I just cashed out the last of my bitcoin. All in all turned a small (4 digit) profit with which I will buy myself a couple of toys.
I'm sure I left cash on the table, but I was too late to the game to have really made a fortune on this stuff (curse my younger self for giving up on setting up a miner after a little difficulty ("it'll never be worth anything anyway", I said to myself), back when a cpu could still mine).
Good luck to everyone still playing - I'll believe bitcoin is going somewhere when the majority of it's transaction volume isn't speculation, drug dealing or money laundering.
I think you are very wrong. If you look at transaction volume and value it has been growing with the price this time around we may see another bubble but we aren't in one right now.
Most drug markets have moved on from Bitcoin to coins that offer strong privacy and because of the transparent ledger it is a poor choice for money laundering. Don't take my word for it though the UK Government issued a report recently placing the risk of people using Bitcoin for money laundering at low.
So, if bitcoin has no value in illegal trade, what is the intrinsic value bitcoin has left (other than speculative value, that is)? Honest question. To me, a couple of transactions per second with high fees compared to the competition does not sound attractive. Is it the optionality that the devs _may_ sort out the scalability issues and transform bitcoin to something big? Even then you still have the issue of volatility left which dramatically lessens the usability of bitcoin as a currency.
My housekeeper spends almost $40 to wire $500 to her family in Bogota.
I can transfer $5,000 to my brother in Ukraine for, essentially 0 using Bitcoin.
You are correct that the fees may be too high for typical consumer transactions like buying a soda from a vending machine. But for large transactions, and institutions moving money around Bitcoin provides a big advantage.
Can you explain me what is the current status in dollar terms if I want now to send 5000 dollars from my bank account to your brother in ukraine, when does he have usable it in his local currency, how much disappears on the way in transaction costs and how long exposure I have to BTC price?
Paypal is great. The transfer would be instant, but the price is 2.9%, which is pretty high.
The cost to transfer from wallet to wallet, is about $4.00 right now. This destroys Pay Pal where the cost which would be $145.00, if you do this wallet to wallet transfer at night it could take 30 minutes to move from person to person. This is fine for us, but obviously will never work for transactions in a store.
He can then use a site like Coinbase, to sell the Bitcoin and then withdraw the Bitcoin into his local bank/currency. This can happen in as fast as 4 days, but as much as a week. I'm not sure if that's on Coinbase or his local bank, but it actually has nothing to do with Bitcoin.
But the amount being transferred is fixed before the withdrawal starts, so it the time he is exposed to Bitcoin price fluctuations is only a few hours.
Basically it comes down to this. If you can afford to wait a week to access your funds Bitcoin is a great way to transfer large sums of money. If you need the money immediately you still need to pay a high fee to Pay Pal, or an even higher fee to Western Union to the less technically inclined.
Please correct me if I am wrong, but it very much looks like I need to pay minimum 1.49% to convert from USD to BTC and also your brother needs to pay minimum 1.49% before he has gotten his local currency. So this is more expensive than Paypal?
I'm sorry, I am not the best representative to explain, and I'm also trying to make this easy to understand, rather than provide the actual guide. Hopefully someone more qualified can comment on this with corrections.
Most people who do significant transactions on Coinbase actually use the trading tool called GDAX. Which can be a little scary to look at first. It's a trading platform owned by Coinbase and transfers between the platforms are completely free.
Purchasing and selling directly through Coinbase has a similar fee to Paypal, especially if you are buying with a credit card.
Coinbase takes my money in U.S. dollars, then I transfer to GDAX, buy Bitcoin. You could actually skip Coinbase entirely and just use Gdax but the Coinbase interface is nice and its easy and I like to do it this way.
GDAX charges a .25% fee on the "taker" of a transaction. The maker/taker dynamic I am not equipped to explain, but only 1 of the parties pays that fee. If both my brother and I got hit with the taker fee on our transactions we would be losing .5% total, still much less than Paypal.
This fee could be avoided entirely by becoming the "maker" but that exposes you to some risk, because you are setting the price you think Bitcoin should be traded at, and you must wait for someone to agree to the price you are setting.
I am more interested in the costs and timelines than a guide, so this is helpful, thanks.
But still I fail to understand what is the case where bitcoin is a competitive option to get money from bank account to another. in addition to the possible 0.25% fee you are anyway facing the bid ask spread over two currency exchanges (usd-> btc and btc -> target currency) and if you compare those to bank transfer costs, I just don't see how looping through btc could be more economical.
I use localbitcoins to convert to my local currency, as a result I usually can make more cash as it is possible to sell to buyers at anywhere up to 5% above market rate and have the money in 48-72 hours. If I need the cash quickly I can sell at market rate and have the money in my bank within 24 hours usually.
That's another good option, but I avoided mentioning it because getting 5% above market makes me worried you are assisting someone involved in money laundering.
Those sales tend to be small(ish) sums(<$1000) paid for in cash or bank transfer. i am not worried about money laundering at those levels. the danger of bitcoin for money laundering is blown out of all proportion in comparison to good old cash.
I think you forgot that I started with having the 5000 dollars on my bank account. So I need to convert them first to BTC before I can do the transaction. What are coinbase fees, and how much does this process add to the time of exposure to BTC price?
Also, if you can afford to wait days, you do not compare to paypal, but to a normal international bank transfer. Haven't done that for a while, but I assume that cost is around 10-20 dollars.
A normal international bank transfer costs more than that if currency conversion is required. It depends on the banks and country you are transferring to.
I would somehow think that an entity that has no intrinsic value, but only speculative value is quite bad store of value? (Of course, you are more than welcome to correct my hypothesis by indicating what is the intrinsic value bitcoin has. I thought that illegal trade was one of the major ones, but the parent told me that even that is there no more.)
If you want an asset to maintain it's current value, then its demand and supply must also maintain their values.
People talk about Bitcoin as "digital gold", but in reality it's not even close, and no crypto ever will be. Gold is valuable because there is a fixed natural supply, and throughout human history, across many civilisations and societies, gold has always been worth something - unlike our fiat currencies who's supply can be altered and made valueless.
The problem with Bitcoin isn't it's supply, it's that it's value relies on it's demand remaining high (or at least maintaining current levels). Problem is there is no historic reason or intrinsic value to bitcoin to assume it will continue to have steady demand like gold.
More worryingly in my opinion is that bitcoin's current demand isn't really for bitcoin at all. The demand is to make USD fast. The moment people realise Bitcoin might not give them returns similar to other safe investments, it will crash like all other bubbles do.
I'm not saying people who get in early won't make loads of money, plenty of people made money from the dotcom bubble too, but you need to be smart about it and understand the risk. At $6,500 bitcoin's market cap is far beyond PayPal's which provides a genuinely useful service and processes millions of dollars of transactions every day.
Gold is also one of the more conductive metals - that's another use that would provide a floor to its value. If the the momentum from using it as a store of value ever slowed and the price dropped, there would be a myriad of uses for it in electronics and medicine.
That's true if that's what people believe. But Bitcoin is transforming into a store of value vs a currency right now and if more people begin believing that then it's true. It's like that for gold, except gold is losing that with millennials.
Volatility is something that will (and has) settle over time. All currencies are volatile at first. Volatility is not really a criticism of a currency, unless that volatility is somehow intrinsic to it.
But that is _exactly_ what is the case with bitcoin. It by design has no mechanism to manage supply, so only thing that affects price is demand, and as demand varies, there is volatility. So volatility _is_ intrinsic to bitcoin.
(And to be clear, I do not mean volatility against other currencies, but volatility against your consumption basket, bread, butter etc.)
Only if you turn Volatility into a meaningless phrase. The euro may as well be flat from conception vs. Bitcoin which has been around for a long time and still ridiculously volatile.
IMO, most fan-fiction is worse than the original, the best fan-fiction is often better.
The intrinsic value is in all the trade going on that isn’t illegal. It is a huge deal for the FX markets for example among other things. Cross boarder trade as well.
The transaction rate issue is 99% political in fighting and that has basically been solved or will be by mid November.
Sorry, I have not been following Bitcoin news lately. Could you give a comparison of the expected transaction capacity, expected fees and expected time to confirm a transaction by mid November against typical credit card company? That would give some basis to estimate the value bitcoin is creating against the competitors.
and doubling the capacity solves all scalability problems? That is still minuscule capacity to enable any serious use of bitcoin as means of payment.
And if the simple transaction is me purchasing a pizza instead of transferring a million from one speculator to another? How much does it cost and how much it takes time?
Bitcoin doesn't easily scale in its current form. For that, people have invented the Lightning Network (https://lightning.network). LN is a layer 2 solution which sacrifices a modicum of trustlessness in favor of fewer on-chain transactions. Suppose you want to buy a cup of coffee every day with the same vendor. You could agree to do all transactions in the Lightning Network, reducing the number of on-chain transactions from 30 to 2. This cuts fees and increases usability.
Genuinely curious -- as far as I know, the current 7 transactions per second is a limitation of the 1Mb block size and the proposal was for a 8Mb block size, would that mean 56 transactions per second(that still doesn't sound too impressive to me)?
Bitcoin's block size should begin to approach 1.8MB (with a super theoretical maximum of 4MB IIRC) now that the segregated witness upgrade has been activated. In the long term, additional scalability can be done using the lightning network and/or sidechains.
In dirt-simple terms, the lightning network allows you to squash several transactions taking place over a long period of time into one of a much smaller size. It also allows instant payments. [1]
Another way to scale is using sidechains, which shift the transaction burden onto a complementing chain that has a two-way peg to bitcoin. [2]
Neither of these are production-ready yet, but should help improve scalability by a couple of orders of magnitude in the long run.
That being said the current price bubble is out of control and I would strongly warn you away from buying any--and for the sake of full disclosure and identifying my bias I do hold some cryptocurrency.
With lightning it's still ultimately settled on the bitcoin network.
Here's a lazy copy/paste from the site:
> The Lightning Network is dependent upon the underlying technology of the blockchain. By using real Bitcoin/blockchain transactions and using its native smart-contract scripting language, it is possible to create a secure network of participants which are able to transact at high volume and high speed.
> Bidirectional Payment Channels. Two participants create a ledger entry on the blockchain which requires both participants to sign off on any spending of funds. Both parties create transactions which refund the ledger entry to their individual allocation, but do not broadcast them to the blockchain. They can update their individual allocations for the ledger entry by creating many transactions spending from the current ledger entry output. Only the most recent version is valid, which is enforced by blockchain-parsable smart-contract scripting. This entry can be closed out at any time by either party without any trust or custodianship by broadcasting the most recent version to the blockchain.
> Lightning Network. By creating a network of these two-party ledger entries, it is possible to find a path across the network similar to routing packets on the internet. The nodes along the path are not trusted, as the payment is enforced using a script which enforces the atomicity (either the entire payment succeeds or fails) via decrementing time-locks.
> Blockchain as Arbiter. As a result, it is possible to conduct transactions off-blockchain without limitations. Transactions can be made off-chain with confidence of on-blockchain enforceability. This is similar to how one makes many legal contracts with others, but one does not go to court every time a contract is made. By making the transactions and scripts parsable, the smart-contract can be enforced on-blockchain. Only in the event of non-cooperation is the court involved – but with the blockchain, the result is deterministic.
I haven't explored sidechains enough to give you a competent tl;dr but the security model is discussed in the whitepaper I linked.
Do I understand it right that if I want to purchase some pizzas over time that pay 1 BTC each, I make an account with the pizzeria where I put 10 BTC that I own, each time I buy a pizza, the transaction is added to the lightning ledger, and if one of us wants to settle the thing for whatever reason after four pizzas, a transaction is transmitted to blockhain where I get 6 BTC back and pizzeria gets 4?
I do not quite see how that increases the real world capacity by orders of magnitude. I mean if we assume that people actually spend their money to quite a few different places and everyone would require a significant overhead of a single transaction to be committed for unspecified time. Further, it requires a minimum of two transactions on the blockchain fore each lightning ledger, so if I buy pizza today, and need to close that ledger to buy a sandwich tomorrow, that brings three transactions to blockchain. Of course, you can optimize this, but still, orders of magnitude sounds optimistic.
You wouldn't have a self contained lightning channel with every single merchant that has to be settled individually. I'm not sure what makes you think that, as my last post describes why the lightning network has "network" in the name.
I recommend you read the summary on lightning.network.
This. Like it or not, we are in for a crash followed by a long crawl back for cryptocoin investors. The tech is cool and useful, but not $6400/BTC useful just yet.
I can't predict the future, but my gut feeling is telling me you're wrong. Institutional money moves the needle and I wouldn't be surprised if this goes another 20x (into trillions of dollars) before we see a major correction. The current market cap ($180bn) is nothing.
Facebook went 10x, from $50bn to $500bn, after it was added to the S&P500. A similar pattern can generally be seen for other stocks being added to the index. That's one company / stock.
There is only one Bitcoin. There is only one Ethereum. You have investors globally buying mostly those two assets. Want to buy the asset class? You buy one of those two (or both)
Pension funds manage around $300tn. If those allocate 1 or 2% to crypto, a sparkly new asset class, you'll have a $3-6tn market cap. Which they might, given the above average returns it's been generating.
Gold is worth $8.2tn globally. Bitcoin in my view qualifies as digital gold. Why was gold originally picked as a store of value? You could've picked other metals. Or diamonds, etc. But someone decided gold was the one. Gold in itself isn't very useful. It's been given its value by people, because they believe it to be a store of value. (I'm not a gold bug and I personally don't think gold is worth holding) But think about this: how high could gold and silver go in a speculative bubble? $13tn? $16tn? Higher?
There will be 20-30-40% corrections along the way, but in my view, it's going much much higher -- very much like the .com bubble (which went up to approx. $5.6tn). Wouldn't be surprised if this entire space achieves a multi trillion market cap ($2-4tn) over the next few years, with most of that ending up in Bitcoin and Ethereum.
Note: this is not investment advice. Do your own research and make up your own mind.
Gold wasn’t picked as “the” original metal for coin, it was just one of many metals used. What they had in common that bitcoin doesn’t, was the value of the material the coin was made of. It wasn’t the idea that made gold coins valuable, it was the ability to melt them down and produce jewelry, teeth or other valuable things.
Gold still has that value even though it’s price has been inflated and corrected many times.
Bitcoin on the other hand has no real world value outside of crime because it never evolved to a real currency. Which means that the only way to gain a net value on your investment, is for orher people to come in and buy bitcoin after you.
Which means you’ll also have to sell it before those people too.
I’m not telling you not to buy bitcoin. It’ll probably go much higher than it is now, but it will some day go to zero because it lacks any innate value.
...it was the ability to melt them down and produce jewelry, teeth or other valuable things
Not true. Gold has its value mostly because it is rare. Jewelry can be made of silver, copper, and any number of other metals. Its "real" value exists because people believe in its "intrinsic" value, not practical value.
That's not exactly true. Bitcoin does have intrinsic value. Bitcoin is expended to move bitcoin. This sounds a bit circular, but if you think about it, it's not really. Value transfer is a service that Bitcoin (the network) provides. It provides that service using Bitcoin (the currency) as its incentive mechanism. This is the kernel of intrinsic value around which Bitcoin's valuation is built, and why it is, in fact, analogous to gold.
Now, what that means for the price is nothing really. Speculation commodities (like Bitcoin and gold) go up and they go down without a whole lot of rhyme or reason. But the analogy to gold is valid.
Gold gets it’s value from it’s application and bitcoin has none of that outside of crime.
You’re right that you need to expend bitcoin to trade it, but this is more a weakness than a strength. It gives you a banking system of sorts, in that you’re guaranteed someone will handle your transaction for money. This also means that if the value of bitcoin drops then nobody will be around to do the calculations required to do transactions, making it an inherent risk.
Financially that's not application though, it's a scam along the lines of your bank lending you money to invest in your bank.
You can downvote it all you want, but the value of the transaction is directly tied to the value of Bitcoin. This makes it profitable on the way up, and an outright danger in the way down because it'll prohibit you from selling your bitcoin when the value crashes.
Like I said, invest all you want, there are plenty of money to be made still, but at least be aware of the risks.
I think bitcoin could go a lot higher since the supply is limited and as of yet there hasn't been an easy way for institutional investors to buy into it.
But at the same time I don't think the comparison to Facebook or any other listed stock is apt - they trade at a multiple of earnings, you can base the valuation on some underlying fundamental. That is not the case with bitcoin
Not necessarily. 'The market can stay irrational longer than you can stay liquid', etc. To short you not only have to believe something will eventually go down, but that it will go down soon.
which makes sense, because the market is cyclic, there's going to be a crash sooner or later. crying "it's going to crash" doesn't say anything useful.
There's no good way to short BTC today. Real financial institutions hardly touch it, and if you make a bet on a crypto exchange, there's no guarantee you'd ever get paid. If BTC tanks, likely the exchange will go away too, and you won't be able to cash out.
people do, but they often lose money and you never hear from them (except for the rare instances where some make money and then they don't shut-up about it)
I've been hearing this at $500, $1000, $2000, $4000, $5000, and now $6400.
I'm certainly willing to believe anyone at those times. But... everyone's been quite wrong.
I make a weekly purchase of a small basket of cryptocurrency (mostly BTC) and I actually mine XMR with some leftover hardware since it's price efficient currently. No different than hedging your retirement portfolio with commodities and other non-correlated assets with your equities basket.
Cryptocurrency isn't going anywhere anytime soon, that's about the only thing we can say for sure.
That is terrible logic. The same could be said of any bubble in history. Even though tulips reached $X, they still crashed in the end. The problem is that you can't tell that you're in a bubble while you're in a bubble, especially since bitcoin is an asset that is intrinsically difficult to value (unlike, say, a CDO or less-so a tulip bulb).
I'm worried people will lose money seeing all these gains in crypto and taking statements like yours at face value. Just because someone out there made 50x their initial investment in crypto from times t1 to t2 doesn't mean anybody will make this much money after t2.
Cryptocurrency might not go anywhere in general, but there's no reason coin X on chain Y will be worth anything in 10 years. Miners are already pretty ruthless about switching chains to whichever makes them the most money.
Was this foreshadowing? Because this statement absolutely is:
>>The same could be said of any bubble in history. Even though tulips reached $X, they still crashed in the end.
You've neglected to include every other asset appreciation model like the DJIA, NASDAQ, Nikkei, etc, solely to focus on... tulips.
BTC may very well be a bubble, just like real estate (or is it?), but like you cannot tell if you are in a bubble while you're in it, nor can you tell if it IS a bubble either. If you are authoritatively stating that we are in a BTC bubble, your opinion is worse than mine, which is to say it is inconclusive and the person I responded to - had they had any conviction to bet against BTC at $500 or other price points where his same argument was trotted out - would have lost his entire stake, or close to it.
>>but there's no reason coin X on chain Y will be worth anything in 10 years
If you could quote from my comment where I said BTC would be worth anything in 10 years, this statement would make more sense. As it is, you just knocked down a strawman. I specifically said I am willing to believe that BTC will go to zero USD tomorrow. Because it's totally possible that it will.
It just hasn't, yet, and anyone saying that it will has the same amount of information as the people saying it will go to $50,000: None.
Sure, but when speaking in dollar terms, your asset appreciation models (stock indices) represent tangible businesses with assets and revenues in real dollars. That is, if I buy stock in X company, I (theoretically) own a certain share of the total assets of the company. A company is relatively easy to value in terms of real dollars because you can use its total assets, debt, revenue, projected growth, etc.
to provide a rough score of its worth. You can assume that when a stock's value increases, the company generally has improved on these metrics in some way.
With Bitcoin, your "asset appreciation model" relies on people continually buying bitcoin at a larger rate to usd. There is no underlying asset (a business) that has intrinsic worth that may drive the price. You could argue that there are some analogues, for example, the mining hash rate or the strength of the blockchain, but the actual value of these is extremely hard to define. That is why Bitcoin may be in a bubble, people may be overestimating how these intangibles may be affecting price; it is hard to say what the value may truly be.
I am not authoritatively stating that we are in a BTC bubble, just that I would be very cautious with bitcoin and think a bubble is likely. Nobody knows what will happen, but we certainly can't say that Bitcoin isn't in a bubble (as you seemed to originally suggested), and in my opinion bitcoin resembles a bubble, though I respect that it may not to you.
Didn't it already have a major correction at 200 and 1000 and a pretty significant one the first time it got around 5000. Yeah, people keep saying that, but it also keeps correcting sporadically. It's not like it's been a smooth ride up from sub $1.
>I've been hearing this at $500, $1000, $2000, $4000, $5000, and now $6400.
If BTC was the stock market, then it has crashed at one of those numbers. It gradually went from $1000 down to about $200. If the stock market did that, everyone would be in a panic.
It's less about being "wrong" and more about making a falsifiable claim. You can certainly just call something a bubble literally forever: until you die, or until humanity goes extinct, until the heat death of the universe, etc. If Bitcoin stays relevant up to any of those points in time, I'll consider it a success regardless of how many people continued making the unfalsifiable claim that it's a bubble.
We had an article on the Kelly criterion just the other day that handily refutes your point.
Even if bitcoin is certain to crash, without a deep understanding of when (and by extension, how) a naive futures trader still runs a good chance of being eaten alive, or making poor returns.
Stating bitcoin will crash is a bit like the conventional wisdom that smoking is bad for your health. One can reasonably be very confident in the truth of it without being confident in specific odds on any bad outcome.
I hope you really think about applying the Kelly Criterion to trading bitcoin futures and hope you realize that the person completely ignores friction(transaction costs),and does not show a sharpe ratio( who cares if you beat a benchmark with 10x the risk).
The Kelly Criterion is a betting strategy that, given the probability and payoff of different outcomes, tells you what percentage of your bankroll to bet.
That is true if you have arbitrary knowledge that says that at some point in the future, Bitcoin is certain to crash.
If you're able to associate some timeframe to the idea that with p = 1 Bitcoin will be at half the value it currently is, the Kelly criterion suggests you should be quite a bit of the farm. Applying the Kelly criterion in supposed p = 1 situations (e.g. "Like it or not, [the market will crash]") is pretty invalid.
I'm a huge proponent of putting your money where your mouth is, but staking most of your net worth against what still is a pretty manipulated market is just stupid and is a gamble no one needs to make.
That's the great thing about a futures market. People who want to short Bitcoin with reasonable risk management can do so now. There are a lot of people who have lost their shirts betting against Bitcoin because all you could do were naked short - these derivative markets will provide sophisticated traders the ability to hedge their bets so they can continue to short without getting margin called if Bitcoin happens to double in value before crashing in the coming months / years.
This comment doesn't really apply here, because the post above suggests explicitly that the true value of Bitcoin is far lower than it is now and the market will realize this in the near-term (i.e. "the market will crash").
If the comment only suggested that the true value of Bitcoin is lower than the currently traded rate (and made no mention of what the market value would do), this particular observation would be relevant.
What level of confidence would you say is represented by that comment? I’d say 95% sounds reasonable, which implies a 5% chance of being wiped out with your strategy. Might be too high for many people.
The better question is how the CME is going to replicate the value of a Bitcoin.
The funny thing about this is when the real smart ones get there hands on this contract (quants), watch out. Goodbye free lunch and hello very efficient pricing.(Low vol)
I’m really not sure what the dollar value utility per BTC should be, I just know that it’s so uncertain that I have no business playing the game unless I’d already had the fortune of acquiring a large amount of bitcoin for “free.”
I didn’t, and I consider the profit I’ve made to be a satisfying amount of “free money”, so I’m just going to keep watching from the sidelines.
I believe that looking at bitcoin as a currency suggests it is not worth its current high price. Looking at it as a service for circumventing local currency and legal controls, then current events suggests that demand for these types of services might be high enough to warrant even higher prices.
I think you sold too early. I've written a blog on what (in my non-professional opinion, not financial advice, etc.) drives the Bitcoin price. I also believe that the only way for Bitcoin to survive is for it to be much more expensive.
> What sets Bitcoin apart from all other crypto currencies is its extremely high hash rate. This means that a Bitcoin is orders of magnitude more “precious” than any other crypto coin presently in existence.
Why? What evidence do you have that a high hash rate causes high value?
I would argue that the hash rate follows value, rather than the other way round. A low hash rate and high value makes mining is more profitable, which results in more miners joining, raising the hash rate. Thus the hash rate adjusts to reach an equilibrium against the BTC to electricity exchange rate.
> I would argue that the hash rate follows value, rather than the other way round.
I do actually say that in the article, in almost those same words.
My (perhaps not very well articulated) point was that regardless of what follows what, the hash rate, or the amount of work, in terms of energy expended is by far greatest of all other crypto coins, especially considering the whole blockchain going back to beginning, which means to 51% attack Bitcoin is harder than anything else right now.
For this reason, if I wanted to park my money in a crypto currency, I'd probably choose Bitcoin as the safest, hardest reinforced as far as proof-of-work goes.
Of course there are other factors at play here, but it seems like amount of proof-of-work, or the difficulty, is an important factor in a crypto currency preciousness.
Due to the encoded rules and relationship of miners to them Bitcoin has to increase in value by %25 per year (a doubling every 4 years) or slowly die by miners exiting. This would continue until the capital sucking machine of bitcoin becomes such a burden on productive wealth (that wealth which isnot locked into value storage devices that only serve to store value) that the bubble has to pop. It's anyones guess when that will be.
That doesn't mean that next year it should be worth double of what it is now. One would need a better index of miner capital costs and their increases to really track but my napkin says miner required value now is around ~$1200 (based on the value pump that happend just prior to the previous halving)
I'm sure I left cash on the table, but I was too late to the game to have really made a fortune on this stuff
says everyone who has ever heard of bitcoin (except the lucky few who mined and or bought coins early and still have them). A $5000 super-duper giga-hash miner barely breaks even, takes forever to ship, and and in a year becomes a paperweight.
Why did you sell all? Why not keep a small percentage that you can still lose?
I read stories here of people buying at $7 and selling at $35. Don't be that person. Buy a bit again and see where it can still go. The market cap says it still has a lot of potential.
Exactly. I just treat Bitcoin as another asset in my portfolio, and manage my exposure. I allocate Bitcoin to be X% of my portfolio, and if my current percentage is drastically over where it should be, then great - time to skim some profits and move it into other potentially less risky assets. I don't see the point of just cashing out entirely - certainly not right now.
> but I was too late to the game to have really made a fortune on this stuff
Maybe, maybe not. Some people are convinced bitcoin will climb another 1000x or better within a short time frame (10 years or something). I am going to hold a little bet (3 digits) on this.
Again the biggest issue is how to verify the integrity of the underlying instrument, in this case bitcoin.
What the SEC was after when they denied the winklevoss ETF was a way to confirming that they could audit all bitcoin transactions on the applicable exchanges, and following from that, the identities of all the exchange participants.
and here is the methodology that they are using to calculate the bitcoin price. As far as I can see, they are accepting trade confirms from the following venues....
Bitfinex, Bitstamp, GDAX, itBit, Kraken and OKCoin.com
> What the SEC was after when they denied the winklevoss ETF was a way to confirming that they could audit all bitcoin transactions on the applicable exchanges, and following from that, the identities of all the exchange participants.
I don't think that's accurate, unless you're using a strange sense of the word "audit". The SEC's criticism seemed mainly to focus on the fact that the exchanges lacked controls to prevent price manipulation, and lacked oversight by regulators (not just the SEC) to ensure those controls were in place and effective.
The constituent exchanges are listed here [1], basically the list you posted without Bitfinex or OKCoin.com.
> Interesting that these are cash settled vs being settled in bitcoin. I guess that speaks as to who they expect to use these instruments.
This seems an odd decision to me as well, especially since Bitcoin is almost a textbook commodity. I guess they are afraid that there could be a short squeeze if the existing exchange can't handle a greatly increased volume, but trusting that the exchanges can provide sufficient liquidity is a requirement to use their pricing data as well, otherwise you can get manipulation on the other end.
> Interesting that these are cash settled vs being settled in bitcoin.
That is interesting to say the least. There are people claiming precious metal prices are being kept artificially low using a similar way. Formally the futures have to be settled in metal but for some reason deliveries from vaults never match (i.e., they are considerably lower) the those implied by the futures standing for delivery.
Now for that to work with BTC the futures market has to get really big (in PM they say it's like 100 future oz vs 1 real oz) and they need an unlimited bankroll. At that point one can short the hell out of the futures and cash-settle if the sell avalanche doesn't affect the price as much as required.
Not saying those "conspiracy theories about PM manipulation" are true (I have no way to know) but there is evidence that looks "quite extraordinary" to my eye.
In a few weeks time most Bitcoin holders will be confused what is called "Bitcoin" - whether it's an original BTC chain or B2X (Segwit2x) fork. Nobody knows what will become a Bitcoin.. that's speaking about "integrity of the underlying instrument" ;-)
No one is calling B2X Bitcoin except for a very small vocal minority. Almost every other exchange/company has released a statement saying BTC will remind as the core chain.
They have released statements saying that Bitcoin will be whatever chain has the most accumulated proof of work. Based on all available information right now that is going to be S2X.
> No one is calling B2X Bitcoin except for a very small vocal minority.
Either you're intentionally lying or you haven't spent enough time outside of the highly censored /r/bitcoin subreddit. Here's my evidence and it's straight from Bitcoin core's site.
Check the list on the bottom. If that doesn't prove to you that the overwhelming majority of businesses and users are upgrading the network via segwit2x, you're a lost cause.
> And before resorting to underhanded insults (you're a lost cause)
Sorry about that. It's really difficult to tell the difference between a professional troll and an honest person with a genuine difference of opinion. It's been a tough few years for every Bitcoin believer.
> Interesting that these are cash settled vs being settled in bitcoin.
Futures tend to be cash settled when the underlying instrument is not liquid enough.
If the futures would be settled to Bitcoins, it would limit the trading too much; for every initial buyer there needs to be a short seller, and the risk of a short squeeze would keep sellers from entering the market.
Most futures tend to be cash settled in general in fact e.g. Eurodollar futures (the most liquid contract in the world) which have an underlying tied to 3 month LIBOR (i.e. effectively a bank deposit rate - very liquid indeed) are cash settled. And even for contracts which specify physical delivery (eg most commodities), most open interest is either closed out completely (or rolled to the next contract) prior to expiry day which means no physical settlement takes place.
There are a few reasons for this but broadly it comes down to the fact that cash settled contracts are more attractive to a broader set of investors (which means more volume and thus more income for the exchange which sets the contract terms). For example, cash settlement is more useful to investors who wish to hedge something which is close to or correlated with, but not the same as, the underlying. Hence the popularity of Eurodollar futures. This is even the case with many commodities (how many people actually want to take or make delivery at the specified delivery point?)
Playing against this is the fact that if the underlying market is less transparent (as is the case for many commodities) then physical delivery might be needed to ensure that meaningful arbitrage can take place to ensure confidence in the market (if arbitrageurs would otherwise stay away from the market then this would reduce liquidity of the futures contract - to the disbenefit of the exchange).
that is because futures are rarely held to expiry - They get rolled into the next contract. so even tho physically settled, physical settlement is rare.
Bitcoin Futures have been tried before, with little effect on institutional investors.
Key point is that CME Group (Chicago Mercantile Exchange) will be offering them. Being able to transact Bitcoin derivates on a trusted derivatives exchange will be attractive to more conservative institutional investors.
This is how any reasonable institution not 100% focused on cryptocurrencies will gain cryptocurrency exposure. The big reason is they are backed by CME clearing and settlement. It helps to significantly reduce the counter-party risk associated with other venues.
You are correct, but I feel compelled to point out that the average person should be hesitant to hold bitcoin personally.
Crypto is hard to get write, and people suck at key management.
If you're going to store your own bitcoin, please do several 'test runs' depositing tiny amounts and practicing retrieving it. Understand potential attack vectors. Too many stories of "I forgot the pin i used to encrypt my private key" or "I saved my private key in gmail and lost all my bitcoin when my email got hacked" or "I used a malicious wallet software and it stole all my coins".
Well, the fact that the majority of the mining pool runs out of China certainly represents a counterparty risk. I'm not sure why folks regularly ignore the 51% issue.
While there is certainly some amount of quantifiable risk given how centralized mining is in China, each individual mining actor is still incentivised not to participate in a 51% double spend attack as the value of bitcoin would rapidly fall towards zero if a double spend attack ever did occur, making their ASIC investments unprofitable in a hurry.
I don't know. It's like nukes. They say, no one would use them, because that would let the cat out of the box. But... on the other hand, what would happen if someone used only a single nuke? Could we get to the circumstance that Bitcoin was "too large to fail" and a someone could get away with a double spend?
I would like to know the same, but I do have a theory. What will they do? If they start making invalid decisions, the rest of the network will fork. It won't be pretty, but btc will survive... Or is there a better explanation of risks involved?
The counterparty risk is not in the storage, but in the exchange. You always expose yourself to counterparty risk when you exchange currencies (even crypto ones).
Spreads on EtherDelta (which is widely used) are good, but it's only for ERC20 tokens. The UX is awful and it can be slow because of Etherium scaling issues.
You're right about any token pegged to fiat (like USDT) having counterparty risk. The company offering it, the bank they keep their funds in, and the country's legislation. I wonder if something decentralised will emerge that will effectively minimise those risks.
You don’t have to be a conservative investor to doubt whether some web app by a company registered in the Cayman Islands is going to deliver on its promises in case the bitcoin price tanks.
Earnest investors understand they have a responsibility towards their clients, and will not resell something that ultimately depends on the trustworthiness of three guys from a startup registered in Hong Kong.
The article states the BTCUSD rate spiked over 5% after the announcement they mention. That kind of spike is fairly common for Bitcoin, and attributing it to news seems pretty arbitrary.
It will be quite interesting to see how institutional investors and the CTFC come down on this whole phenomenon. I do not share the unbridled optimism of many of my peers.
I dunno if this is good. Maybe for miners who want to hedge. But seeing how much bitcoin price reacts to news and how relatively easy it is to spread fake news, I think this just creates more incentives for market manipulation.
It's pretty hard to manipulate commodity futures prices with fake news but crypto currency market trends are pure psychology
This is going to have little impact on actual Bitcoin. 98% of futures trading is speculative. I.e. it's almost entirely traders betting against each other. The CME is basically a Casino that used the price changes in commodities and other securites to decide winners and loser. What this does change is that it will give Wall Street traders a safe way to trade "Bitcoin".
That's kind of the advantage of making it easier for the professionals to participate - they have a tendency to react better to news and more accurately price things (since they make giant piles of money if they accurately price things that others mis-price). I suspect that bitcoin futures would damp the volatility in the bitcoin market.
Nah. CME futures are notorious for increasing volatility. See: the flash crash [1]. And: a bazillion other examples. These "professional" traders aren't playing any kind of fair game.
In theory yes, but how do you price bitcoin accurately even as a professional investor? You can't. There's no edge, aside from market manipulation with fake news, and maybe front running with insider news that might affect the price.
>how do you price bitcoin accurately even as a professional investor?
You can arbitrage the price of mining equipment + electricity vs the cash value of shorting a bitcoin future. Mining rewards are approximately known along with the halving date, mining rigs have a known cost, electricity costs are predictable, etc. Every time BTC futures rise enough above your cost of mining on a risk-adjusted basis, sell more short and expand your mining operation.
That's the fundamental pricing dynamic. At least on the short side. The long side makes zero goddamn sense to me, but at least people can place a maximum value based on the forecasted cost of mining and put serious downward pressure on prices that way.
A futures contract on a real exchange like the Merc is a big step forward for exchange members like tier one banks, and smaller trading shops that have access to futures via brokerage relationships. The article also mentions ETFs, which will give retail investors BTC exposure.
ETFs are the reason this is a big thing. The CME contract enables ETFs with viable size and for both long and short BTC (otherwise they would only really be possible as long ETFs, although the ETF could be shorted itself, and long ETFs would have to own the underlying BTC). In turn, that gives retail speculators (it feels difficult to call them investors for BTC...) access to BTC, which is a significant pool of money.
Wow this is going to open up the casino to a lot of major players. I fear the hobbyist investor is going to get roasted. Anything that can be traded on such a scale will undoubtedly be manipulated.
> Anything that can be traded on such a scale will undoubtedly be manipulated.
Conversely, the efficient markets hypothesis implies that in time, the prices of eTulips will converge on the values of the underlying security. But you're right in that it will likely be preceded by an influx of new greater fools.
Bitcoin's market cap is probably wildly exaggerated. The best evidence of this is the Winkelvii's attempt to start an ETF. That's a way for them to unload their Bitcoins, of which they have over 100,000.
There's no market that could absorb over 100,000 Bitcoins and pay out dollars without crashing the price. Who's going to pay out $0.6 billion in cash?
The 24h trading volume of Bitcoin is currently at around $2.8b, so I don't think you're necessarily right. There's been $2.8b of Bitcoin sold in the last 24h, and the price has gone up. You could probably sell that many coins over the course of a couple weeks without having much effect on the market.
Splitting hairs here but I'd argue market cap is very misunderstood. Take DASH - same market cap metric, but you have all these coins locked up in super nodes.
Yes. That's the entire point of having a futures market - generally, the producers of a commodity will be net short the futures contract in order to de-risk their productive investment. Buying a mining rig trades todays dollars for future BTC. Shorting a BTC futures trades future BTC for todays dollars.
These will be derivatives, not actual bitcoins. When you enter a contract you will only care about the price level of the Bitcoin Reference Rate, the contracts aren't holding any actual bitcoins, so there is nothing to hack and steal.
I'm not sure if that's accurate though. If a large quantity of coins disappeared, surely that would have ripple effects through to even the most convoluted derivatives?
It's a good idea, IMO. There's a natural market here on both sides, between miners who have an economic interest in being short BTC futures, and institutional investors who want long exposure through a standardized exchanges and products that they are already allowed to use. And as a side bonus, this should significantly reduce volatility in the market.
Institutionals use futures to hedge their other positions. What will they use bitcoin futures to hedge for? An unhedged future position is not an investment. It is a gamble.
That spot prices of bitcoin is lower than expected, making their current "buy mining equipment, hook it up, and generate bitcoin" operations unprofitable. Miners as a group will be net short BTC futures for the same reason that corn farmers are net short corn futures.
The longs will in because of the shorts - since carrying costs are so low, the futures will trade below the spot price, which means buy-and-hold BTC investors are better off rolling BTC futures contracts than the underlying.
It doesn't make sense for institutional investors to hedge against "fiat". Because the failure of the current financial system would be catastrophic event for any such investor, at which point his hedging wouldn't help. I. e. the exchange where these futures are traded would no longer be operational.
There's a name for this effect which I've forgotten. But it can be seen, for example, in the markets ignoring the risk of nuclear war during the Cuban Missile Crisis. The reason is the same: there's no use in considering nuclear war in your decision-making, because you'd be dead anyway.
It sounds like you do? Sell your expensive sf house and take your fdic insured money losing saving account and plow it into bitcoin - invest for the future! It’s all solid.
It's cash settled based off the price of an index, which makes it easier. They just defer to the folks making the index.
If it was physically settled you could squeeze the shorts by having a last-minute unilateral grant of a side-token to everyone who possesses the underlying. The shorts have to come up with the token or cover the contract - either way, you have people who are forced to buy it to cover contractual obligations, and you probably own the only exchange capable of making transactions with NewToken (and maybe also you pre-mined some of bonus tokens to sell?)
When its cash settled, this is much less of an issue. No market? No market price, so it doesn't get included in constructing the index.
Thanks, but no thanks! I'd keep as far away from this stinking pile as possible! It's 2017! We have instant bank transfers and everybody can get a free Square reader and accept payments. PayPal is not what used to be and you can accept global payments with no friction. It's time to end this nonsense, stop talking about Bitcoin, focus on the blockchain, and let it show its true colors when there are no disoriented people confusing blockchain with Bitcoin who keep buying fueled by their pathological greed. If I want to speculate, there's a more sophisticated method, but, wait, it requires a brain - the stock market! With Robinhood and the likes - it's scam-free and I don't rely on the Chinese miners or government for my fortune's security!
> stop talking about Bitcoin, focus on the blockchain
What people miss is that the focus on "blockchain" was a way for the finance industry to talk about Bitcoin at a time when it could get you fired for doing so.
The stock market over bitcoin? Bitcoin is up double the last 30 days. Timing is everything your opionion is dated or belongs in the future in the present bitcoin is a good investment
But on the other hand, since the parent comment was posted, Bitcoin price has increased 10%. And I'm pretty sure that I could sell before it drops 90%.
Yeah, so, what's the economic reason for the spike? More people use Bitcoin today? Let's cut the bullshit, please! Mere mortals do not have Bitcoin and are not interested in it - at all. All the noise is around blockchain technology and Ethereum, i.e., it's bearish toward Bitcoin. Russia and China are waging wars against it, so, why is the price climbing?
Well, let me share a secret - the demand is Chinese sneaking money out of the country. I know friends who help their buddies and charge a two-digit percentage to move their money out of mainland China. Here in Orange County, there are a lot of Chinese buying houses with cash, and it's a similar situation in the Bay Are, Vancouver, etc. Given more, and more people sneak out, the demand grows as well. The US is fine because fresh money flows into the US economy, but as we know, China realizes that even though some of the people sneaking money out are possibly close to the government.
I have and cannot have solid facts to prove this, but everything pretty much backs my theory and especially the correlation that the harder pressure China does, the higher the price goes!
But for you, it won't be a nice thing to hear one day that there's a total crackdown on this scheme and people who buy Bitcoin in advance to sell it suddenly want to get rid of it!
I have accounts with most exchanges (including one of the first - Camp BX) and I've passed thru their KYC checks and I can tell you that KYC is a joke!
Your "instant bank transfers" claim is irrelevant. Traditional banking lacks the openness, borderless access, censorship resistance aspects of decentralized cryptocurrencies like bitcoin.
With traditional banking you are in a master-slave relationship, where your bank is the master and can wipe your money clean at a whim. Bitcoin means you are your own bank.
It's pointless to compare "instant bank transfers" with bitcoin, bitcoin makes traditional banking obsolete.
No, I'm not stupid, but you're pathologically paranoid. Something that solves a problem for <1% of the global population and some niche cases is of virtually no utility.
> No, I'm not stupid, but you're pathologically paranoid.
I'm not paranoid, I want the world to be a better place. Banks and governments are the cause of the global financial crisis/recession. Lots of families and people's future were destroyed by them.
The US is 4.3% of the total world population, there are other 6 and a half billion people in the world.
Most of the other 6 and a half billion are completely unbanked, they never had access to a bank account. Bitcoin can help those people.
> Something that solves a problem for <1% of the global population and some niche cases is of virtually no utility.
I don't know how you can say that. You must be blind.
It can't be a better anything with reliance on the Chinese miners and the mining cartels in general. Bitcoin was a decent initial implementation of the idea, but there are better and more resilient technologies in 2017. I am not blind; I just don't accept the solution as a technologist with 30+ years of experience and as one of the first Bitcoin adopters. I am disgusted by the kind of people Bitcoin attracts today and I don't want to be associated with that crown in any possible way!
> Bitcoin was a decent initial implementation of the idea, but there are better and more resilient technologies in 2017.
What are those "more resilient technologies" that you speak about? I want to know, because all the other shitcoins are either more centralized or a scam and not worth looking at in my opinion.
I dare you to tell me another cryptocurrency that is more decentralized than bitcoin.
> I am disgusted by the kind of people Bitcoin attracts today and I don't want to be associated with that crown in any possible way!
What I want to know is why you associate the technology with the people, or why even generalize the whole community because of a few bad actors.
I agree there are many toxic people in bitcoin, but you know what? I don't give a shit, just ignore them I'd say.
There are far worse people in the current financial system, but you don't seem to be talking about that, I wonder why.
In the context of futures being a way for a farmer to finance the expenses of growing a crop or raising a herd, isn't this a stretch of the use of the word "future". I get that the word means a lot more today than its origins would convey, but shouldn't the term used just be the generic "derivative" or "index"?
Forgive my ignorance of the finance world, but it feels like they are stretching definitions in order to frame this as approaching crude oil or pork bellies when it's more of an options contract.
"Future" basically just means a specific settlement date (and margined with variation, in contrast to a forward).
Anything at all can be traded in such a way. What's useful about it is you are trading with the exchange, they take care of everyone's credit risk, hence they margin everyone. And they concentrate the interest in a monthly or quarterly date.
> more of an options contract
No, definitely not. An option contrast has asymmetric payoff, because options can be left unexercised. When you trade a future you are obliged to make the exchange at the appointed price and time.
No, they aren't. There are all sorts of futures contracts, and they are all derivatives and none are indexes themselves. There are equity index futures, single stock futures, foreign exchange futures, treasury futures, etc. Cash settlement vs the ability to take settlement in the physical underlying is where you might be getting confused, but they're all futures nonetheless.
Suppose someone will pay you one bitcoin next week, as per some private agreement.
For this discussion, let's entirely ignore credit risk (the risk this person doesn't pay) but consider market risk.
Like it or not, you carry the risk of bitcoin fluctuations. You might be comfortable receiving $6400 for your bitcoin next week. But bitcoin is volatile. Maybe bitcoin jumps to $8000. But maybe it drops to $4000.
If you're comfortable giving up the upside, for a chance to prevent that downside, this bitcoin future is for you.
You enter a future contract where you agree to sell one bitcoin in one week at a price of $6400 (if that's the going one week forward rate).
In one week, your person pays you the agreed bitcoin, which you then sell to the exchange and receive your $6400.
Meanwhile, for that week you can sleep at night knowing that if the bitcoin market crashes, you still get your $6400. And if the market rallies to a higher price, well missing out on that rally was the cost of being able to sleep at night.
This is what commodity futures were originally used for, eg farmers agreeing to sell their stocks at agreed rates without worrying about market fluctuations.
Companies do this too, eg hedging their cost of fuel to a known quantity in line with expected consumption.
For one thing, bitcoin miners would love to short the future price of bitcoin. They're spending dollars now to buy mining rigs, which make bitcoin later. They're exposed to the future price of BTC for whether or not this is profitable. With a short futures position on BTC, it turns uncertain profit into more certain profit.
Because then money and commodity never actually have to exchange hands. If you trust the CME to guarantee all parts of the transaction, and if you have no use for the commodity beyond speculation, then why part with all that money and move around all those bitcoins?
With a future you can create negative exposure, aka being short. It's a lot more straightforward than finding borrow for it and arranging to pay interest and returning it after you're done.
I'm sure I left cash on the table, but I was too late to the game to have really made a fortune on this stuff (curse my younger self for giving up on setting up a miner after a little difficulty ("it'll never be worth anything anyway", I said to myself), back when a cpu could still mine).
Good luck to everyone still playing - I'll believe bitcoin is going somewhere when the majority of it's transaction volume isn't speculation, drug dealing or money laundering.