The Everything Bitcoin Thread

[î мцšт вяздк чфµ]

[nuckin_futz]

First, it is not completely unregulated. As you mention below, Mt Gox had to comply with standard fraud, money laundering, and theft laws. In fact, Mt Gox registered as an exchange to comply with these laws.

So no, it isn't completely unregulated.

Yes it is. There is a difference between laws and regulations. MtGox registered as an exchange to deal with AML regulations.

Yes, what is your point? They have alerts on all sorts of topics, from ETFs and mutual funds, to stocks and bonds, to text message based pump and dump schemes on penny stocks.

The point is they regularly issue alerts for products they regulate. Like the ones you mentioned. How often do they go out of their way to warn the public about products they do not regulate?

Right. And what's wrong with that? Operating an exchange isn't illegal. Forex is the largest market in the world, by far.

Nothing, I didn't say anything was wrong with it. Your Forex comment is a little out of left field.

If you lost money in a Japanese penny stock...

If you're trying to say your BTC weren't covered by CDIC or FDIC insurance, that's because Mt Gox wasn't a chartered bank. It was an exchange. If your investment in Zimbabwean dollars goes tits up, you can try complaining to the Zimbabwean government, but that's about as far as you'll get.

Are you equating BTC with penny stocks? If so, that speaks volumes. CDIC or FDIC is not relevant. But SIPC is. Doing business with a broker/exchange not registered is asking for trouble. Just ask MtGox account holders their opinion of that. Or Alberta's Flexcoin for that matter.

Okay, you should read more about how bitcoin works. New coins are being created all the time. This is what "mining" is. There is a rate at which they are being created, and there is a maximum number that there will ever be: 21 million. That said, they are divisible up to 8 (I think) decimal points, so you can have tiny fractions of a dollar if you want. As demand grows, people will talk about millionths of a bitcoin instead of tenths of a bitcoin. Of course, this is a property of bitcoins specifically - other crypto-currencies don't necessarily have this upper limit built in.

Also, the reason there isn't much volume in BTC has nothing to do with the number of BTC there are. You could trade $1T in BTC tomorrow if you wanted. You'd of course be disrupting the market significantly, would need $1T to buy the BTC, and would be setting the price of BTC worldwide, but you could do it.

I have read plenty about how BTC works. Yes, I know that the maximum number of coins that will exist is 21 million. My point is that in currency realms 21 million units is peanuts. In fact it's micro peanuts. It barely registers as peanut dust.

To suggest the volume is lacking due to a shortage of bids and offers is naive. Do you know much about market making? No market making firm in their right mind would step into BTC because market making requires being on both sides of the market. Otherwise you're just making a directional bet. Which completely defeats the purpose of making markets. How is being on both sides possible in BTC? I could find only one tiny firm in Hong Kong that allows shorting of BTC. How would one go about hedging their position in BTC?

In a previous post you mentioned volatility in in USD/BRL (Brazilian Real) in September 2008. I noticed you chose the most volatile time in generations to make your example. Anyway, it's rather a moot point as anyone can easily hedge their currency risk in BRL and make themselves market neutral. How does one do this with BTC?

Volatility in BTC is not equal to volatility in other recognized currencies because all risk in those standard currencies can be hedged away to zero.

Let me give you a real world example. Back when the rain storms hit Vancouver and caused all that "turbidity" in the reservoirs, people were looking to buy mass quantities of bottled water. You could go to Safeway and get a 4L jug of water for $3, but once those ran out, you'd be buying Evian for $5/L. Once that ran out, I witnessed a guy come in to a Starbucks and buy 2 flats of their water - I think he got 8L of water for $120. The price of water in Vancouver varied from free (in some places) to 75c/L to $15/L. This is because the spike in demand for bottled water was larger than the standard base demand.

Sorry but all I took from this was you once saw a very foolish man in Starbucks.

The way a market works is can submit buy and sell orders of a security, and the exchange will post those buy and sell orders and attempt to match them. Let's say a stock is trading at $10. Let's say there are 3 people willing to buy the stock, and they submit buy orders for 10 shares each at $9.90, $9.80, and $9.70. Let's also say there are 5 people willing to sell the stock, 10 shares each, at $10.10, $10.20, $10.30, $10.70, and $15.00. To say "a stock is trading at $10" is to mean that the last trade that closed happened at a price of $10. There are unfilled orders at other prices because they haven't been matched yet.

Volatility is a measure of how much the price of the last trade fluctuates. So let's say the next orders that are posted are:

BUY 10 $10.20

BUY 10 $10.10

SELL 10 $10.00

BUY 50 $ANY

The first order will clear at $10.10 for 10 shares. The second order won't clear. The third order won't clear, and the 4th order will clear, buying 10 shares at $10.00, 10 at $10.20, 10 at $10.30, 10 at $10.70, and 10 at $15.00. The stock will then be trading at $15.00.

This happened because a big investor came in with a large order that was able to clear all of the existing sell orders. Now, for a stock with high trading volume, there will be hundreds or thousands of shares sitting in buy/sell orders just pennies or nickels off of the last traded price. Buying $100k of a well traded stock will clear a bunch of sell orders, but won't make a dent in the overall queue of orders. Dropping a few billion will (hence why we see huge price movements during takeover offers).

Thanks for the lesson in how markets work. I am always interested in improving my knowledge but as an FYI. For the last 16 years I have traded equities (among many other products). I estimate I have logged 25k hours in front of Level 2 screens and have traded approximately 5 billion shares in that time. The example you have posted above is incorrect.

Firstly, I assume these are passive limit orders you're talking about (apart from the 50 market order) and have no special instructions attached such as "price discretion" or "hidden" and have no special function such as "hide not slide" orders. Also, are these orders pinging for dark liquidity? A full 1/3 of all volume is executed via dark pools. Ignoring 1/3 of all traded volume is not wise.

In your example. The 1st order executes fine @ $10.10.

The 2nd order (buy 10 @ 10.10) would not execute and would then become the NBBO at $10.10.

The 3rd order to sell at $10.00 would be matched with the $10.10 bid and WOULD CLEAR and be price improved to that price.

The order book now sits at $9.90 x $10.20, 10.30, 10.70, 15

The 4th order (the 50@ market) would lift offers up to $15 and beyond.

The executions @ $15 and above would be a large enough gap from the previous traded price to request a bust from the exchange as an erroneous trade. And the sender would be a bloody fool not to request a bust even if it's only 20 shares in question. He/she can do this because there are rules and regulations in place to protect investors.

Now, how does this matter with BTC? Well, it doesn't matter how many BTC there are, what matters is how many buy/sell orders are in the queue, what their sizes are, and how big the new orders are in relation to the value of the queue. There could be trillions of BTC and this wouldn't change.

Well I covered this above. No hedging ability means no market makers. Which means volume remains peanuts.

Buffett is famous for only in "investing in what he knows and understands" - things like railways. There are a ton of things he doesn't understand, and he fully admits it. That doesn't mean they aren't good investments (i.e., tech stocks).

Buffet and his partner Charlie Munger regularly have FX positions in the hundreds of millions. Sometimes even north of 1 Billion. I'd say he understands the currency world pretty well. One might even be daring enough to call his opinion on currency matters "relevant".

As for Roubini, well, the experts of the day back in FDR's time thought it was economic suicide to decouple the USD from gold. They were wrong.

But again, this is all beside the point. We are talking about whether or not Mt Gox's implosion means that BTC isn't viable. It doesn't. Whether BTC (or some other crypto-currency) becomes widespread is independent of what happened at Mt Gox.

Roubini is also just flat wrong about it being a Ponzi scheme. It just isn't, and calling it so doesn't make it so.

Ignore Roubini at your own peril. He's proven to be very level headed and pragmatic.

Also, just for added thought: NY state just today started accepting applications for licenses for BTC exchanges. I think the procedure is you apply, and in the fall they will grant you a license and tell you what rules you have to play by.

Edited March 17, 2014 by nuckin_futz

[Papayas]

where are those people when Bitcoin's price is dropping again after just a mere rumor from China?

Or that another exchange is in trouble again?

Small bitcoin exchange, Vircurex, teeters after large withdrawals

Jeremy Kirk

• Mar 23, 2014 11:07 PM
• print

A small bitcoin exchange in Beijing is in trouble again after trying to earn back funds lost in two hacking incidents last year.

The exchange, called Vircurex, said in a statement it would freeze on Monday cryptocurrency accounts held by its customers after large withdrawals apparently nearly drained it of funds.

A tiny player, Vircurex traded just 54 bitcoins in the last 30 days, according to statisticscompiled by Bitcoin Charts. By comparison, the largest China-based exchange, BTC-China, transacted more than 202,000 bitcoins in the same period.

But it is the latest exchange to suffer financial problems following the collapse last month of Mt. Gox, the one-time king of the bitcoin trade, which lost an estimated 650,000 bitcoins and US$23 million in cash through poor accounting and security problems.

Vircurex lost “a significant” amount of its holdings in two incidents last year, it said on its website. It claimed to be covering the losses from those incidents through normal trading operations, from which it collects a fee.

The exchange apparently had enough in reserve to allow regular trading of bitcoins and several other cryptocurrencies, including litecoin, feathercoin and terracoin, but not enough if many depositors suddenly wanted to withdraw.

The scenario, termed a “fractional reserve,” has long been a worry of bitcoin investors since the finances of virtual currency exchanges, which are mostly unregulated worldwide, are often opaque.

But Vircurex said “large fund withdrawals” in the last few weeks depleted its so-called “cold wallet,” which refers to offline, secure storage for cryptocurrencies such as bitcoin.

“We are now facing the option of either closing the site with significant unrecoverable losses for all or to work out a solution that allows the exchange to continue to operate and gradually pay back the losses,” the company said.

It outlined a plan that involved distributing its remaining cryptocurrency balances to depositors. Depositors’ accounts will be labeled with the term “frozen balance.”

“Funds in this balance type cannot be used to trade or withdraw,” Vircurex said. “Those are the balances that the exchange will gradually pay back and hence transfer back to the available balance over time.”

[mdehaan]

http://www.auroracoin.org/

[mdehaan]

where are those people when Bitcoin's price is dropping again after just a mere rumor from China?

Or that another exchange is in trouble again?

There are crappy exchanges yes.

But prices going up and down is nothing new, its called volatility.

[Papayas]

There are crappy exchanges yes.

But prices going up and down is nothing new, its called volatility.

yes, and that's the thing that a lot of people are trying to ignore when it comes to bitcoin.

It's painful to see people trying to ignore this fact and the best thing they can come up with is "well because other real currencies are unstable and therefore, Bitcoin is a good investment."

To me, bitcoin is even more risky than stocks because of the lack of regulation and control. The recent incident shows how volatile bitcoin is and how easy the price will fluctuate.

it's not that it's not a good investment. but one has to acknowledge the risk of the whole deal, instead of pretending it's stable and safe.

[Lancaster]

[mdehaan]

yes, and that's the thing that a lot of people are trying to ignore when it comes to bitcoin.

It's painful to see people trying to ignore this fact and the best thing they can come up with is "well because other real currencies are unstable and therefore, Bitcoin is a good investment."

To me, bitcoin is even more risky than stocks because of the lack of regulation and control. The recent incident shows how volatile bitcoin is and how easy the price will fluctuate.

it's not that it's not a good investment. but one has to acknowledge the risk of the whole deal, instead of pretending it's stable and safe.

All markets are volatile. Facebook went from over $67 to under $64 just today. That's a 5% move in one day for one stock.

Would you say Coffee is risky? $166 to $176 just today. 6% move in price in one day.

Bitcoin is the least of our financial worries imo.

[Papayas]

All markets are volatile. Facebook went from over $67 to under $64 just today. That's a 5% move in one day for one stock.

Would you say Coffee is risky? $166 to $176 just today. 6% move in price in one day.

Bitcoin is the least of our financial worries imo.

except some are more volatile than others. and yes, any kind of investments has risks in them including the ones you list. And when someone come up to me and tell me investing into those markets are a "sure win" (not you), i will say the same thing to them.

Most markets would move up and down, and there are few who would move as much as Bitcoin. We are talking about losing more than half of its peak value in just three months. That is a 50% decrease in value in less than half a year and people would still come up to others and tell them it's absolutely safe to invest in them. That is the problem i have with bitcoin. It's not the coins, it is the people.

people wnat to invest in bitcoins? It's fine. It could turn out to be a good investment BUT one needs to acknowledge the risk that comes with it first. it's absolutely painful these days to still see people telling me at work that bitcoin will hit 2k by the end of the year so it's a good time to buy in now.

[nuckin_futz]

All markets are volatile. Facebook went from over $67 to under $64 just today. That's a 5% move in one day for one stock.

Would you say Coffee is risky? $166 to $176 just today. 6% move in price in one day.

Bitcoin is the least of our financial worries imo.

What is the difference between Facebook stock, coffee futures and BTC?

#1) FB stock and Coffee futures are REGULATED. While BTC is NOT.

I honestly do not understand why some of you refuse to accept this as a serious issue.

#2) Both FB and coffee futures are 2 sided markets. With market makers who have actual responsibilities like providing liquidity and maintaining an orderly market place.

So comparing volatility between them is lunacy.

people wnat to invest in bitcoins? It's fine. It could turn out to be a good investment BUT one needs to acknowledge the risk that comes with it first. it's absolutely painful these days to still see people telling me at work that bitcoin will hit 2k by the end of the year so it's a good time to buy in now.

The more idiots involved in financial markets the better it is for those who have a clue. The great thing is no matter how many get cleaned out, more just keep showing. Like idiots at a poker table.

******************************************

More good news for BTC groupies.............

IRS says bitcoins are taxable property, but not currency

People love referring to Bitcoin as a "cryptocurrency," but the Internal Revenue Service looks at it a little differently. According to a new IRS statement, Bitcoin should be considered property, not currency. What does that mean for US Bitcoin aficionados? Quite a bit, actually.

Consider your growing stash of bitcoins. If you're the type who mines for bitcoins, the market value of what you receive counts as part of your gross income... just in time for tax season, naturally. Conducting commerce with Bitcoin may have become much trickier on the small scale, too. You have to deal with capital gains and losses for Bitcoin transactions if the value of those bitcoins fluctuates (doesn't it always?). Bloomberg explains what this means well:

Under the ruling, purchasing a $2 cup of coffee with bitcoins bought for $1 would trigger $1 in capital gains for the coffee drinker and $2 of income for the coffee shop.

Reporting those gains and losses may not be too troublesome for big, infrequent exchanges, but businesses that deal with plenty of smaller ones could have plenty of record keeping to do. And if you're a business that (for some reason) pays employees with bitcoins, that virtual wage is subject to income tax withholding. If those employees didn't get W-2s before, voilà -- they need 'em now. Long story short, bitcoin owners: Start keeping track of everything lest the taxman take issue with your methods and come poking around.

http://www.engadget.com/2014/03/25/bitcoins-are-property/?ncid=rss_truncated

Edited March 25, 2014 by nuckin_futz

[mdehaan]

What is the difference between Facebook stock, coffee futures and BTC?

#1) FB stock and Coffee futures are REGULATED. While BTC is NOT.

I honestly do not understand why some of you refuse to accept this as a serious issue.

#2) Both FB and coffee futures are 2 sided markets. With market makers who have actual responsibilities like providing liquidity and maintaining an orderly market place.

So comparing volatility between them is lunacy.

The more idiots involved in financial markets the better it is for those who have a clue. The great thing is no matter how many get cleaned out, more just keep showing. Like idiots at a poker table.

What does regulation have to do with price and volatility?

Easy with the name calling chap, the 'idiots' don't know any better.

[nuckin_futz]

What does regulation have to do with price and volatility?

Easy with the name calling chap, the 'idiots' don't know any better.

It's like you don't even read the posts you're responding to. From the very post you quoted:

#2) Both FB and coffee futures are 2 sided markets. With market makers who have actual responsibilities like providing liquidity and maintaining an orderly market place.

So comparing volatility between them is lunacy.

As for the comment about idiots. Participating in something where you do not know the rules or have a decent understanding of the dangers involved is idiocy. What else would you call it?

I know very little about sailing. If I were to pilot my own boat I'd be an idiot.

[mdehaan]

It's like you don't even read the posts you're responding to. From the very post you quoted:

#2) Both FB and coffee futures are 2 sided markets. With market makers who have actual responsibilities like providing liquidity and maintaining an orderly market place.

So comparing volatility between them is lunacy.

As for the comment about idiots. Participating in something where you do not know the rules or have a decent understanding of the dangers involved is idiocy. What else would you call it?

I know very little about sailing. If I were to pilot my own boat I'd be an idiot.

This doesn't have anything to do with market price and volatility!

If it does, you are telling me that all financial markets are rigged.

[nuckin_futz]

This doesn't have anything to do with market price and volatility!

If it does, you are telling me that all financial markets are rigged.

Liquidity has nothing to do with volatility? You cannot be serious? Liquidity has everything to do with price and volatility.

As to markets being rigged. Rigged is a strong word. However, there are rules in place to maintain an orderly market and dampen volatility. So yes, markets are rigged to a certain extent.

Rules such as the new downtick rule. If a stock drops more than 10% in a single session it is no longer shortable on a downtick for the rest of that session as well as all of the next day. If a stock moves up more than 10% in a day there are no restrictions on buying it. That is rigging the market right there.

If a single stock moves more than 10% in a 5 minute period (up or down) trading in that stock is halted for 5 minutes.

There's circuit breakers for the market as a whole. The yardstick is the S&P. Trading will halt for predetermined amounts of time if the S&P drops 7, 13 or 20% in a single day. At 7 and 13% drops all trading ceases for 15 minutes. At a 20% drop trading is halted for the remainder of that session.

From 1987-2007 you had "program trading curbs" that kicked in when the Dow Industrials moved 2% in either direction. The curbs restricted the trading of automated programs.

Look up what a "Liquidity Replenishment Point" (LRP) is. https://usequities.nyx.com/sites/usequities.nyx.com/files/fact_sheet_lrp.pdf

Even futures markets have "lock limits". Those are there to dampen volatility and extreme price swings.

There's many more examples but that's enough. Do I need to get into more detail regarding the responsibilities of market makers?

None of these exist in the BTC world.

Edited March 26, 2014 by nuckin_futz

[Papayas]

And the price of bitcoin as it stands for today, is 520 now.

That's another 100 dollar drop within a week or two from 620.

[avelanch]

time to buy! it's gonna shoot up soon... right!?!?!?!?!?!?!?!?!?!?!?!?!?!?!?!?!?!?!?!?!!!!!!!!!!

[Papayas]

and it's 510 now...

wow wtf is happening today?

[avelanch]

everyone is selling in the anticipation buying soon... cause it's a great investment getting greater by the day...

[nuckin_futz]

and it's 510 now...

wow wtf is happening today?

PBOC Rule Means Bitcoin Websites in China Must Close, Expert Says Central bank told banks and payment firms to shut accounts of site operators, a move one analyst says means traders have to leave country.

(Beijing) – The central bank has taken a step that at least one expert says means all bitcoin trading websites in the country must close.

The People's Bank of China (PBOC) renewed its crackdown on bitcoins by requiring banks and payment companies to close all the accounts opened by the operators of websites that trade in the virtual currency by April 15.

This means people will only be able to use cash to buy bitcoins, an analyst who has been following the matter said, and will force all trading websites in the country to close.

"The only one way out for bitcoin websites is moving their servers abroad and using the service of foreign banks and payment companies," the expert said.

The requirement, which Caixin saw in a document the central bank's headquarters recently sent to regional offices, says money can be taken from the accounts before the deadline, but no deposits can be made. Banks that fail to close the accounts will be punished, the PBOC said, but it did not elaborate on what those punishments would be.

The central bank document listed 15 trading websites whose accounts must be closed.

The regulator and four other central government agencies jointly issued a circular last year that prohibited payment companies and financial institutions from providing services to bitcoin trading platforms.

The circular said bitcoins are a commodity, not a currency. It added that investors are free to trade in bitcoins at their own risk, but should know they cannot be used as legal tender.

Bitcoins are created by computers linked in a network. To get them, a person can either make a purchase on a trading platform or become a "miner," who uses a computer to process data generated when other miners and traders create and trade bitcoins.

The value of bitcoins rode a rollercoaster last year as demand fluctuated. The highs exceeded 8,000 yuan per unit and the lows dipped to only several hundred yuan. Prices on March 27 were around 3,500 yuan per bitcoin.

Experts estimate that transactions on Chinese bitcoin trading platforms account for about 60 percent of the global total.

Mt. Gox, once the world's largest exchange, filed for bankruptcy in February.

http://english.caixin.com/2014-03-27/100657518.html

Edited March 27, 2014 by nuckin_futz

[mdehaan]

Liquidity has nothing to do with volatility? You cannot be serious? Liquidity has everything to do with price and volatility.

As to markets being rigged. Rigged is a strong word. However, there are rules in place to maintain an orderly market and dampen volatility. So yes, markets are rigged to a certain extent.

Rules such as the new downtick rule. If a stock drops more than 10% in a single session it is no longer shortable on a downtick for the rest of that session as well as all of the next day. If a stock moves up more than 10% in a day there are no restrictions on buying it. That is rigging the market right there.

If a single stock moves more than 10% in a 5 minute period (up or down) trading in that stock is halted for 5 minutes.

There's circuit breakers for the market as a whole. The yardstick is the S&P. Trading will halt for predetermined amounts of time if the S&P drops 7, 13 or 20% in a single day. At 7 and 13% drops all trading ceases for 15 minutes. At a 20% drop trading is halted for the remainder of that session.

From 1987-2007 you had "program trading curbs" that kicked in when the Dow Industrials moved 2% in either direction. The curbs restricted the trading of automated programs.

Look up what a "Liquidity Replenishment Point" (LRP) is. https://usequities.nyx.com/sites/usequities.nyx.c

Please explain this to me: What did liquidity have to do with the price of FB going from $68 to $58 then back to $62? Did liquidity move the price?

Edited March 27, 2014 by mdehaan