanity trade, and trying to convince more of them to do so in greater amounts.

    This could become serious

    There are two not necessarily mutually exclusive ways people are responding to the Great Bubble of 2017: anticipatory schadenfreude on the one hand, abject horror on the other.

    So far the response from mainstream finance has been the former, with The Wall Street Journal’s treatment of the subject being more or less a long-form joke.

    But while there is something ineffably twee about a retiree trying to show how they’re hip and "down with the kids" thanks to their position in "big coin," the fact that they are doing so raises very serious questions about bubble-driven risk (and attendant negative externalities to society) which merits closer attention. As of right now, the notional value of the cryptocurrency sector is roughly a third the size of Long-Term Capital Management at its peak.

    Cryptocurrency is, admittedly, much smaller than the subprime bubble that popped a decade ago, which was roughly two orders of magnitude larger than bitcoin today. But bitcoin has shown, on several occasions, a persistent ability to defy detractors like me to grow an order of magnitude in less than 12 months; if it does so again, it will be three times larger than LTCM. LTCM on its own very nearly ruined the world in 1998.

    If we aren’t careful, this is the kind of market where a financial institution can get in serious trouble extremely quickly (imagine the damage a character like Nick Leeson or Kweku Adoboli could have done trading Bitcoin contracts – which are coming soon to both the CME and, reportedly, Nasdaq).

    We know that cryptocurrency marketing is writing checks the technology can’t cash; most of these systems are unusable as backbones for global finance. It is a matter of time before the punter on the street becomes as disillusioned as I, an irascible blockchain software entrepreneur, have become. It’s just that none of the newcomers know what they’re doing, and most of the old-timers who have figured this out are keeping their mouths shut out of self-interest.

    Put another way, this is a disaster waiting to happen. Fortunately for us, 2008 is not ancient history, and the fact that Bitcoin is a classic, manic bubble is so transparently obvious that it should be impossible for thinking people to deal with it otherwise. There are no excuses for not doing right by the societies and taxpayers who had to bail out the financial services industry last time around.

    Just say no

    So, banks, shadow banks, and anyone else of systemic importance, I implore you: for the good of everyone, by which I mean for the good of the human species, keep this garbage, and anything connected to it, the hell off of your balance sheets.

    For once, please have the good sense to not load up on frothy bubble-driven financial assets, which you have done hitherto with such predictable regularity that the European Central Bank can model it and write a 52-page paper on the subject which is actually fun to read.

    That way, when regulators finally bring this party to the bitter end it so richly deserves, the rest of the ship won’t go down with it.

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    Bitcoin extends gains, rises above $12,000 to record high

    Bitcoin retained its overnight momentum and rose to a record high of $12,205.46 on Wednesday, continuing its rally from below $1,000 at the year’s start.

    The cryptocurrency was last up 4.35 percent at $12,185.70 on the Luxembourg-based Bitstamp exchange.

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    Bitcoin rises above $14,000 on Bitstamp to record high

    Bitcoin soared to a record high of $14,047.40 on Thursday, continuing its surge from below $1,000 at the beginning of the year.

    The cryptocurrency was last up 2.94 percent at $14,030.00 at the Luxembourg-based Bitstamp exchange BTC=BTSP.

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    Asia cheers China trade boost, bitcoin shoots for the stars

    Asian shares rallied for a second session on Friday as economic news from China and Japan beat all expectations and investors marvelled at the meteoric ascent of bitcoin, the market’s new crypto-star.

    Beijing reported exports surged 12.3 percent in November from a year earlier, more than double the forecast, while imports climbed almost 18 percent.

    Iron ore and copper imports enjoyed a stellar rebound, which could help stem a recent pullback in commodity prices.

    Japan’s Nikkei led the way as the yen eased on the dollar, rising 1.1 percent on top of Thursday’s 1.45 percent bounce to be almost back where it started the week.

    Revised data showed Japan’s economy growing twice as fast as first thought as business spending jumped.

    Australian stocks put on 0.3 percent while MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.7 percent.

    Bidders were encouraged by a steadier performance on Wall Street, where the Dow rose 0.29 percent. The S&P 500 gained 0.29 percent and the Nasdaq 0.54 percent.

    Still to come was U.S. nonfarm payrolls, with investors looking for 200,000 new jobs in November and much talk wages might show some welcome strength.

    Also on the radar are negotiations between the United Kingdom and Ireland on how to run their post-Brexit land border. British Prime Minister Theresa May was reported to be meeting European Union chief executive Jean-Claude Juncker in Brussels early Friday.

    Speculation about an agreement saw sterling rebound to $1.3492, having been as low as $1.3320 at one point on Thursday.

    It was one of only a few currencies to gain on the U.S. dollar, which was otherwise broadly firmer.

    The U.S. currency cleared 113.00 yen to reach 113.34, while the euro touched a two-week low at $1.1763. Against a basket of currencies the dollar held firm at 93.848.

    DIGITAL DARLING

    Bitcoin crested above $16,666 on the Bitstamp exchange having doubled in value in just two weeks. Other exchanges quoted prices as high as $22,000, intensifying the debate about whether it is a bubble about to burst.

    It was last quoted at $15,120 in very choppy trade.

    The largest U.S. cryptocurrency exchange has been struggling to manage record traffic, with an imminent launch of the first bitcoin futures contract further fuelling investor interest.

    Some, however, warned the coming of futures might prove to be the downfall of the digital darling.

    “Dragging bitcoin into the futures market poses a risk of big players opening doors to short-selling hell,” said Naeem Aslam, chief market analyst at Think Markets UK.

    “Futures markets make it possible to short in decent size with a lot of liquidity, thus affecting the price discovery in the underlying asset market.”

    The spectacular rise of the cryptocurrency has stolen some thunder from gold bulls, providing an asset that is also seen as a hedge against inflation and government interference.

    Gold steadied at $1,258.10, having finally breached its recent tight trading range to hit a four-month trough at $1,245.60.

    “Demand for gold relative to supply has had centuries to reach an equilibrium,” noted Alan Ruskin, a macro strategist at Deutsche Bank. “Bitcoin global demand is still finding its place relative to constrained/inelastic supply.”

    Oil prices had gone the other way as a threatened strike by oil workers in Nigeria forced a bout of short covering.

    Brent futures were barely changed at $62.19 a barrel, having climbed 98 cents overnight. U.S. crude was off 4 cents at $56.65.

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    Bitcoin futures surge past $17,000 on launch day

    The front-month bitcoin futures contract on the Chicago-based CBOE Futures Exchange surged past $17,000 on Monday, the first day of trading.

    The January contract opened at $15,460 in New York on Sunday evening, before leaping to a high of $17,170 during Asian hours. They were last quoted at $17,120, a more than $1,000 premium to the price on Gemini Exchange.

    The futures are cash-settled contracts based on the auction price of bitcoin in U.S. dollars on the Gemini Exchange, which is owned and operated by virtual currency entrepreneurs Cameron and Tyler Winklevoss.

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    'Bitcoin Jesus' is 'really, really concerned' about the future of the digital currency
    • Roger Ver, nicknamed "Bitcoin Jesus," says he's worried about the future of bitcoin since it's not as usable as its offshoot, bitcoin cash.
    • Ver says bitcoin can run up a lot more in the short run, but it's "just a game of hot potato at this point."
    • Ver supported bitcoin cash when it split off from the original bitcoin in August.

    An early bitcoin investor said Monday the digital currency can run higher, but the hype has far outpaced its usability.

    "I think in the short run it can run up a lot more," Roger Ver, CEO of Bitcoin.com, said Monday on CNBC's "Fast Money." But "it's no longer a cryptocurrency. It's just a game of hot potato at this point, and games of hot potatoes can go on for a long time, and lots of people can pump a lot of money into it and it might go on for even decades. But as far as its [being] used as money, the developers behind that have destroyed that at this point."

    "I'm really, really concerned about the future of bitcoin," he said.

    Man who bought bitcoin at $1 now sees this
    2 Hours Ago | 07:40
    An early bitcoin investor said Monday the digital currency can run higher, but the hype has far outpaced its usability.

    "I think in the short run it can run up a lot more," Roger Ver, CEO of Bitcoin.com, said Monday on CNBC's "Fast Money." But "it's no longer a cryptocurrency. It's just a game of hot potato at this point, and games of hot potatoes can go on for a long time, and lots of people can pump a lot of money into it and it might go on for even decades. But as far as its [being] used as money, the developers behind that have destroyed that at this point."

    "I'm really, really concerned about the future of bitcoin," he said.

    Bitcoin could be the biggest bubble in history Bitcoin could be the biggest bubble in history – here's how
    3:48 PM ET Thu, 7 Dec 2017 | 02:00
    Nicknamed "Bitcoin Jesus," Ver was an early proponent of bitcoin and bought $25,000 worth in 2011 that is now worth $425 million. However, in the debate over how to improve bitcoin's transaction speeds and costs this summer, Ver sided with a minority of developers behind an offshoot called "bitcoin cash."

    "The fact of the matter is, the utility of bitcoin has been damaged," Ver said. "If you feel like you missed out on bitcoin back in 2011, take a look at bitcoin cash, give it a use. I think you'll be really, really impressed with the usefulness."

    On Sunday, the median transaction fee for bitcoin was $12.42 versus 1.8 cents for bitcoin cash, according to BitInfoCharts.

    Bitcoin cash launched in August and was trading more than 7.5 percent higher Monday at $1,425, according to CoinMarketCap. The original bitcoin, which some call "bitcoin core," traded 12.7 percent higher, near $16,950, according to CoinDesk's bitcoin price index. In the last several months, sharp gains or losses in bitcoin have corresponded with losses and gains in bitcoin cash.

    Bitcoin investors at the time of the split should have received equal amounts of bitcoin cash. Coinbase, the leading platform in the U.S. for buying and selling bitcoin, plans to add support for bitcoin cash by Jan 1. Ver said Monday his company was nearing 1 million bitcoin cash "wallets."

    The bitcoin futures launched on Cboe on Sunday track the original bitcoin. The new futures, which expire in January, soared nearly 20 percent in their debut to $18,545.

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