The crypto thread

[Birdjaguar]

So I mean, I get it, but it seems that somebody will have an advantage no matter what you do.

Is the main worry here one of insider trading? i.e. a company could attempt to time announcements such that those in the know could jump on the news first and profit off them? Is that the main thing these rules are attempting to prevent?

An earlier post here seemed to imply that news could only be pushed out during non-trading hours. I was going to ask how that makes sense for a company which is being traded in multiple places. i.e. if your stock is being traded in Japan and the U.S., it seems that you'd never be able to find a time to post news.

I do see the issue with bots, who obviously don't need to sleep like humans do.

I'm still a bit confused though, since these issues don't seem to affect crypto/blockchain trading much. From what I understand there are a lot of bots in place who trade while people are sleeping. Maybe I'm out of the loop, but this doesn't seem to be a problem; the traders simply do what they can.

Is this simply a case of this space not being very regulated yet? How could they regulate this though, since trading is 24/7? If this isn't a problem here, why is it a problem with more traditional stocks?

Crypto began as a worldwide thing that was and is mostly unregulated. It wants to be taken seriously like stocks and bonds. For that to happen regulations will come. The tail wagging the dog may happen, but it will be slow.

News happens 24/7 but restricting trading to set hours allows planning by all and forces some discipline. Convenience should not be the defining factor for financial markets. Pension funds and other institutional investors do not want to put money into an unregulated, wild west environment and that is where both legitimacy and the real money is. There are markets all around the world and I'm sure many NY offerings will be duplicated in Asia and Europe. It is still very early in the crypto game. In five years things will be very different. For those in a hurry you have to take more risk.

 

[warpus]

By that do you mean that you expect to see crypto regulations strict enough to prevent people from trading crypto during non-business hours? I am trying to understand how something like that would work. If an exchange is decentralized it isn't really tied to any one region, timezone, or country. Do you think they will try to force those exchanges to close down? How would that work? Stockmarkets seem a lot easier to regulate like this, since they have a physical location.

I still don't really see the problem with allowing trading of these commodities to happen around the clock, since we're a global economy these days and traders can be located pretty much anywhere. The historical reasons for stock markets being set up like this make a lot more sense to me now though.

 

[Moriarte]

FX, stock futures, commodities are traded virtually 24/7. Thus, someone is definitely taking advantage of that China inflation data during odd hours and in a big way too. So, speculation is not the culprit. Main market makers are investment houses (Goldman, et). They are reluctant to trade 24/7 as that would be labor-intensive. Trading hours complement those national actors, stock market makes sure national economy stays local on a global stage. For foreign exchange, crypto, commodities these considerations are waved, so we have these curious double standards presented as protective measures.

 

[warpus]

That adds a lot of context to this and helps me see the big picture better, thanks!

 

[Birdjaguar]

By that do you mean that you expect to see crypto regulations strict enough to prevent people from trading crypto during non-business hours? I am trying to understand how something like that would work. If an exchange is decentralized it isn't really tied to any one region, timezone, or country. Do you think they will try to force those exchanges to close down? How would that work? Stockmarkets seem a lot easier to regulate like this, since they have a physical location.

I still don't really see the problem with allowing trading of these commodities to happen around the clock, since we're a global economy these days and traders can be located pretty much anywhere. The historical reasons for stock markets being set up like this make a lot more sense to me now though.

No, I don't see any stopping of trading crypto 24/7. It is the more formal funds and offerings that are handled by investment houses that will be more regulated. There may be legal issues. If I am a US based company making trades through some outpost in Japan, which jurisdiction is involved? whose regulations apply? You want it simple and convenient. The financial industry wants it safe for them and within known legal structures. That is one reason it is so hard for Chinese to invest in US stock funds. There are lots of legal uncertainties.

What recourse do crypto buyers have if something goes south? Who do you sue and where if your crypto wallet gets hacked? There isn't enough worldwide legal infrastructure to support decentralized trading for all. When billions of dollars are at risk nobody want undefined uncertainty. Convenience is only important within a clearly defined space where the risks are known.

 

[Moriarte]

Who do you sue and where if your crypto wallet gets hacked?

If you keep it on a respectable exchange you get compensated in case of a hack. Or you can take full responsibility for your money if you feel that way. Same options as with fiat.

https://www.reuters.com/business/fi...yptocurrency-least-6000-customers-2021-10-01/

 

[Birdjaguar]

If you keep it on a respectable exchange you get compensated in case of a hack. Or you can take full responsibility for your money if you feel that way. Same options as with fiat.

https://www.reuters.com/business/fi...yptocurrency-least-6000-customers-2021-10-01/

Good news. Are all crypto companies so generous? Do we know the total dollars involved? If it is a small amount, then it is just good marketing. If it is tens of millions or more, then it is a great company.

 

[Moriarte]

Good news. Are all crypto companies so generous? Do we know the total dollars involved? If it is a small amount, then it is just good marketing. If it is tens of millions or more, then it is a great company.

Well, this particular one has reputation at stake, which is bound to happen once you get big. Coinbase is worth 82 billion on nasdaq. Then there’s Binance, which is even bigger than Coinbase by my estimation, they refunded $40 mil to their clients in 2019.

https://asiatimes.com/2019/05/binance-offers-full-refund-after-40m-hack/

So, the biggest exchanges are safe in this regard. In personal experience - far safer than a international bank I am using for fiat. But there are other crypto exchanges! And then there are decentralised exchanges! A whole another story (of work in progress). They represent the minority in terms of trade volume. These are less safe, obviously, but offer some unique products. So we can pick our depth of immersion into madness.

 

[Birdjaguar]

Houston Pension Fund Invests in Bitcoin, Ether
BY ALLISON PRANG

Houston’s pension fund for its firefighters bought $25 million worth of bitcoin and ether for its defined-benefit plan’s portfolio, as more institutions invest in digital assets.

The move comes as bitcoin powered back to a record above $66,000 this week. That followed Tuesday’s debut of the first U.S. bitcoin-focused exchange-traded fund, a closely watched development on Wall Street where finding a way to sell securities linked to bitcoin has been a priority for many firms. The Houston Firefighters’ Relief and Retirement Fund, which has $5.5 billion in assets under management and more than 6,600 benefactors, said it purchased bitcoin and ether through bitcoin company NY-DIG, a subsidiary of Stone Ridge,
an alternative-asset manager.

At 5 p.m. in New York, bit-coin traded at $62,707.43.

Investing in cryptocurrencies has become more widely accepted at the same time some pension funds are trying to take on more risk as they struggle to cover retiree benefits. Analysts expect returns at public-pension funds to fall over the next decade. Companies and executives have also become more open to cryptocurrency offerings.

Jack Dorsey’s payments company Square Inc. has purchased millions of dollars worth of bitcoin. Twitter Inc., where Mr. Dorsey is also chief executive, has explored using the cryptocurrency for paying employees and vendors. El Salvador this year passed a law making bitcoin legal tender, meaning the cryptocurrency could be used for things such
as paying bank loans and buying goods.

A 401(k) provider, ForUsAll Inc., recently announced a deal with Coinbase Global Inc. to let workers invest a small portion of their retirement contributions in digital assets.

Companies and executives have become more open to cryptocurrency offerings, even exploring paying staff with bitcoin.

 

[El_Machinae]

Now that pension funds are opting in we've found the Greater Fool. One could choose to ride the wave a bit longer, hoping that by holding you're encouraging more big money schemes to opt-in. But, wow. That's a game of chicken.

What a disaster waiting to happen. I'm at maximum pessimism, honestly. Cards on the table, though, I've increased my stake in Gold, which I'd normally not want to do because (imo) it's not real investing.

 

[Birdjaguar]

Yes, it will easy for pension funds to get really screwed quickly.

 

[warpus]

The way I look at it, the market cap of the entire blockchain space is still relatively small, even smaller than the net worth of Apple IIRC. If you invest in this space you are essentially banking on it growing to be larger than that over the next couple years. That seems like a reasonable assumption, given that the space has been indeed growing every single year, on average anyway. If you are also expecting to see larger financial institutions getting involved and us seeing more mass adoption, then the space growing seems like a no-brainer as well.

But yeah, having said that, it is extremely volatile, and as such a lot more risky. Anybody throwing all their life savings and/or pension hopes at crypto is playing with fire.

I wonder about these bitcoin ATMs.. What's the point? I looked up one of these things and they charge you way too much. It seems that since these are going up all over the place, people must be using them.. but.. like.. I don't get it. Who is walking around the city, and upon seeing one of these things thinks: "I'll buy some bitcoin right now!". Does that happen that frequently? Surely most people get an idea to invest in this space and then do a bit of research to see where they can buy the cheapest bitcoin or whatever. It would take like 2 minutes of googling. There's no way spur-of-the-moment bitcoin buys are that popular.. but maybe they are?

 

[Samson]

I wonder about these bitcoin ATMs.. What's the point? I looked up one of these things and they charge you way too much. It seems that since these are going up all over the place, people must be using them.. but.. like.. I don't get it. Who is walking around the city, and upon seeing one of these things thinks: "I'll buy some bitcoin right now!". Does that happen that frequently? Surely most people get an idea to invest in this space and then do a bit of research to see where they can buy the cheapest bitcoin or whatever. It would take like 2 minutes of googling. There's no way spur-of-the-moment bitcoin buys are that popular.. but maybe they are?

I have always assumed the bitcoin ATMs allow you to convert bitcoin into cash with no paper trail, which is something people want to do apparently

 

[warpus]

Hmm maybe that's it, maybe it's not so much for buying bitcoin, but moreso for taking money out of your crypto wallet and converting it to $$?

Might there not be mandatory reporting (to the IRS) by companies that put up these bitcoin ATMs? The big exchanges are doing that already, I think.

 

[RobAnybody]

That is something I hadn't considered either - those ATMs very much *are* likely for people wanting to withdraw money. I was initially baffled by their purpose as well.

But you also raise an interesting question regarding taxes. I'd bet (I honestly have no idea) that if you withdraw less than you paid in (like, you invested $50 in Bitcoin & withdraw $25 - keeping it low on purpose), regardless of the actual value of Bitcoin at the time you withdraw "real" dollars, & IRS tax implications aren't a thing you need to worry about.

However, if you made a bunch of money on Bitcoin & withdraw it all through one of those ATM's, then probably there is a record, much like there is already if you cash out through Coinbase or Crypto.com - they send you a "capital gains" tax form (I don't know the exact form#), so probably not much difference from just cashing out your crypto to your regular bank account, which is fairly easy to do through either of those exchanges (they are the only ones I know/use).

I, too, was confused as to the target audience for those ATM's - but if it's for *withdrawals*, that makes sense (to the extent any of this makes sense). Huh... learn something new every day, I guess.

 

[Samson]

However, if you made a bunch of money on Bitcoin & withdraw it all through one of those ATM's, then probably there is a record, much like there is already if you cash out through Coinbase or Crypto.com - they send you a "capital gains" tax form (I don't know the exact form#), so probably not much difference from just cashing out your crypto to your regular bank account, which is fairly easy to do through either of those exchanges (they are the only ones I know/use).

The exchanges are into know your customer things, where they get you to send a photo of your face and a card. I am sure they are easy to fake, but it is a step you could avoid if you just use an ATM.

 

[warpus]

Wouldn't one of these ATMs require you to get some sort of a card you can use in the machine.. and this card would require KYC? That's what I assume anyway, but I haven't looked into it.

When I signed up on a Canadian exchange to set up my goddaughter's portfolio, I had to do extensive KYC. It seems like something that would be hard to fake. I had to send in my documents multiple times, because they weren't happy with the quality, stuff like (very minimal) glare, etc. I mean, it's probably possible to fake if you know what you're doing, I guess. Just seems like a tough proposition

 

[RobAnybody]

The exchanges are into know your customer things, where they get you to send a photo of your face and a card. I am sure they are easy to fake, but it is a step you could avoid if you just use an ATM.

I'm not that sophisticated. I feel like I have a very basic understanding of Crypto, & thus feel like I can weigh in on a thread like this with what I do know (on an Off-Topic thread of Civ) with the caveat that I keep mentioning I'm no expert.

I'm not in the orbit of the world where people fake their face & card to withdraw Crypto money into "real" money.

Wouldn't one of these ATMs require you to get some sort of a card you can use in the machine.. and this card would require KYC? That's what I assume anyway, but I haven't looked into it.

When I signed up on a Canadian exchange to set up my goddaughter's portfolio, I had to do extensive KYC. It seems like something that would be hard to fake. I had to send in my documents multiple times, because they weren't happy with the quality, stuff like (very minimal) glare, etc. I mean, it's probably possible to fake if you know what you're doing, I guess. Just seems like a tough proposition

Or, I guess, better said, this /\.

 

[Birdjaguar]

Opinion piece

STREETWISE
| By James Mackintosh

ETFs Are a Bad Way To Bet on Bitcoin

The new bitcoin exchange- traded funds are close to the Platonic ideal of two things at the heart of the financial industry, arbitrage and gambling. And a third thing: Without the distortions the financial industry created in the first place, they would have no reason to exist.

The whole concept of a bitcoin ETF is odd. Bitcoin is a cryptocurrency. It is easy to buy and, for individuals who want to speculate on its future value, easy to hold. All you have to do is download some software, pick a secure password, sign up to a crypto broker, transfer the bitcoin into your blockchain wallet and you are done. If you wanted a traditional currency you wouldn’t pay a 0.95% annual fee, plus hefty futures costs, to get something that roughly tracks the value of a dollar—you would just hold some dollars.

That didn’t stop many from finding the idea attractive: The ProShares Bitcoin Strategy ETF , the first, attracted more money than any other ETF launch and had the second-highest trading on its first day. A week after launch, it holds $1.2 billion. Much of this money is likely to be a new layer of gambling, as traders bet on other people wanting it. But the expected underlying demand is from those who can’t or won’t take the simple option of buying bitcoin directly, so prefer to use a structure listed on the stock market and approved by the Securities and Exchange Commission.

That all sounds reasonable— until you ask why they prefer it, given the high costs and ease of buying directly. The answer is that it is all about trust, which is pretty ironic given that bitcoin was created to solve a problem of trust.

Michael Sapir, chief executive of ProShares, contrasts the regulated futures market with what the SEC itself calls the “Wild West” of crypto trading. He warns that lots of exchanges “have a degree of manipulation embedded in them,” so there might be hidden costs to buying bitcoin directly, as well as risks.

There are certainly risks. If you hold bitcoin directly on the blockchain, and you lose the password to your wallet, you have lost your bitcoin. If someone steals your password, you have lost your bit-coin. And if you give it to someone else, they now control your bitcoin. For an individual, this is manageable, if scary. Choose a unique secure password you can remember, don’t write it down or keep it on the internet where it could be hacked and don’t tell anyone.

But in the financial system, most of our investments are handed over to others, with the vast bulk of assets world-wide run by institutions such as insurance companies, pension funds, mutual funds and endowments or by advisers. These institutional investors and advisers have a serious trust problem. Whom do they trust to hold the bitcoin password? Ultimately someone has to have custody of it, and that person can suddenly become very rich by running off with it—something they can’t (easily) do with stocks, bonds or property.

The trust problem is hard to manage, as shown by founders of crypto firms occasionally vanishing along with all the bitcoin their investors thought they were looking after. The new ETFs sidestep the trust problem by buying bit-coin futures instead of bit-coin, introducing a new layer of gambling and arbitrage. Bitcoin futures are merely side bets on the price of bit-coin, settled in dollars. They are to bitcoin what a bet on the Kentucky Derby is to the horse. Their connection to the price of bitcoin comes from the final settlement and from arbitragers who profit by selling overpriced bitcoin futures and buying actual bitcoin.

In turn, the price of the ETF is kept in line with the value of the bitcoin futures it owns by arbitragers, like other ETFs.

All these layers of arbitrage cost money—real money, not bitcoin. The ETF has a 0.95% annual fee, but the main cost comes from the futures being more expensive than bitcoin. The ETF buys them a month ahead, but they fall in price as they approach maturity, so it makes a loss, known as the roll cost. This approach has made about 13 percentage points less than bitcoin’s 118% this year, according to the Horizons Bitcoin Front Month Rolling Futures index calculated by Solactive.

There are plenty of people offering technical solutions to the institutional custody problem of bitcoin, and several are trying to persuade the SEC to approve an ETF that just buys bitcoin.

The basic principle of any bitcoin ETF is an arbitrage between the blockchain and traditional financial system, the inverse of what Tether and other stablecoins are doing. The stablecoins let you think in dollars on the block-chain. Bitcoin ETFs let you think in bitcoin in the mainstream system. And as with everything else in finance, that comes with costs—costs ordinary people can easily avoid if they want bitcoin just by buying bitcoin instead.

 

[Samson]

Opinion piece

Is this not what we have been saying here all along?