"The market can remain irrational longer than you can remain solvent"
It's a good thing I was simply closing positions instead of taking a short position, cuz boy oh boy was I wrong.
That was before institutional money started going into BTC. Will be interesting to see if the 'little guy' individual investor will be enabled to take large amounts of early stage profits and saddling the 'big guy' institutional investor (which is in a lot of cases, essentially just lots of 'little guys' money pooled together while the managers skim the profits off the top) with the late stage losses.
(I am long BTC)
Given Bitcoin isn’t attached to anything… what does long mean?
People can be “long USD” because they expect the price to increase. That's not expressing any belief beyond that. People are long on something for many reasons.
In a zero-sum game like Bitcoin, there is necessarily a timing component at play. Being “long” seems at odds with that.
Hope this clears up some of the confusion.
Let’s say we all invested in Bitcoin today and only bought from people who had purchased at $10000. Then, in two years, if we sell our Bitcoin for $100000, we all make money. That’s not a zero-sum game because no one lost money.
> A Ponzi scheme (/ˈpɒnzi/, Italian: [ˈpontsi]) is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.[1] The scheme leads victims to believe that profits are coming from legitimate business activity (e.g., product sales or successful investments), and they remain unaware that other investors are the source of funds
Do you see a distinction between this and the system theli0nheart described?
It is pretty silly when people who are calling bitcoin a "currency" and autonomous blockchain agents "smart contracts" complain anytime the term "ponzi scheme" is used for a zero sum speculative asset that only pays out gains to existing holders by bringing in new "investors".
Well, it’s not. Unless you think the entire value of our entire world economy will become zero. Merely predicting that the value of something will become zero doesn’t automatically make it zero-sum.
In order for a game to be zero-sum, that requirement must be built into the rules of the game. That isn’t true in either of these cases (Bitcoin nor $SPY).
From https://en.wikipedia.org/wiki/Zero-sum_game (emphasis added):
> Zero-sum games are a specific example of constant sum games where the sum of each outcome is always zero. Such games are distributive, not integrative; the pie cannot be enlarged by good negotiation.
It is precisely that difference which (I think) makes it zero-sum
Even if this was true (it is not) this still does not make an exchange of Bitcoin a zero-sum game.
I’ll prove it.
Let’s first denominate value in BTC to simplify this. I then mine one Bitcoin with less than 1 BTC-worth of energy (I wouldn’t mine it, otherwise). I now have 1 - (cost of energy) BTC,
I then give my BTC to someone else in exchange for a Widget. I now have a Widget, and they have a non-zero amount of BTC.
At no point are the sum of our two assets equal to zero, and they never could be. This could never be a zero-sum game, either by definition or in practice. There is always a non-zero net value after adding up all assets and debts between all of the players.
My background: I studied Applied Math in college, with a focus in finance, game theory, and computer science. I studied games and game theory extensively.
You are correct mining is at least surface level not zero sum. If you apply the assumption that the energy, computing equipment and time were worth less than the resulting btc. But given the fact it has no intrinsic value… is only valuable in exchanging between fiats… I don’t think those assumptions hold.
Money is created by loans by banks.
It's a digital asset that you buy with dollars (or equivalent). If your position benefits from the price in dollars increasing, then you're long.
By owning BTC, or equivalent economic exposure to owning BTC, ie, you will profit if BTC becomes relatively more valuable, and lose if it becomes relatively less valuable.
> it’s a currency not a stock. You might say “I’m long USD”
People take long position in currencies all the time. That is just a perfectly normal thing that people do, all the time. I have no idea why you think a currency is somehow different than any other financial asset here; it is not (except, perhaps in some cases, taxes).
> but then you are really saying you believe the US economy will grow, and the value of its currency will strengthen.
No. That's not how exchange rates work. The US economy is growing all the time (...well, outside of recessions), but so is everyone's else. A thousand factors go into determining relative strength.
> Given Bitcoin isn’t attached to anything… what does long mean?
It means you have a positive exposure to an increase in it's price, probably by owning some, or something that closely approximates that. Same as being long anything else. Why would it be different? What did you think being long meant?
The fact that people go "long" in fiat currencies is not at all relevant, as there is a government and usually a central bank that controls production of that currency (responsibly or not).
100% exchange rates work based on the economy underlying them (and the governments control on it)... they are not just random numbers fluctuating randomly... There is almost no comparison to crypto here, is there a fiat currency that shows as much volatility for as long as bitcoin has?
It does not. Many currencies aren't stable at all; people still take long and short positions on them, either as part of an explicit investment thesis, or just by, you know, having some paper currency in their wallet. People have been buying gold for centuries as a way of reducing their exposure to unstable currencies.
I would assume it doesn't need to be explicitly said, but just for safety's sake, let's be clear: A long (or short) position is a bet, and you can bet on unpredictable things. Nobody uses the terminology, but technically you're "long red" if you bet on red coming up next on a roulette wheel at Vegas.
Currently equity markets have been consumed with discussions of the "meme stocks". People have been going long on, eg, Gamestop, but the stock has been incredibly volatile, and there are no underlying economic factors that even begin to support the highs it's reached. Again, being long in a super volatile stock because it's funny, or because you're bored, or because you're trying to make a statement, or because you believe it is bouncing around randomly and you're trying to profit from this is still being long on the stock.
Being long is not a moral judgement, it just means you've got an exposure to the asset becoming more valuable. If you own a share in Gamestock, or a USD, or few satoshis, or a house, you're long those assets. It doesn't matter why you own them.
> which as you say has a number of factors... all of which are non-existent in bitcoin
That is also untrue; many factors have exact equivalents, such as evaluating competing currencies for differences in projected inflation or deflation, projected interest rates, projected uptake in usage in new markets, projected change in regulations. If you think DeFi will continue to grow, or that Ethereum's migration to Proof Of Stake will finally happen and be successful, that suggests a relative strengthening of of Ethereum versus Bitcoin. If you think that a pure Bitcoin ETF will be approved by the SEC and will be good for Bitcoin prices, that suggests a strengthening of Bitcoin versus other currencies. And of course, you can evaluate the so-called "shitcoins" to decide if you think they'll ever get a fraction of the adoption Bitcoin and Ethereum have, etc.
> What exactly are you thinking factors into the growth of the currency? Beyond say... hopes and dreams (aka gambling).
As above. Although let's be clear: All currency speculation is gambling. Exchange rates are volatile, unpredictable, and for major pairs, impossible to manipulate. You can (and so very, very many people have) come up with some thesis about why the USD/EUR rate is going to move in a specific direction, go long (and/or short) in the appropriate currency, and get run over, because the market doesn't care about your thesis. Even if you're right about the thesis! :)
> as there is a government and usually a central bank that controls production of that currency
And...?
> they are not just random numbers fluctuating randomly...
They might as well be. Given the closing price of the USD/EUR pair today, there's no amount of information I can give you about relative economic performance of the US versus the EU that will let you predict the closing price of the USD/EUR pair tomorrow. Or next week. Or next year.
> is there a fiat currency that shows as much volatility for as long as bitcoin has?
There are - and have been - some very volatile currencies. Certainly bitcoin is at the far end of the volatility distribution. What of it? Again, you seem to have the model that you can only bet on sure things, and the more random something is, the less you can truly "gamble" on it. That is, if anything, the opposite of how it works.
You used euro/usd comparison… why not Argentina peso to usd… is there a chance it could close higher than the usd tomorrow? - no. Because the underlying economies do effect currencies and they are not random despite the three paragraphs of prose you wrote.
My question, perhaps poorly put, is why would you (rationally) go long on Bitcoin? It looks like pure gambling/speculation. I’m 100% wanting to know the value judgement being made. I’m quite okay if that answer is: gambling.
You are long a thing if you hold a position which benefits from its price going up. You are short a thing by holding a position which benefits if the price goes down.
So not only could I be short gold by not holding it (because I now have more equivalent gold quantity if gold price goes down) I could also be short the market by being long puts on SPY
I don't see any attached factors to bitcoin, i.e. it's purely speculative. So my question was more "Why are you long on bitcoin?" As - it seems quite random.
Apologises for not being clearer... The old "I knew what I meant" problem :\
The more pop culture meaning of 'long' meaning "i support" is post facto the other pre existing meaning. And it's not unreasonable to correlate them. If your money is where your mouth is, they are the same thing.
It's totally possible though to be "long BTC" via a position while thinking bitcoin is a total scam, if let's say you believe you can exploit some short term irrationality.
You rock!
So it isn’t a case of crying wolf, it’s more a case of pointing out a wolf and being dismissed as FUD.
Cassandra was gifted by Appollo to see the future, but then cursed to be not believed.
(And, to be clear, I also think it's likely a scam.)
I'd perhaps think it's like the lead-up to 2008 where the people behind the scenes largely knew it was funny money but the general public didn't - but here it seems pretty unanimous from the lowest-level retail investor to the most sophisticated institutional investor that it's a scam.
So what's the deal? Is it gonna be the most predictable catastrophe ever? How have they existed from 2012 until today, seemingly without any issue, despite all of the universally extremely negative PR? What are the odds it's somehow not a scam?
From people who want to pump up the price of other cryptocurrencies, to offshore exchanges that want to avoid KYC requirements dealing with real banks, to ordinary users who like being able to transfer USDT... there's many people incentivized to look the other way and pretend that water isn't wet.
That's only an issue if they blend USDT and USD balances together, which to my knowledge they don't. If you sold a bunch of your bitcoins for USDT rather than USD (which seems unlikely, seeing that BTC-USD has 28x the volume of BTC-USDT), and USDT goes bankrupt, that's on you.
Suffice it to say that everyone figures that SOMEONE big is manipulating the crypto market to their own ends. With Tether serving as the lubricant greasing the wheels of the rest of the market, it has finance's prized "too big to fail" distinction.
Edit: I found one of the posts that explained the theory. I probably misunderstood it. https://www.reddit.com/r/Superstonk/comments/nz0fsz/i_found_...
I know, I know... I present it mostly for you to consider as you may.
What does it mean to be an interest-free asset?
Please stop reading or linking to that sub, it's probably the single greatest free improvement you can make to your life right now.
I think that's a wholly separate issue from that of the specter of bank malfeasance. Which is to say that you're completely off the mark in that regard; it's clear that finance is abusing its position and running right up to the line - if not over it - in spite of the lessons it should have learned after 2008. And the argument here isn't that banks are conspiring to destroy crypto; it's that they are (were?) using crypto as a tool to avoid insolvency due to the fallout from inadvisable activity over the past year or so. Even those not swept up in the cultish thrall of crypto and meme stocks are looking at that behavior with a wary eye; Archegos et al., after all.
That said.
>Please stop reading or linking to that sub, it's probably the single greatest free improvement you can make to your life right now.
No. :) Someone asked a question and I answered with what I thought was a likely explanation. You can disagree, or even be offended by my stupidity, but I presented it respectfully and in good faith, so here it will be. Silliness aside, I do find the core holding of the GME crowd compelling, and likewise, occasionally, their analysis of what is an unfortunately murky subject. If you disagree, the spirit of HN's standard of discourse is to explain the manner in which "obvious nonsense" is such, and not just to simply state so in an offensive and patronizing manner.
That doesn't really make any sense. Holders of USDT are people who sold their crypto, ie. people who aren't invested. Moreover, it's unclear how switching to a more reputable stablecoin would nuke their investment. At best it's a prisoners dilemma and I'm skeptical that everyone chose the "cooperate" option rather than the "defect" option.
It's just an asset that a lot of crypto exchanges use, because it's more convenient to do so than usual (regulated) financial alternatives.
Tether will probably just evaporate in the face of alternative stablecoin competition, before volume decreases to a point that a sudden devaluation kills it off.
There is good stablecoin competition in USDC, or, my favourite, DAI. Unfortunately I think exchanges like Binance are somewhat in kahoots with USDT which is why they will not move off it.
Re: kahoots, it feels like the answer to "What's the easiest way to generate returns?" has one obvious answer: increase leverage.
And what prevents leverage? Regulation.
So wouldn't it be great if you could create an unregulated instrument via which you could balloon the amount of funds you had to play with?
Technically USDT is a cryptocurrency but I can't think of a real reason why someone who cashed out of BTC would keep it in USDT rather than cashing out for real USD (the FDIC insured and in a licensed bank kind). If you're only cashing out for a short period of time and are planning to buy back, then you're not really "out", and I doubt that all the tether that's out there is coming from people who wants out for only a week or two.
I can't think of a good reason to keep it in USDT that sits on a centralized exchange, but maybe someone has one.
It was seeing these rates that made me believe the market was a ponzi. Somehow the system has created a strong incentive to hold USDT rather than USD in the form of divergent interest rates. And 12% is crazy high: Madoff claimed returns of 10%.
There could be a benign explanation but my bet would be that various market actors are propping up the system short run with unsustainable interest payoffs to stave off withdrawal attempts to maintain the Tether peg. Huge house of cards.
1. do the defi contracts not accept other stablecoins? Does USDT have a disproportionately higher interest rate than more reputable stablecoins?
2. This situation (large amount of USD being parked in USDT, people warning that it's a fraud) has existed since the last run-up (2017-2018), before defi got popular. So while there might be people parking their money in USDT to earn absurdly high interest rates, I don't think that's the whole story. It'll also be interesting to see how much USDT is locked in defi contracts vs that's issued.
The second actually isn’t compelling though. If you have a fraud with, say, 10% daily interest in will unwind in months. But a fraud with 10-20% annual interest will take years. Madoff kept his scheme going 20+ years.
This is, after all, how Bernie Madoff got caught, how bank runs generally start, and how most currency crises occur.
But why is everyone keeping their USD in USDT? For ponzis it makes sense because you're promised a rate of return, but for USDT you're essentially losing money every day due to inflation.
There are a plenty of rebuttals to the Tether criticism, but on sites like Hacker News no one bothers anymore. It's not worth dealing with the vitriol and downvotes to even try.
That being said I also have concerns about Tether, but I think they are way overblown.
"So we know that Tether is at least partially backed and has functioning wires in and out of the bank they use, Deltec."
Lol okay, nothing to see here, your money is definitely safe.
Then one day someone will wake up, decide they don't want that kind of exposure, and the whole thing collapses.
If you look at the classic definition of a ponzi scheme, bitcoin doesn't fit, though central bank fiat currencies do. See macro economist Lyn Alden's excellent article for the full explanation: https://www.lynalden.com/bitcoin-ponzi-scheme/
The rest of it is supposed to mostly be commercial paper.
The problem with that is, in one month, they would've needed to buy more commercial paper than was even sold.
So that part is likely false, too.
I often see this repeated on HN, but this is never explained. Why will the collapse of Thether impact the whole crypto market?
Say you’re on a crypto only exchange, like BitMEX, or on blockchain. What are your exit options? You can’t buy USD on Uniswap, only stablecoins. In this case “panic-selling” Tether means a massive rush into Bitcoin and Ethereum.
I’m sure there would be a lot of people who would like to trade their Tethers for Bitcoin in the event of a collapse, but who is going to sell it to them?
When Tether implodes the entire space will deleverage.
It doesn't make any sense from a fundamentals standpoint, but when somebody "sells" something they have to "buy" something else. In 2011, the flight to quality led people to hold bonds and dollars, even though those were the exact assets being downgraded.
If/when Tether ever falls apart, it's a question of what will the average user "buy" when they "sell" their Tether. The answer to that is almost certainly not fiat dollars in the normal banking system, because the whole reason people use Tether is because they can't easily access the banking system. So the only real asset they can trade Tether into is other major crypto. Like BTC or ETH.
If this is true, and everything points to it, then there is simply much less real USD on the exchanges than people think. People often quote the crypto market cap and that Tether only represents 5-10% of it - but most BTC were never really available anyway - they were never bought or traded on any exchange. So the total inflow of USD (or any other real money) is much less than crypto market cap - and a lot of it was eaten by miners, arbitrageurs and exchange fees.
When the music stops - and enough people try to get their real money from the exchanges, it simply won't be there.
> over two-thirds of all Bitcoin — $10 billion worth of it — that was bought in the previous 24 hours, was being purchased with Tethers. [0]
Thus, it is not unreasonable to say the 1 Tether = 1 USD change indirectly affects (read: inflates) the valuation of BTC, and that a depreciation of Tether may have an impact on BTC.
[0] https://crypto-anonymous-2021.medium.com/the-bit-short-insid...
Bitcoin's price is currently artificially inflafed by all the tether printing. It'll go down with it, and so will the rest of cryptko.
Bitcoin's price is currently artificially inflafed by all the tether printing. It'll go down with it, and so will the rest of crypto.
Deposit a "good" stable coin (for what counts as good in this space, which is USDC) on Aave or Compound and borrow Tether against it (75% and 80% loan-to-value respectively). You can now either send it to an exchange (e.g. Kraken) and swap USDT to real USD, or go to curve.fi and swap USDT for more USDC and deposit back to Aave or Compound. Repeat until either 4x/5x leverage (theoretical max) or your personal risk tolerance is reached. Remember to service the position by depositing more USDC occasionally (otherwise will be liquidated with penalty). As of this writing, variable interest rate is ~3.5%, fixed interest rate is 11%.
Scenarios:
- USDT goes to zero, buy as many as needed for scrap, pay back the loan, free the original stablecoins, sell for real USD and make between 1.75x to 4x/5x, depending on which route you chose above.
- Both USDT and USDC go to zero, you lose between 25 to 100%, depending on the route you chose above.
- There's a USDT shortage (real or somehow engineered) and it goes way above $1 causing your position to be force-liquidated, causing you lose between 25 to 100%, depending on the route you chose above.
- Only USDC falls below peg (temporarily or permanently) and you get force-liquidated (25 to 100% loss)
- You forget to service the debt or a spike in the variable interest rate causes you to get force-liquidated (5% penalty)
- Tether never goes to zero and you keep paying 3.5% interest (variable)
- Smart contract hack / Ethereum shuts down, you lose up to 100%
- Unkown scenarios
While there's no explicit exposure to a crypto exchange, there's still the implicit exposure to Coinbase/Circle via USDC. DAI offers no escape here, since its 50% collateralised by USDC (the other 50% crypto would likely be in serious turmoil in case USDT collapses potentially losing its peg as well).
In spite of this, I think this is a considerably better way to profit from a Tether collapse then the much more dangerous route of shorting BTC futures, or shorting via an unregulated crypto exchange where there's no guarantee that they'll pay or even be operational in such an event.
I know apes will ape, but seriously, don’t.
> Tether is bound to collapse soon
I've literally been hearing soon™ for years on this one. I think I was sent from a post here in 2018 to http://www.untether.space/ because it was going to collapse any day at the time.