The mining community cannot change how Bitcoin works. Even if 100% of miners were to change their validation logic to accept more than 21 million bitcoins, none of the nodes running the Bitcoin software will accept the change. Bitcoin is governed by the nodes running the software, not by the source code.
Can you expand on that, and correct my thinking here?
Say, 95% of hash power (so, the top 5-10 of mining pools) change their validation logic, but, yay, none of the non-mining nodes (and the good 5% miners) accept the change. Then we effectively have a hard fork, no?
The bad miners can trivially add more nodes, which will accept the change.
The good nodes won't. Good miners keep mining. But suppose the bad miners go rogue just after a difficulty adjustment. So, then the good nodes (with 5% hash power) can emit a block around only every 3 hours (200 minutes), and it will take around 2x20=40 weeks to adjust the difficulty (unless, of course... they conspire to change that. Why not?).
The bad miners, meanwhile, can keep mining with their rogue version, and occasionally divert a small fraction of their mining power to mess with the good nodes (double spend, make a "longer chain" with no transactions inside, or whatever).
The defence I see against that scenario is not the code or the crypto or the nodes, but the fact that they'd probably kill the goose that lays the golden eggs. Or maybe not: maybe both chains together are more valuable than the old one alone! Maybe they should give it a try.
You might say that the definition of and value of bitcoins are determined only by collective understanding, governed by the participants in the system, and that it is backed by faith in that collective governance, and will fall apart if that faith falters, or if the collective illusion underlying bitcoin collapses. Is that starting to sound like another currency you've heard about?
Black–Scholes is the heat equation backwards, which has pretty different behaviour to the heat equation as the latter smooths things out over time and the former makes them less smooth over time. But this does make some sense: when an option reaches expiry you know exactly how much it’s worth (as a function of strike price) but the further you are before, the less well you can predict the strike price and the smoother the price function should be. Indeed your substitution reverses the direction of time but intuitions about the heat equation aren’t so applicable to Black–Scholes because intuitions are often directional.
The difference is that in the Schrödinger case you're effectively 'turning' the solution (in the complex plane) which leads to the uncomfortable question of whether the solution to the heat equation you'd start with is still defined. When going from heat to Black-Scholes you're just rescaling in 'existing' dimensions which doesn't change the character of the PDE.
The description of the 2016 DAO event isn't entirely accurate. Given the huge sums involved ($18 billion at current prices), hopefully the real story will be reported one day.
From the article: If Bitcoin's market capitalization were to match that of gold, it would be worth over $500,000 a coin. This is why some investors are so bullish on Bitcoin.
Perhaps it's more accurate to say that investors are increasingly bearish on the dollar.
That has nothing to do with the dollar. If bitcoin were to match the market cap of gold irrespective of any money printing, it would be $500k a coin. Which is to say that people consider Bitcoin to have properties similar but superior to that of gold.
It’s very arbitrary. Silver or palladium are more similar to gold than Bitcoin, but no one even tries to compare the er... “market caps” of the mined metals to each other.
It would be just as easy to say that Bitcoin had properties similar to Copper and try to back a valuation out of that. Either comparison borders on silly.
It's not arbitrary; gold (unlike copper) has been money for 5000 years.
And unlike copper, the United State's dollar was backed by gold for a majority of the 20th century while most other currencies were pegged to the dollar.
And finally, unlike copper, there’s $8-$10 trillion dollars worth of gold being used as a store of value globally.
Bitcoin has all of the core attributes of gold with the addition of being digital and having a fixed supply.
To answer your question: Yes. The volatility is a trader's dream.
I've been holding a sizeable Bitcoin position[1] since 2011, but I'll acknowledge you can make a killing trading in bull markets or crushing bear markets.
To my anecdotal experience, more like a market makers dream. If you do speculative HFT then for the unexperienced you may get crushed by huge slippages when exchanges crumble under a load. Notice that exchanges in the Bitcoin world either do not, or simply don't care, to guarantee availability during spiked trading. I don't say alpha is impossible, but probably requires certain degree of comprehension.
What's the best way to take a bearish position on Bitcoin? I looked into it during the price surge a few years ago, but couldn't find anything that didn't involve setting up non-USA accounts. Any secure ways to do this for US citizens?
CME offers Bitcoin futures[1], available for trading via Globex. It's a futures contract, so you won't hold any BTC position (long or short), and it's actually cash-settled, so you don't have to worry about delivering or actual BTC.
However, margin will be steep, considering the volatility; my broker in particular actually has a $200k overnight margin requirement for a short position.
I'm sure you've heard the saying that the market will remain irrational for longer than you can remain solvent. Please keep that in mind when shorting bubbles.
Awesome, I'll look into. Are you able to quickly buy/sell contracts whenever? I can live with market-timing risks, but not with risks outside of my personal decision control (e.g. i want to sell a futures contract but the platform says I can't for w/e reason, or they can't find a buyer, etc)
Yes. These /BRR contracts trade on Globex like most other futures contracts, meaning around-the-clock (23/5) trading. Liquidity is fine for single contracts in the front month -- bid/ask spreads are one to three ticks, and you won't have any problems getting filled. If you're trading tens of contracts, you're going to move the order book somewhat, but I'm assuming your volume isn't at that level. Like any other tradable instrument, you run the risk of slippage in volatile situations, e.g. a stop loss hitting during a big liquidation event. Since you appear to be willing to hold a short position for a long time, this shouldn't be an issue for you.
Exchange (that is, Globex) availability hasn't ever really been an issue (and I can't remember the last outage they had; it'll be a big deal, considering there are literal trillions in notional value swapping hands every day). Your broker, which will be your gateway to actually trading the contracts, will be the bottleneck of availability.
I personally use Interactive Brokers, and their uptime is great. Even during times of extreme volatility this year across many markets, which caused the likes of Robinhood or even more established brokers like TD Ameritrade to experience downtime, IBKR has been fine. Obviously your mileage may vary and I suggest you do your due diligence on brokers.
Another way to do it is by borrowing bitcoin with other collateral, selling it, then buying it back at a cheaper price. You can get a sense of rates here: https://defirate.com/loans/
So you might supply USDC on Aave and borrow WBTC. You can then trade that WBTC for USD (if you're bearish on BTC relative to USD), wait for the WBTC price to drop, buy it back and repay your loan.
Though if you're wealthy enough to trade the futures, it's taxed more favorably and easier to manage.
May I ask for recommendations on where to trade Bitcoin? The fees on Coinbase (Pro), Kraken, etc seem prohibitive to me, especially for larger sums.*
*) I‘m used to commission free stock trading with no volume limits in Germany, for any private individual. Don‘t know how this handled in other countries though.
One thing I like about this wave is that there are other people to talk about these returns with
In prior years I would usually downplay my trading acumen and past performance, like "yeah you can 300% (3x) returns in a nice swing trade", talking with people that MAYBE have touched a penny stock the wrong way, yet realizing that extrapolating even that to an annual return would have them posting a scarlet letter on me as a liar and scammer
the reality is that I was making 40x returns, back in 2013. A couple here, a couple there, a diversified portfolio. should have kept with some names, should have not trading some others.
Now everyone knows: it is not hard to generate a 10x return. A 10x return is underperforming the benchmark of bitcoin which made 20x this year.
And that is great.
As someone that knows how to trade bullish markets, bearish markets, and sideways markets, I can't wait for this to shake newbies out.
Your ideas interest me, and I wish to subscribe to your newsletter.
Seriously, I’d love more info. It’s become accepted wisdom that trading loses money, 10% returns year after year are unrealistic, experts underperform the market, don’t time the market, etc. It’s such accepted wisdom that I’m skeptical of it. In particular, I wonder whether it actually is realistic for someone who is thoughtful, has a strategy, and has an appropriate risk tolerance to drastically outperform the market at small scale. For example, it seems like with so much index and large fund capital sloshing around and moving the market overall one way or another, it’d be moving a lot of companies with it on a given day / week / month that really shouldn’t be moving. Just an example.
Would love any reputable links, books, etc about this!
As Warren Buffett wrote in his 1985 letter to the shareholders of Berkshire Hathaway: "What could be more advantageous in an intellectual contest—whether it be bridge, chess, or stock selection—than to have opponents who have been taught that thinking is a waste of energy?"
Simplest way is to have information others don't. Much more difficult would be information they have but aren't using correctly.
One example I've heard before is this (maybe garbage...). Publicly traded ecommerce company is going into the peak holiday weeks, and analysts are bullish. You found informational leaks of KPIs by digging through html source code (incrementing order ids, cancellation ids, etc). These KPIs show a downward trend in the final few weeks. You posit these are real, and short the stock since they're likely to miss earnings.
At its core, the current cryptocurrency craze is simply an unprecedented wealth transfer to China from the rest of the world.
Until the end of 2013, Bitcoin was predominantly traded for US dollars. However, after the crash of 2013, miners consolidated in China and Bitcoin mostly traded for Chinese yuan[1]. At the start of 2017, regulators in China cracked down on digital currency exchanges[2] and trading quickly moved to Japanese yen and, more recently, South Korean won[3].
All of the early buyers are selling. This won't end well.
I agree that this might be a wealth transfer to China. Bitcoin inherently does not hold any value, it is a ledger. When someone buys bitcoin, someone else sells it and takes the cash out of the system.
Right now, a lot of mining is still taking place in China since energy is cheap. These miners sell their coins outside of China and bring cash back into the mainland to pay for the energy and hardware used for mining. So in it's most simplistic form, when you buy a bitcoin, you are adding to the earnings of Chinese energy companies and hardware companies (and some naturally goes to speculators and miner margins).
That's an interesting statement. I've never thought of it that way. In essence, Chinese miners are exporting subsidized Chinese energy (via mined coins) for foreign currencies. Sounds very much the M.O of Chinese trade practices (not meant to be overly negative, I'm just saying).
Other communist states were/are doing the same: exporting a product of their captive workforce for foreign hard currency. For instance Uzbekistan is exporting cotton picked up by school students which are essentialy a slave work force. China is just a bit more "liberal" in this regard.
No, bitcoin is not subsidizing Chinese energy. They're paying for the energy being used at the price it costs to use it. I imagine the amount of energy used to mine in China is not a significant fraction of the overall energy production of China.
I think you got the causality backwards in the parent comment. China is subsidizing energy and, indirectly, Bitcoin. The parent assumes the price of energy in China is below cost. I'm not sure, but I wouldn't be surprised to learn this was true.
> Bitcoin inherently does not hold any value, it is a ledger.
I just want you to be aware that those 2 sentiments are directly contradictory. A ledger has value -- an online, world-wide, decentralized, distributed, peer-to-peer ledger moreso. Estimate the value of the ledger (this is a significantly different endeavour than estimating market cap), divide that value by the total number of BTC in circulation, and you have estimated the value of a BTC.
Why? Based on what? That's like saying "a state machine has value". That might be true in some contexts, but an arbitrary implementation of a concept is not necessarily valuable. Certainly, the value prospect of the ledger has no relationship to how many cryptotokens the ledger accounts to one's balance (that is to say, buying up cryptotokens is purely speculative because owning more does not make the ledger more useful)
A ledger that me and another entity (such as a friend I owe money to or a retailer I want to buy from) can both agree on to use to accomplish transactions is pretty handy.
their direct possessions (money, real estate, license, ...) are much smaller then their total value. fractional reserve banking and all that. A significant fraction of their value comes from their reputation (to have an incorruptible ledger), ability to transact and Branding. bitcoin has those as well.
I see what you're saying, and that's an interesting way of thinking about the intrinsic value of Bitcoin. I suppose in estimating the value of the ledger you should also consider the negative value contributions to having this particular ledger, such as environmental impact, potential to destabilize governments, expected loss from hacking/user error, etc and see whether that outweighs the benefits of what some may perceive to be positive value.
I suppose what I meant to say is there is technically no money sitting somewhere held for owners of bitcoin to lay claim to.
The dollar just ledges itself, since it's not backed by gold anymore. Most dollars are just entries in a database somewhere (and I would argue that paper dollars are really a distributed kind of ledger too).
Some people claim the dollar has value because the government accepts it for taxes, but the IMF's SDRs function as currency (within an exclusive population), aren't backed by anything, aren't accepted for taxes by anyone, and are worth $300 billion.
I thought a lot of it was capital flight - Chinese nationals moving yuan out of the country, but to USD assets under their control, rather than an actual influx of wealth to China.
After all, we have no real idea of "where" the bitcoin is held, if that means anything at all.
You seem to be confusing volume with liquidity. The question is not how many times a bitcoin (allegedly) changes hands on an exchange, but how many USD/CNY/JPY etc. are bidding on bitcoins right now.
Why wouldn’t the CNY/JPY/KRW markets have much higher volume when they have zero trading fees?
The magnitude of an exchange is measured by how many funds they have on deposit, not how often these deposits change owner according to the exchange’s internal database.
They don’t need bitcoin for the first stream, just for the second. Besides, there is plenty of excess capital floating around in china anyways, they don’t need many initial investment from the outside.
The outflow of the capital from China via bitcoin must definitely be larger than inflow. And those who transfer wealth from China via bitcoin are keenly interested in bitcoin growing as much as possible without crashing. They likely have bought a lot for a much lower price, and want to cash out in the West, at least partially, without trouble.
Yes, I'm aware that an article from January 2017 has data backing up an assertion about global Bitcoin trading volume from 2012 to 2017. What is your point?
> At its core, the current cryptocurrency craze is simply an unprecedented wealth transfer to China from the rest of the world.
Actually it's a wealth transfer from china to the US. The chinese are using bitcoins as a means to evade CCP capital controls.
There's a reason why china cracked down on bitcoin. Do you think china would stop wealth transfer to china? Of course not. They are trying to stop wealth transfer from china to the US.
