An anatomy of Bitcoin price manipulation

https://www.singlelunch.com/2022/01/09/an-anatomy-of-bitcoin-price-manipulation/

by VHRanger • 5 years ago

622 441 5 years ago

I remember when something similar was going on with AMD stock, which was heavily shorted at times.

May I suggest a similar look at September’s fake press release about WalMart accepting Litecoin.[0] Unlike with the Amazon hype which had arguably an unknown non zero price signal at the time, price manipulation here was the alpha and omega for the initial so obviously fake press release.

[0] https://www.nytimes.com/2021/09/13/business/litecoin-walmart...

mwattsun11• 5 years ago

I'm suspicious of Bitcoin as a store of value. Some seem to think that because there is a fixed amount of Bitcoin it will automatically rise in price as demand confronts scarcity, but that assumes there will continued demand. Elon Musk says Dogecoin is better because it has some inflation built in, encouraging people to spend instead of hoard, but adds "I'm not saying that it's the ideal system for a currency"

"Elon Musk - SpaceX, Mars, Tesla Autopilot, Self-Driving, Robotics, and AI", Lex Fridman Podcast #252".

Clip from a discussion about money starting minute 48:41

https://youtu.be/DxREm3s1scA?t=2923

Lex: You mentioned that Doge is the people's coin.

Elon: Yeah.

Lex: And you said that you were literally going, SpaceX may consider literally putting a Dogecoin on the moon. Is this something you're still considering, Mars perhaps, do you think there's some chance, we've talked about political systems on Mars, that a Dogecoin is the official currency of Mars, it's the coin of the future?

Elon: Well, I think Mars itself will need to have a different currency because you can't synchronize due to speed of light, or not easily.

Lex: So it must be complete standalone from earth?

Elon: Mars is, at closest approach, it's four light minutes away roughly, and then add for this approach, it's roughly 20 light minutes away, maybe a little more. So you can't really have something synchronizing if you've got a 20 minute speed of light issue, if it's got a one minute blockchain. It's not gonna synchronize properly. I don't know if Mars would have a cryptocurrency as a thing, but probably, seems likely. But it would be so kind of localized thing on Mars.

Lex: And you let the people decide.

Elon: Yeah, absolutely. The future of Mars should be up to the Martians. I mean, I think the cryptocurrency thing is an interesting approach to reducing the error in the database that is called money. I think I have a pretty deep understanding of what money actually is on a practical day-to-day basis, because of PayPal. We really got in deep there. And right now the money system, actually for practical purposes is really a bunch of heterogeneous mainframes running a old COBOL.

Lex: Okay, you mean literally

Elon: Literally. That is literally what's happening in batch mode. Okay.

Lex: In batch mode.

Elon: Yeah. Pity the poor bastards who have to maintain that code. Okay. That's pain.

Lex: Not even Fortran?

Elon: COBOL, yep. That's COBOL. And they still, the banks are still buying mainframes, in 2021, and running engine COBOL code. The federal reserve is like probably even older than what the banks have, and they have an old COBOL mainframe. And so the government effectively has editing privileges on the money database. And they use those editing privileges to make more money whenever they want. And this increases the error in the database that is money. So I think money should really be viewed through the lens of information theory. You're kind of like an internet connection. Like what's the bandwidth, total bit rate, what is the latency jitter, packet drop, errors in the network communication. Just think of money like that basically. I think that's probably what I really think of it. And then say what system, from an information theory standpoint, allows an economy to function the best. Crypto is an attempt to reduce the error in money that is contributed by governments diluting the money supply as basically a pernicious form of taxation. So both policy in terms of with inflation, and actual like technological, COBOL, cryptocurrency takes us into the 21st century in terms of the actual systems that allow you to do the transaction, to store wealth, all those kinds of things.

Like I said, just think - In theory - of money as information, people often will think of money as having power in and of itself. It does not. Money is information, and it does not have power in and of itself. Applying the physics tools of thinking about things in the limit is helpful. If you are stranded on a tropical island and you have a trillion dollars, it's useless. Because there's no resource allocation. Money is a database of resource allocation, but there's no resources to allocate except yourself. So money's useless. If you're stranded on a desert island with no food, all the Bitcoin in the world will not stop you from starving.

Lex: Yeah.

Elon: Just think of money as a database for resource allocation across time and space. And then what system, in what form should that database, or data system, what would be most effective? There is a fundamental issue with, say Bitcoin, in its current form in that it's, the transaction volume is very limited. And the latency, the latency, for a properly confirmed transaction is too long, much longer than you'd like. It's actually not great from transaction volume standpoint or latency standpoint. So it is perhaps useful as, to solve an aspect of the money database problem, which is the sort of store of wealth or an accounting of relative obligations, I suppose. But it is not useful as a currency, as a day-to-day currency.

Lex: But people have proposed different technological solutions.

Elon: Like Lightning and the Layer 2 technologies on top of that. I mean, it's all, it seems to be all kind of a trade-off, but the point is, it's kind of brilliant to say, to just think about information, think about what kind of database, what kind of infrastructure enables the exchange of - Yeah, let's say like you're operating an economy, and you need to have some thing that allows for the efficient, to have efficient value ratios between products and services. So you've got this massive number of products and services, and need to, you can't just barter. Because that would be extremely unwieldy. So you need something that gives you a ratio of exchange between goods and services. And then, something that allows you to shift obligations across time, like debt, debt and equity shift obligations across time. Then what does the best job of that? Part of the reason why I think there's some merit to Dogecoin, even though, it was obviously created as a joke, is that it actually does have a much higher transaction volume capability than Bitcoin. The costs of doing a transaction, the Dogecoin fee is very low. Like right now, if you wanna do a Bitcoin transaction, the price of doing that transaction is very high, so you could not use it effectively for most things. And nor could it even scale to a high volume. And when Bitcoin was started, I guess around 2008 or something like that, the internet connections were much worse than they are today, like order of magnitude. I mean, they were way, way worse in 2008. So like having a small block size or whatever it is, and a long synchronization time made sense in 2008, but, 2021, or fast forward 10 years, it's like, comically low. And I think there's some value to having a linear increase in the amount of currency that is generated. So, because some amount of the currency, if a currency is too deflationary or like, or should say if, if a currency is expected to increase in value over time, there's reluctance to spend it. Because you're like, "Oh, if I, I'll just hold it and not spend it because its scarcity is increasing with time, so if I spend it now, then I will regret spending it. So I will just, you know, hoard all it." But if there's some dilution of the currency occurring over time, that's more of an incentive to use that as a currency. So Dogecoin just somewhat randomly has just a fixed a number of sort of coins or hash strings that are generated every year. So there's some inflation, but it's not a percentage at base. It's a fixed number, so the percentage of inflation will necessarily decline over time. I'm not saying that it's like the ideal system for a currency, but I think it actually is just fundamentally better than anything else I've seen, just by accident.

Hokusai• 5 years ago

How is Elon Musk a relevant opinion on this matter? Even worse, he is well known for astroturfing his own assets.

mcbishop2• 5 years ago

Elon Musk in the exchange above:

I think I have a pretty deep understanding of what money actually is on a practical day-to-day basis, because of PayPal.

His comments in the exchange seem insightful to me. I assume you didn't bother reading them.

mwattsun11• 5 years ago

He knows more than I do, is surrounded by people smarter than I am and has a track record of success and overcoming failures. If I thought I shouldn't listen to Elon Musk because I thought I knew better, then I think my chances of understanding anything about this would be greatly diminished.

keymone4• 5 years ago

So like having a small block size or whatever it is, and a long synchronization time made sense in 2008, but, 2021, or fast forward 10 years, it's like, comically low.

just shows how hopelessly moronic he is on this issue and how surface-level his understanding of what is valuable about bitcoin is.

mwattsun11• 5 years ago

In shudder to think of the stupid things I thought in 2008

rasengan• 5 years ago

Didn't FTX make Solana?

VHRanger7• 5 years ago

No, but they heavily invested in it

JohnJamesRambo2• 5 years ago

They do it down too. It’s not a secret or illegal. Here’s a post mortem from the guy that did it.

https://twitter.com/AlamedaTrabucco/status/14672197118301511...

Ready for a move up again soon.

noja• 5 years ago

It’s not [...] illegal

Errr - what?

I think you'll find that market manipulation is prohibited in the US under Section 9(a)(2) of the Securities Exchange Act of 1934, and in the EU under article 12 of the Market Abuse Regulation (etc.)

The US Securities Exchange Act defines market manipulation as "transactions which create an artificial price or maintain an artificial price for a tradable security".

See https://en.wikipedia.org/wiki/Market_manipulation

adrianN2• 5 years ago

Is Bitcoin already classified as a tradable security or is it still Monopoly money?

cma• 5 years ago

It's not classified as a security.

giansegato2• 5 years ago

they're based in Hong Kong so i'm not sure why US / EU regulation should apply

JohnJamesRambo2• 5 years ago

It’s not a security, my friend. Crypto is the land of no rules and caveat emptor.

kyruzic• 5 years ago

You realize the world isn't beholden to stupid American laws right?

noitsnot• 5 years ago

This guy apparently runs a company that has millions and takes advantage of inefficiencies. He's not creating the fake articles but he's using what it creates to his advantage. From what I understand, he will run the price down if there is low liquidity and trigger your stop losses and somehow make money doing it.

ajross• 5 years ago

That thread is just describing a long squeeze, which is an mechanism, not manipulation. The allegations in the linked article (against the same guy!) are quite a bit more detailed. And they absolutely are illegal in real money trading on licensed exchanges; whether they constitute crimes in the crypto world is sort of an open question.

paulpauper4• 5 years ago

"Ready for a move up again soon."

does not look like it

mbesto11• 5 years ago

Curious - does anyone not think Bitcoin or any other cypto coin is being manipulated?

recursive• 5 years ago

Me. I don't have an opinion.

likecarter• 5 years ago

Great analysis.

temp8964• 5 years ago

What coin is not being manipulated? Even USD is being manipulated by the fed. All the countries manipulate their coins.

So the real question is whether a coin is being manipulated, but what kind of manipulation you can accept.

mbesto11• 5 years ago

First, let's start by using a valid comparable. Fiat currency has the feature of "medium of exchange", at present BTC does not (technically it does but its adoption for exchange is abysmal).

So the real question is whether a coin is being manipulated, but what kind of manipulation you can accept.

The NYSE is a better comparable. In the US we have the SEC which does regulate against market manipulation: https://en.wikipedia.org/wiki/Market_manipulation I do believe there is some level of market manipulation not captured by the SEC, however there is at least some baseline level of control against it.

DJBunnies• 5 years ago

Does it matter either way?

ptero5• 5 years ago

Depends on what you mean by the manipulation. Many stock, future, precious metal prices are affected by actors who want to temporarily move it for profit. Some are illegal, some perfectly legal.

In what way do you expect Bitcoin to be different? This is a technical question, once you define it one could debate if this particular behavior is present in BTC.

mbesto11• 5 years ago

Depends on what you mean by the manipulation.

Fair point. I'll use the SEC's definition: "transactions which create an artificial price or maintain an artificial price for a tradable security". What the author described is exactly this.

Some are illegal, some perfectly legal.

Agree. My point is probably more about the ease of manipulation when you have a completely deregulated environment.

SuoDuanDao• 5 years ago

I don't think it's being manipulated in only one direction, does that count?

Cthulhu_2• 5 years ago

It does, I think, and you make a good point; there's big players who bet on it going down, there's big players that bet on it going up. In a perfect world, their intents would cancel each other out.

sosuke• 5 years ago

I think that every and all markets are manipulated by groups with money and power. Everyone wants to game the system to act in their favor right? What would I want with more money? To earn more money of course.

2OEH8eoCRo0• 5 years ago

Is it illegal to manipulate crypto? If so, then how many people have been prosecuted for manipulating crypto?

I think all of it is manipulated at a scale never before seen.

iso16313• 5 years ago

Meh, it's more fun than gambling on the superbowl. Put $50 in, and with the superbowl you get an hour of watching a game and maybe come out with $100 or maybe come out with $0

With bitcoin you get to ride the highs and lows for years and maybe come out with nothing, or maybe with $5000

StrangeClone• 5 years ago

This is done in regular stock market too. Fake news, speculation, etc are frequent. Ex: “X giant is acquiring Y” claims with no data to back up. What’s different in case of crypto?

VHRanger7• 5 years ago

Two things:

1. Because crypto exchanges are also clearinghouses, liquidations tend to cascade.

2. It's much more blatant in the crypto markets. See the DRW lawsuit linked in the article - the CFTC is aware that DRW is doing similar things in the CME futures market, but the extent to which it's done is smaller.

hnmullany• 5 years ago

If it's significant enough, the SEC will knock on your door when this happens in the regular market

jimmydorry2• 5 years ago

I’m not aware of any pundits, that get on the TV to push agendas about stocks, getting in any trouble with the SEC. I’m not sure if it’s just because I have been looking closer recently, or had more time WFH, but the blatant manipulation on morning shows and financial segments is appalling.

Things like saying a given pharmaceutical is headed for zero because their drug failed to get FDA approval, when actually the company had just started their trial and not yet sought approval.

Or pushing a stock then pretending to lose connection when asked what the company does.

Or saying that a company pivoting to online retail will not have the necessary skills and will be facilitating terrorists (name dropping Al Kaida).

paulpauper4• 5 years ago

The price is nothing but down, down, down. it is not manipulation but just ppl dumping at every opportunity, like bank stocks in 2007-2008 or dotcom stocks in 2000-2002. Would not want to own this.

dadoge7• 5 years ago

Down down down huh?

https://www.lookintobitcoin.com/charts/bitcoin-logarithmic-g...

cuteboy194• 5 years ago

Log graphs and almost parallel lines! Perfect tools for dishonest data representation!

paulpauper4• 5 years ago

someone could have said the same about Enron in 2001 too

epinephrinios• 5 years ago

It's "down, down, down" only if you entered at a very high price: https://athcoinindex.com/coin/bitcoin

As the great Andreas Antonopoulos said, everyone gets the Bitcoin price they deserve.

dadoge7• 5 years ago

Slight correction:

It’s down down down if you entered at a high price AND sold within 3yrs

No one who held BTC for 3-4 yrs straight has lost money on their investment throughout the entire history of BTC

There will be a point in time where this won’t be true anymore, but I think we are far from it

naveen99• 5 years ago

It’s not so much price manipulation as timed restrictions / throttled deposits / withdrawals / order execution. basically market malfunctions / barriers. you can always arrange over the counter transactions though.

madduci• 5 years ago

The bad thing is, it directly influences also the price of other coins, especially the top 5. Only Tether is "stable" in all the senses

skilled• 5 years ago

Interesting tidbit:

"An aside on NFTs Because they’re “unique” objects, NFTs are a perfect vehicle for wash trading. You can easily ensure you only wash trade to yourself. The common scheme is to wash trade with yourself until some credible dunce buys the NFT from you at your manufactured “fair” value, leaving you to walk away with real money."

It's such a stupidly simple idea it's actually brilliant.

paulpauper4• 5 years ago

not really if the fees are high and tons of ppl are doing this with few sales. the nft market is so unbelievably saturated.

MikeDelta• 5 years ago

Reminds me of this sketch from Enfield and Whitehouse

https://youtu.be/ZiJa9diJOMk

crtasm• 5 years ago

From loadsamoney to lots of money!

https://genius.com/Harry-enfield-loadsamoney-doin-up-the-hou...

belter• 5 years ago

In a complex system, whose algorithmic essence is price forgery, value randomness and pump and dump as a strategy...Would argue that achieving maximum manipulation is simply the algorithm optimizing for its "best".

masona• 5 years ago

The fine art market has been doing this for decades by using auction records to set prices.

spoiler4• 5 years ago

You can't buy and sell the same item to yourself at an auction multiple times... Or am I missing the point you're trying to make?

Also, the value is in the art, not the receipt. With NFT, that's not the case... Unless it's an exchangeable NFT, like one you can exchange for a service (e.g. as a tick) or some goods, but that's not really how NFTs are being used.

iechoz6H• 5 years ago

I guess the main difference between the two markets is that with fine art the object is genuinely rare/unique.

doopy12• 5 years ago

I see this concept of NFT was trading posited all over the place, but it should be easy to prove, yet no one has been able to produce tangible evidence, besides the occasional single flashloan based sale... which eats a tone in gas. Sure there are probably some wash trades here and there, but why is it so hard for most folks to believe that this is in fact a huge market driven by speculation?

joosters• 5 years ago

Only the really obvious wash trades get spotted - e.g. https://www.bloomberg.com/news/articles/2021-10-29/here-s-a-... , because half-decent manipulators will have the sense to trade between different wallet addresses and obfuscate their money sources.

fleddr8• 5 years ago

It's brilliant but not simple at all. You can't just mint an NFT, wash trade it up to a large number and then expect somebody to buy it. This plan would almost always fail.

Because it would pop out of nowhere and nobody has ever heard of you. So just like in the traditional art world, you need to be visible and networked.

It's very educational to simply browse the big marketplaces. You'll notice that the typical NFT gets zero offers. Almost all trading happens within a tiny scope of hot projects.

spoiler4• 5 years ago

Because it would pop out of nowhere and nobody has ever heard of you.

Isn't that everything in the crypto space right now?

So just like in the traditional art world, you need to be visible and networked.

People who spend hundreds, if not thousands, on procgen chimpanzee/monkey avatar NFTs would beg to differ.

miracle2k• 5 years ago

You would be correct. The wash-trade yourself to popularity thing is frankly a flight of fancy that is a symptom of the larger poverty of the sceptic argument.

Sure you can identify some self-trading: to farm some new upstart marketplace airdrop, or maybe its a dev experimenting, or maybe someone is doing say a flashloan for fun and attention. But show us a collection or artist who "made" it using this strategy, I'll be waiting.

Rather than setting up a web of fake wallets, spending lots of money on gas, then getting almost certainly be caught (how much wash trading and realistic-looking wallet activity do you have to generate to sell out a 10k item collection?!), you can instead pay some crypto influencers to shill your project, or mint.

The reality is: reputation in this space is everything.

m3kw9• 5 years ago

This is the real world equivalent to high balling. It’s just that you have to assume every price is washed. This is the actual offer price, not a real price. If you put in a lowball offer I bet they’d eventually sell it to you. Exceptions are famous sets like BAYC

agilob• 5 years ago

And if you don't have money you can borrow https://mobile.twitter.com/Foone/status/1457749433844568066

TrackerFF2• 5 years ago

Yes, it's been painfully obvious from the start. It was the first thing I noticed, once looking into NFTs.

I'd be surprised, AMAZED actually, if some of the big NFT collections aren't entrenched in wash trading, to pump up trade volume and price.

In fact, I think that in order to successfully launch a NFT collection today, you need to have either:

A) Substantial social capital.

B) Capital to do the wash trading, or investors to back you.

C) Probably both above.

snowwrestler• 5 years ago

You can buy social capital by wash trading the price of the NFTs up to where they are interesting, then giving some to folks with social capital.

Only you don’t give them an actual NFT, you give them a sponsor fee that they use to buy one of your NFTs (thereby further validating the interesting price).

prox2• 5 years ago

So basically if you are rich you become richer. Same old same old.

shawabawa32• 5 years ago

I personally don't value nfts highly but I'm in a circle with lots of rich crypto early adopters - they absolutely would pay $100k for a bored ape and would consider it a bargain. It's a real status symbol, just in a niche you don't understand.

I feel the same way about $100k Patel Phillipe watches but I don't hear everyone talking about how those are only wash trades

The platforms where these nfts are sold usually charge 1-2% commission which is expensive for a wash trade

aqme28• 5 years ago

For A), some of the wash trading has been done with flash loans. There are some well-documented cases. You don't need much capital at all for that.

colinmhayes3• 5 years ago

This is also what makes NFTs great for money laundering. You can use the money from the dirty wallet to make the wash sales, increasing the value of your NFT while cleaning the money at the same time.

landemva4• 5 years ago

How do you get lots of actual dirty cash into a dirty wallet?

latchkey• 5 years ago

Any market with insufficient liquidity and an easy way to trade, is ripe for this. I'm sure you could look at the price history of all sorts of stuff on Ebay and Amazon and see many many cases of this.

Imagine a seller buying their own products cheaply and giving reviews. Then come back and raise the prices when the product gets listed higher up in the search results.

I recently bought some KF94 masks on Amazon cause they were crazy cheap. Came back a few days later and the price went from $8->$25. A few days after that, the entire listing was gone.

joering23• 5 years ago

But shilling bid is illegal regardless of how you bid. While crypto can be made harder to trace than fiat, the fact of the matter is, someone have commited crime.

With millions of dollars flying on all sorts of NFT exchanges/auctions [1], sooner or later some government will crack a case and make it very public in a form of a warning to others.

[1] https://nouns.wtf/

superkuh• 5 years ago

No, this is the anatomy of an off-chain price manipulation of a private futures market that exchanges something that is tradeable for Bitcoin. It used to be funny but now it's just sad seeing everyone confused about the difference between bitcoin and third party markets. Only a vanishingly tiny fraction of this actually has any representation on the bitcoin blockchain. It's like buying stolen Tide detergent out of the back of a shady car in the parking lot of the actual grocery store then complaining about the grocer when you get home and it's watered down.

This is the normal finance people with their normal scams manipulating private enties like Binance which are vagely associated with Bitcoin. The finance people and the public at large cannot see bitcoin as anything other than an investment and that perception blinds them.

albert_e• 5 years ago

https://archive.md/CxQpX

tdherzl• 5 years ago

It should be noted that OP is a staunch BTC skeptic and a proponent of MMT. This seems to be one of his many attacks on BTC.

VHRanger7• 5 years ago

Uh, author here, I have no idea how you could ever think I'm a proponent of MMT. I'm a vocal critic:

https://www.singlelunch.com/2018/10/01/bad-economics-shame-o...

As for BTC, yes, I hate it and am vocal that PoW cryptocurrencies should stop existing. But this piece isn't focused on that.

wesapien• 5 years ago

Just anything you want to manipulate, you fake the news these days.

jondwillis• 5 years ago

It’s not a new phenomenon.

tarsinge• 5 years ago

It's a bit fuzzy but I remember a chapter in the Count of Monte Cristo where the Count bankrupt an enemy by bribing a telegraph agent to pass a false geopolitical (Spain?) report to cause market crash of bonds of that country and push his enemy to sell low.

fleddr8• 5 years ago

It's a good and fair article. Even without media manipulation, there's a huge amount of futures trading on high leverage which tends to pile up. Then, all that is needed is a fuse and something spectacular will happen, either up or down.

The author could have picked from a series of other dates, where seemingly relevant/important news to Bitcoin is revealed, and somehow...price action does nothing on those dates.

Why not? Not enough leverage built up. So it's the nature of the trading making price so volatile. A small event can trigger a cascade of liquidations.

To a skeptic, this would be a reason to reject the asset. To a long term holder, it doesn't matter as they don't trade. To short term traders, it's the way to make a lot of money quickly, or to blow up your account and lose it all.

mslupski1• 5 years ago

What else is new? Kudos for all the research, but I don't think any reasonable person needs any proof that all crypto is ripe with manipulators and scammers.

wcchandler• 5 years ago

That was a good read. Thanks!

I would've enjoyed the TL;DR (How market manipulation is done) at the top to draw me into the actual mechanics behind how it happens.

Now I want to make a bot to detect some of these patterns and alert me on them.

hestefisk• 5 years ago

Very nice, detailed analysis. Thanks for sharing.

jokoon• 5 years ago

I hope it's not going to be a long time before congress swiftly enact regulating anything related to crypto currencies when interacting with the dollar.

Although bitcoin might also be used to honeypot hackers through bitcoin exchangers, so I don't know...

I'm even starting to believe insurance companies might work with crypto folk and lobby government so that insurance companies keep paying for ransomware.

syntaxing• 5 years ago

I don’t have enough mathematical knowledge in this subject to back this statement up but I swear I noticed this for SPACs too. There’s these really odd spikes up and down that does not make any sense according to public information

acjohnson55• 5 years ago

Most SPACs are very lightly traded and are prone to weird patterns.

benreesman11• 5 years ago

Eh 20-ish years ago the shit happening on Island and Archipelago would blow most people’s minds. Undocumented, conditional, non-displayed order types. Routine wash trading. Shear-but-don’t skin multi-venue arbitrage. The ECNs were the Wild West. Smoke-filled dark pools.

Island and Arca are NASDAQ and NYSE now.

But Ben, US equities have intrinsic value unlike this BTC garbage! Well unless they pay no dividend, have dual-class share structure, and IPO without a profitable quarter. What’s a share of SNAP entitle you to exactly? Ah right, you think someone will buy it for more.

Crypto will have it’s 2001-style GC cycle, the useful stuff will stick around until Goldman owns it and the SEC makes a show of regulating it, the tulip garbage will wash out leaving behind a bunch of rich guys who are really annoying because they never built anything, and we’ll go back to arguing about programming languages.

dheera5• 5 years ago

US equities have intrinsic value

Really? My impression is that many US equities in 2022 are more like Reddit up/downvote scores than a reflection of intrinsic value.

Which isn't a bad thing in my opinion, by the way.

benreesman11• 5 years ago

I mean if they pay a dividend (and you believe it will continue) you can do math that treats it like a bond coupon and do a present-day valuation.

If they have attached voting rights you can get together with other investors and vote yourself a bigger dividend (though same goes for Uniswap v2), or a share buyback.

But yeah, mostly it’s a Keynsian Beauty Contest.

cillian64• 5 years ago

I think of it like this. If you suddenly owned 100% of Bitcoin, then you wouldn’t actually have anything valuable - nobody would buy it off you. If you suddenly owned 100% of Tesla then you’d be able to extract a lot of value.

fullshark• 5 years ago

Firms used to give out dividends, that would make it easier to claim it had intrinsic value (future cash flows discounted). Now it appears the only intrinsic value is how much another firm would pay to acquire the company and do X with it.

alecst• 5 years ago

A counterpoint would be that what some call the intrinsic value is the expected future share price based on expected future revenues. There might or might not be future revenue for SNAP, but there is no revenue for a digital currency.

But I do think digital currency has intrinsic value, in that for now, it affords you anonymity to commit crimes in a way that ordinary currency does not. I’m not happy about it, but this is a form of value.

benreesman11• 5 years ago

FTX claims they buyback FTT based on financial results. Their business model has more historical precedent than e.g. Uber’s (and is arguably less legally grey).

What difference am I missing?

shawabawa32• 5 years ago

but there is no revenue for a digital currency

Isn't there? Ethereum kind of has revenue in that transaction fees for smart contract execution are burned (effectively a stock buyback)

It has around ~$19B in revenue extrapolated at the current rate (although it's issuing more than $20B a year for now, planning to reduce issuance some time later this year)

10x-dev• 5 years ago

How is digital currency, in general, anonymous? Bitcoin records all of your transactions, publicly, essentially forever.

If at any point in time there is a way to tie your identity to _any_ of the transactions made in your lifetime, then all of your other transactions get deanonymized retroactively. Maybe you made a mistake, maybe a bug is introduced into the Bitcoin software, maybe the government passes a new law, etc.

Cash doesn't have this issue. The bills I'm paying with when buying coffee at Starbucks, don't give you visibility into all of the purchases I've made with cash for the past 20 years.

The only exception would be crypto like Monero, but it's not the rule. Bitcoin is the flagship coin which somehow got people to think it's anonymous.

All it takes is for the government to require you to use the same wallet that's tied to your identity and then every citizen's transaction, past or future, is traceable to a degree that is just not possible with cash. That's a dangerous capability and we, the people, should make sure not to slowly end up in such a situation.

md_• 5 years ago

A counterpoint would be that what some call the intrinsic value is the expected future share price based on expected future revenues.

Sure, but plenty of tech companies have never paid dividends and never will. FB's shareholders would have legal claim to a portion of: a) a buyout (but nobody could afford to take FB private), b) a liquidation (so, you're buying in in case FB goes bankrupt), or c) future dividends (but FB's boy-king privileged stockholder doesn't want to pay dividends)...

Which I think was Ben's point.

upsidesinclude2• 5 years ago

Right, because cash has never afforded anonymity... always good enough for the government agencies. This is an entirely boring and tired trope. How about the simple ability to transfer value across international borders, free of extraneous % fees imposed by unnecessary middlemen? That alone is enough of a use case to justify adoption. Banks have reaped rewards unearned for long enough. Those capable and responsible enough to manage their affairs can do so

eric_cc18• 5 years ago

it affords you anonymity

What? Bitcoin is radically transparent. The vast majority of crimes are committed with standard currencies like $USD. If 'crime' is the only value you see, you're extremely ignorant.

What is the bull case for $USD? What properties does it have that make it superior to currencies like $BTC in your opinion?

fleddr8• 5 years ago

Cash is used for more crime than crypto. London city pretty much is the epicenter of money laundering and financial crime.

lvs• 5 years ago

there is no revenue for a digital currency.

These debates get rehashed ad nauseum, but of course the same could be said of the USD, GBP, etc.. Currencies are exchanged to meet debt, contract, or tax obligations denominated in a particular currency. Trade is the common mode by which a currency has to be exchanged. For instance, if an American company buys British goods denominated in GBP, it will either exchange USD for GBP to close the transaction or borrow GBP that it must similarly pay back in GBP. The net result in either case is that it buys GBP and sells USD. If the UK government levies a duty/tax on the transaction, that too generates a demand for GBP requiring an exchange.

Now it is of course somewhat unclear whether a significant economy exists in crypto that generates debts/taxes denominated in crypto that would create a steady/cyclical demand for crypto. It requires either that some productive center of the economy is demanding payment in crypto, or that governments are demanding tax payments in crypto, or both. If either is simply willing to accept multiple possible currencies, then demand flows through the most favorable path. Perhaps a modicum of anonymity is part of this calculus, but costs, difficulty, and risks also probably play a role.

My point is that the economic analysis of your claims is more complicated. Buying currency serves a classical finance purpose that is unrelated to your analysis of equities. I think the climate and regulatory consequences of crypto are very serious, but I generally agree with those who say the credit/payments industry is predominantly parasitic. But those who say that no mechanism should exist to control the money supply based on economic conditions are just charlatans and simpletons and should be ignored.

wpietri12• 5 years ago

I truly appreciate your experience and cynicism here. People who haven't worked in financial markets have a hard time appreciating how deep the muck can get. Which makes them especially valuable suckers for the unregulated markets.

ckastner2• 5 years ago

People who haven't worked in financial markets have a hard time appreciating how deep the muck can get.

That's the main reason why I find the battle cry of "decentralization" so comically ironic. No government can control crypto, how awesome and empowering!

When the truth is that the vast amount of control that we've seen develop in the past century (and especially in the past two decades) were just to protect people from said muck.

[Edit] Or, as a practical comparison, think of the act of raising money from investors.

Centralized: Please file a detailed report with the relevant authority in which you list, among other things, all possible risks and challenges that you foresee and how this could harm investors.

Decentralized: LOL YOU APES, DIAMOND HANDS TO THE MOON!

cobertos• 5 years ago

Still remember going to a crypto meetup and met an older guy who worked at Arthur Andersen (auditor of Enron). Told me "you know what those Oak Doors stand for right? Your financial secrets never leave the firm."

Was blown away

SavantIdiot2• 5 years ago

All I want to know is: will the annoying guy at my gym who put brags about putting all of his retirement into Bitcoin this summer provide me with some decent schadenfreude at some point?

iso16313• 5 years ago

If he put it in in June when it was 31k, he'd have increased it 30% now, double if he sold in November. Not too bad

benreesman11• 5 years ago

If I knew that I’d be trading it :)

But there’s a fairly active BTC derivatives market (depending on what passport you carry), so you could hedge against him getting/staying rich by getting a little creative with long-dated DOOM stuff.

Depends on how annoying he is I guess ;)

dmw_ng• 5 years ago

Looming rate hikes combined with ever increasing correlation of Bitcoin to equities suggests you may even get your day this year.

throwhauser• 5 years ago

A watched pot never boils.

guiomie• 5 years ago

Tulip garbage? Tulip Mania lasted like 6 months, Bitcoin has been running for over 13 years. Don’t get me wrong tho, I do agree anything not being Bitcoin is garbage.

benreesman11• 5 years ago

Oh I’m not opining on this or that coin being tulips. A lot of it is by volume.

StreamBright• 5 years ago

I think the reference is about the phenomenon not the actual comparison between BTC and tulip.

cuteboy194• 5 years ago

Tulip trading existed for many years before Tulip mania, and it was a profitable business that continues even today. Only the mania part was crazy

kaashif• 5 years ago

Well unless they pay no dividend, have dual-class share structure, and IPO without a profitable quarter. What’s a share of SNAP entitle you to exactly? Ah right, you think someone will buy it for more.

I think the idea would be like what happened to Apple: they eventually grew so much, became so successful, accumulated huge piles of cash bigger than they could possibly spend, that they had to start paying a dividend.

And there is a difference between a company with an inherently unprofitable business model, and a company that would be profitable if they didn't spend so much on growth. Admittedly, it is pretty hard to distinguish those sometimes, especially with the endless rounds of Series D, E, F, G, H, I, etc funding some startups are getting.

That is all speculative, but it's not unproductive beanie babie trading. It is pretty close, especially when the only rationalisation I can think of involves Apple paying dividends, which they didn't do for decades, and Facebook and Google still don't.

Even tulip selling is actually a real business, the tulip mania wasn't as bad as crypto from the "real value" perspective, I think.

sjtindell3• 5 years ago

Do you consider running a poker table a “real business”? Assuming there were no addicts present, what about a casino? Is that “real”?

selectodude• 5 years ago

I think the idea would be like what happened to Apple: they eventually grew so much, became so successful, accumulated huge piles of cash bigger than they could possibly spend, that they had to start paying a dividend.

Not a great example, Apple paid out a quarterly dividend from 1987 to 1995. They paid out a dividend in those years because they were cashflow positive and that was just the thing you did because the idea of "hypergrowth" wasn't a thing.

vitaflo2• 5 years ago

Don’t forget share buybacks, which have become more popular as of late. Dell being the prime example in the tech industry by leveraged buyout and making it private.

solveit• 5 years ago

they eventually grew so much, became so successful, accumulated huge piles of cash bigger than they could possibly spend, that they had to start paying a dividend.

What mechanism forces this?

tyrfing• 5 years ago

With crypto these days alpha is still very easy since it's a small backwater. Microstructure is all complete bullshit (and has been as long as these markets existed), and leverage is basically unlimited. A huge sell order is more likely to indicate buying than selling, for example. At least liquidation cascades don't literally hit 0 like they have in the past, which is an improvement.

There are also all sorts of unpublished arrangements like colocating servers for privileged partners; you will _never_ trade into an order they don't want you to when you have 5ms latency and they have microseconds.

On the one hand, people have never really understood just how dirty it is. On the other, most of that is now just the long flat line on the chart...

benreesman11• 5 years ago

Haha, Alameda or Wintermute? :)

syntheweave• 5 years ago

When I got into crypto back in 2013 I resolved myself to long-term holds with self-custody(before HODL was even a meme) precisely because I had seen how bad things got in pink sheet trading a few years prior and had the losses to prove it - I already had no faith in regulated markets, therefore I knew it was only going to be more blatant in crypto.

But if I held over the long term and carefully looked for the macro picture, I would sidestep manipulation, because it's ultimately the product of people sitting in front of a whiteboard trying to make their play happen within the span of the next business quarter, whereas my bet is on crypto as an asset class.

The plan has worked reasonably well; it's had huge ups and equally huge downs, so I have not quite "won" yet, but I have definitely not lost.

arberx• 5 years ago

This comment is gold

nathanvanfleet• 5 years ago

Haha, we might all die on this tired exploited rock from heat death before that

wyre• 5 years ago

What is the reference to Island and Archipelago? I'm not familiar and my DDG skills aren't helping.

reubenmorais• 5 years ago

https://www.investopedia.com/terms/a/archipelago.asp (also talks about Island)

muttantt• 5 years ago

So, I take it you missed out on Bitcoin?

arcticbull3• 5 years ago

But Ben, US equities have intrinsic value unlike this BTC garbage! Well unless they pay no dividend, have dual-class share structure, and IPO without a profitable quarter. What’s a share of SNAP entitle you to exactly? Ah right, you think someone will buy it for more.

Folks always levied these criticisms about Apple. So long as the company is growing and can do better re-investing the capital in itself, it should do so. Companies intentionally avoid creating profits to avoid paying taxes, electing instead to re-invest that capital tax-free. The idea of going public without a "profitable quarter" is meaningless if they could just be profitable at will.

Apple has paid over $1B in dividends to Warren Buffet alone since he took his stake, and returned just around $100B to investors last year between $85B in buybacks and $15B in dividends.

Buying shares you are paying for a combination of the present intrinsic value and your estimation of its future assets and cash flows. That doesn't mean your appraisal of these future outcomes are correct, and that's the risk.

But equities are fractional ownership stake in businesses whose value increases through non-investor participants. You know, customers? That's the difference between a positive-sum game and a zero-sum game like futures and options, or a negative-sum game like crypto assets. With especially proof of work crypto assets, value is constantly being removed by external participants, rather than added.

Yes traditional assets are mired in garbage behavior, but that doesn't mean that crypto is better - far from it. Decentralization makes it borderline impossible to control the behavior of bad actors while providing essentially zero material value to anyone beyond a few edge cases. And as usual, folks mention there will be some crypto folks who create value left behind after some wash-out. 14 years later, zero value created. It is true that not all equities are good investments (of course), in the fullness of time, zero crypto token investments as we see today will ever be good investments.

choppaface• 5 years ago

US equities have intrinsic value unlike this BTC garbage!

One major difference is the US Gov & public (e.g. pension funds) have much more leverage for holding US equities liable vs holding crypto liable in a Financial-Crisis-type leverage implosion. While I agree with the suggested notion of "common stocks have no real intrinsic value," when it boils down to opportunity cost, the retail shareholder has probably one to two orders of magnitude less downside in common stocks versus crypto. Unless the U.S. ends up bailing out crypto ... (in exchange for catching tax evasion?)

majormajor• 5 years ago

What’s a share of SNAP entitle you to exactly? Ah right, you think someone will buy it for more.

Ultimately you think someone will pay more for a future share of SNAP than of [OTHER THING] because you think SNAP's growth story is better, business model is promising, blah blah blah.

We may be trading on the derivatives of the fundamentals, or even the hope of future fundamentals, but even that's turning back some as it's been harder to get a big huge IPO purely on hope than it was in the recent history. Throw WeWork in against Snap there, even. Gambling but against numbers that will eventually be reconciled with performance with customers, not just other gamblers. Though personally I'm certainly hoping that some of that "eventually" starts to turn back into a backlash against dual-class stocks.

The equities market is still ultimately betting that at some point, the business results will keep the stock comparatively more attractive.

There's vague talk about "the backbone of future banking systems" or such for crypto as having similar fundamental value, but I haven't been convinced. Particularly, I'm not convinced today's big chains would be what the future would be built on - why pay the huge transaction costs and help the current crypto-rich get richer, instead of making purpose-built chains for your future applications?

wallacoloo• 5 years ago

why pay the huge transaction costs and help the current crypto-rich get richer, instead of making purpose-built chains for your future applications?

the most convincing arguments i’ve heard for reusing an existing chain is 1) easier access to users, 2) easier to deploy and 3) if your application needs decentralization, a mature blockchain will be more secure (attacks like 51% attacks have higher cost) and reliable (in the uptime sense) than something you can deploy yourself.

There's vague talk about "the backbone of future banking systems" or such for crypto as having similar fundamental value

another argument is that many cryptos are valuable because of “regulatory arbitrage”. bitcoin/monero/zcash are all easy ways to (partially) shelter your money from tax and legal regulations (hence why they are/were largely associated with drugs).

lvl1002• 5 years ago

This has to be one of the best comments I’ve read on HN.

bogomipz2• 5 years ago

Might you or someone else explain what these things and how they are used/exploited?

Undocumented, conditional, non-displayed order types. Routine wash trading. Shear-but-don’t skin multi-venue arbitrage.

benreesman11• 5 years ago

Broadly speaking lots of very conventional order types are "conditional" (limit orders are technically conditional), but various exchanges have at various times allowed the condition to effectively become "execute this order if I make money on it", which is a wealth transfer from those who can't place that order to those who can. "Displayed" or "displayed size" basically means that other market participants can see roughly "someone is offering to buy X amount at Y price, if I move quickly I can take them up on that". "Hidden" or "non-displayed" means that an order might execute in front of another but other participants can't see that before they act. "Non-displayed" isn't necessarily a bad thing either, but it creates scope for sophisticated participants to further set up advantages for themselves.

The "undocumented" part is the real killer: that's basically the idea that there's a secret API for playing with cheat codes that the exchange only makes accessible to certain actors. That's straight fucked up (and tends towards illegal as markets become more mature).

"Wash Trading" is roughly the idea that (typically) via intermediaries of one kind or another that an actor effectively trades with themselves. An actor might want to do this for several reasons, but a big one (maybe the main one) is to create the appearance of market activity where there isn't any legitimate commerce going on.

"Arbitrage" I think is technically defined as something like: "a transaction or transactions guaranteed to be profitable", but in practice the term gets applied more loosely than that. In the sense I meant: if gold is 100 quibbles in Foobarnia and 50 quibbles in Boofarnia, someone will buy a ton of gold in Boofarnia and ship it to Foobarnia and pocket the 50 quibbles, raising the price in the cheap place and lowering it in the expensive place and fairly quickly this gets you to 75 quibbles in both places (or whatever, there are transaction costs). There's an old quip: "you can shear a sheep many times, but you can skin him only once". If an arbitrageur has unique access to one or both markets, they can play the long game and just bleed profit out without actually providing the social utility of equalizing prices.

People do all this shit and more in practically every electronic market on Earth. It's quite a bit more regulated and monitored in mature markets like US equities and quite a bit more flagrant in e.g. crypto DeFi exchanges but how much net "rich connected people taking non-rich, non-connected people's money" goes on in one vs. the other is quite the controversy, as you can tell from the other comments in this thread.

heavyset_go2• 5 years ago

But Ben, US equities have intrinsic value unlike this BTC garbage! Well unless they pay no dividend, have dual-class share structure, and IPO without a profitable quarter.

Should the company's assets be liquidated, shareholders are entitled to that value after creditors.

If BTC tanks, there is little value to extract from liquidation.

mcguire7• 5 years ago

How much of a bath would you take on one share's portion of the assets? Oh, and how many of those assets are tangible?

epolanski5• 5 years ago

the useful stuff will stick around

There's none though. The markets and especially crypto lunatics themselves clearly show nobody cares about decentralization.

benreesman11• 5 years ago

So there's a question fairly deep in the thread asking me to define what I meant by the terms in the first paragraph. I'm reposting my answer up here to both clarify what I meant if it's not clear, and to invite those more knowledgable than myself to correct any ways in which I'm misusing the terminology or otherwise saying something untrue:

So electronic financial markets (whether ARCA/NYSE or Binance) have a number of ways that they can advantage certain participants at the expense of others. One of many is to make certain types of orders difficult or impossible for certain actors. Broadly speaking lots of very conventional order types are "conditional" (limit orders are technically conditional), but various exchanges have at various times allowed the condition to effectively become "execute this order if I make money on it", which is a wealth transfer from those who can't place that order to those who can. "Displayed" or "displayed size" basically means that other market participants can see roughly "someone is offering to buy X amount at Y price, if I move quickly I can take them up on that". "Hidden" or "non-displayed" means that an order might execute in front of another but other participants can't see that before they act. "Non-displayed" isn't necessarily a bad thing either, but it creates scope for sophisticated participants to further set up advantages for themselves.

evrydayhustling3• 5 years ago

This is some interesting analysis, but all of the causal language is unsupported -- and I think mostly inverted from the reality. Here is an equally supported description:

- Retail and futures traders create instability by placing leveraged trades and stop orders that amplify swings.

- Market makers are aware of instability and design their bots to turn off so that they don't end up on the wrong side of a liquidity cascade.

- People with large orders often cancel them in order to improve their orders when chasing the price. (This happens in non crypto markets too, but some of those markets have incentives and regulation to force market makers to provide stabilizing liquidity.)

The most explicit manipulation is the news outlets designed to amplify positive news. But even that can be explained by desire for clicks as much as short term market shifts.

VHRanger7• 5 years ago

Author here.

I considered this, but rejected most of those hypotheses.

Retail and futures traders create instability by placing leveraged trades and stop orders that amplify swings.

True

Market makers are aware of instability and design their bots to turn off so that they don't end up on the wrong side of a liquidity cascade.

Algorithmic traders, yes. Market makers absolutely not. MMs want to be there as much as possible in liquidation cascades, because bid/ask spreads are huge. MMs effectly print riskless money in these situations (which is why you see Alameda and DRW issue so much USDT in these events).

People with large orders often cancel them in order to improve their orders when chasing the price.

It's absurd to think this is the case when the order cancellation pattern is precise to ~3ms and repeated >5 times in a 30 second span. What you see on 26/7/2021 0:59:20-1:00:45 is intentionally done by bots designed to do this.

But even that can be explained by desire for clicks as much as short term market shifts.

Agreed, there's a footnote that posits other actors than the momentum ignition traders could have planted the fake news because they saw the same opportunity

stepanhruda2• 5 years ago

Market makers don’t print riskless money, they are affected by a very real risk of divergence loss.

kikimora• 5 years ago

Market makers likely know how thing works and react to a volatility spike. I wonder what was the traded volume during the event and how it matches normal order book disposition. If only retail orders left in the boom then there will be very low volume. If there were pre-planted orders from the manipulator then all liquidations should hit them. Remaining orders should disappear shortly after the event, as soon as liquidations complete.

evrydayhustling3• 5 years ago

Algorithmic traders, yes. Market makers absolutely not. MMs want to be there as much as possible in liquidation cascades, because bid/ask spreads are huge. MMs effectly print riskless money in these situations (which is why you see Alameda and DRW issue so much USDT in these events).

This is a deep misunderstanding of market structure. Market makers are algorithmic traders. In times of price stability they benefit from capturing the spread many times. But it is not risk free: they lose money when offering liquidity to "informed trades" (those followed by a price move) because they are holding the wrong position through the price move. For that reason, every market makers implements fail-safes that stop offering liquidity when they are not confident they will be able to clear their position at a break even price.

huac• 5 years ago

I agree with most of this and would add that the article could be organic and the subsequent trading opportunistic (rather than being tied together).

I am somewhat surprised that bots react to news within 5ms -- your execution delay on crypto exchanges is quite a bit longer than that, since the exchanges are generally hosted in public clouds and you are subject to network latency to get in there. Even within the same cloud and even within the same k8s cluster, you should expect 2-4ms for an inter-pod hop.

That being said, maybe there is a hedge fund literally in the same k8s cluster as FTX...

mthoms2• 5 years ago

Well, Alameda and FTX were founded by the same person. Up until very recently Sam was CEO of both companies at once.

https://en.wikipedia.org/wiki/Sam_Bankman-Fried

Edit: I suspect Alameda uses data from FTX but might not trade there: as per the article, the manipulation needs thin order books to work.

gfd• 5 years ago

Dumb question, but is price manipulation wrong when it's for something that doesn't have a "true" price?

Like I get why it should be illegal for stocks. If you pump it and the price reverts back to some true price (calculated from expected future earnings or whatever), then people who bought it expecting it to be at an efficient price will lose money.

In the case of crypto where everything is driven by supply and demand only, who loses?

prox2• 5 years ago

Because (layman here) you could still pump & dump and influence prices. Perhaps it’s tougher with bigger established coins BTC or ETH, but it’s still a thing afaik.

woodruffw• 5 years ago

This is only a partial answer: broadly, we lose as a society. Openly fake markets and obvious manipulation erode trust in systems that, even when corrupt and manipulated, are ultimately tied to real value (people’s labor, their retirement accounts, &c.)

None of what we have is great, and I’m not going to bother justifying traditional financial markets. But cryptocurrencies represent a massive moral hazard to our handling of hundreds of millions of peoples’ economic security.

c7DJTLrn• 5 years ago

I'd argue there's no right or wrong at all when it comes to this. There's only bigger and smaller, stronger and weaker, early and late. We draw an arbitrary line somewhere and say that people on one side cannot trade on information they have and the people on the other side can. And we trust that the people on the former side will never try to find a cheat or workaround.

The market is completely made up. It's driven by inequality in access to information. You're only going to make money if you're:

A. Lucky

B. Ahead of the game in some shape or form

lcvw• 5 years ago

Stocks also don’t have a “true” value. Their price is driven entirely by supply and demand, which in turn is weakly anchored by investors doing fundamental valuations on the stock (there is more demand for an underpriced stock). The issue is that market manipulation is outright theft, usually from retail investors.

Think of it like playing blackjack. When I hit, I make a bet and I know roughly what the odds are that the bet will pay out. If the house was to manipulate the cards in the deck so that the odds are different, I would lose much more often then I should, and it would be theft. Similarly, if someone uses artificial demand to drive up the price of btc above the natural demand and I overpay, then they are selling to me at an unfair price. Eventually the price with fall to the natural price and I will lose money. Btc is weird because people keep buying more, but the principle is still the same. If the price is going to go from 40k and 50k over the next few months, and the price is artificially raised to 45k (which is when I buy in this example) then even if I get out at 50k I’ve lost 5k of profits I would get if the market was fair.

So the short answer is that in any case of any market manipulation, it is theft from other investors. Usually (but not always) small retail investors.

Now the argument some crypto folks make is that market manipulation is part of this market, so take that how you will.

shrimpx• 5 years ago

I know roughly what the odds are that the bet will pay out
natural price

In low-volume situations (almost all cryptoassets) you don't have these properties. The price is "fake"/random to begin with.

kkjjkgjjgg3• 5 years ago

Am I reading right that among all the words, there are just three examples of "manipulation"?

- fake news stories about Amazon accepting Bitcoin, and something Tether

- "momentum ignition", trying to start a trend by placing a big trade offer and withdrawing it when takers arrive

Are those really a big deal?

I guess technically every trade in crypto or stock markets is also a "market manipulation", as it has the potential to move the price.

Animats• 5 years ago

There's a hype cycle right now with the claim that Walmart is going to issue NFTs, or get into cryptocurrencies, or something.[1] Walmart is not saying that. They filed for a trademark for "WALMART" for the trademark class that includes cryptocurrencies. Which means only that WalMart, Inc. spent $400 to protect their brand name from someone creating "WalMartCoin". WalMart, asked for a statement, said they had no immediate plans in that area.

[1] https://www.theverge.com/2022/1/16/22887011/walmart-metavers...

Ekaros3• 5 years ago

That seems like very cheap insurance... Even the legal filings to fight someone launching WalMartCoin are more...

paulgb2• 5 years ago

Reminds me of the whole market-moving news cycle about Amazon accepting cryptocurrency “by the end of the year” last year. Tons of coverage, like this[1]. It never passed the smell test, all traced back to one anonymous City A.M. source, and of course it didn't happen.

[1] https://gizmodo.com/amazon-to-accept-bitcoin-by-end-of-2021-...

hoffs• 5 years ago

The article that this post is about talks literally about Amazon event...

mulcyber• 5 years ago

I take advantage of the post to ask.

Anyone has a good introduction to trading for engineers/mathematicians/programmers?

Something that goes into the theorics and the math of the thing. Like an MIT open course or something. I'm always a bit lost with these things.

VHRanger7• 5 years ago

Patrick Boyle's books are a good start.

Generally I would discourage people from trading - 99% of people who try fail.

lend000• 5 years ago

While I appreciate the amount of work that went into this article, there are at least 50-100 potential current "news" stories in the crypto space at any given time. It's easy to find one that correlates with price movements after the fact, but more or less impossible to do so with forward testing. Virtually no successful crypto trading firms are using real time news data as a centerpiece of their trading, because news has almost no impact (contrary to popular belief and the assertions of this article), especially compared to equities. Elon Musk's tweets, which ostensibly should matter least for fundamental value, are probably the biggest drivers of capital, albeit only in the short term. See [0].

And then the part about "suspicious" orders on the book before the liquidation cascade. Come on. Amateur crypto traders are reinventing religion, where mysterious unknown "whales" are the gods, pulling all the strings.

[0] https://en.wikipedia.org/wiki/Data_dredging

setr• 5 years ago

And then the part about "suspicious" orders on the book before the liquidation cascade. Come on. Amateur crypto traders and outsiders are reinventing religion, where mysterious unknown "whales" are the gods, pulling all the strings.

Sounds like something a whale would say…

pcurve• 5 years ago

The "Bart" pattern had me in stitches because there has been similar stock meme among Korean individual traders mocking strange price actions and doing technical analysis using cartoon characters to figure out the best entry/exit points.

https://m.blog.naver.com/kwonhs225/222201971395

Pretty hilarious.

somewhereoutth4• 5 years ago

Bitcoin (and friends) is essentially a pyramid (edit: ponzai) scheme, where late entrants pay the 'returns' on early entrants - but with a technology layer that precisely and and publicly records each payin/payout.

In a way it is beautiful - the fraud is so transparent, and so technologically guaranteed to be transparent, that it becomes legitimised.

Almost as if robbing a bank would be ok if you made an appointment beforehand.

errantmind4• 5 years ago

By that logic, any marketplace is a pyramid scheme because later entrants always pay earlier entrants. A pyramid scheme has a very particular definition, please look it up.

somewhereoutth4• 5 years ago

Sorry, I meant ponzai scheme.

Marketplaces are where things with inherent value are exchanged. Crypto has zero inherent value - it serves only as a record of previous players in the scheme.

blunte• 5 years ago

I’ve spent a lot of time, made a lot of manual trades, and lost a lot of money on crypto futures in the last three months.

I’ve learned some things…

One is that the order books are virtually meaningless, at least for humans. They change so rapidly, bulking or vanishing, that you cannot gain any sense of what the market wants or is doing.

I’ve also seen strings of tiny trades, apparently strategically timed with order book cancellations, causing big price changes on almost no volume.

lvl1002• 5 years ago

What this study misses is how much BTC is fueled by altcoins. It’s an ecosystem that’s rarely discussed.

ypeterholmes• 5 years ago

So the entire Crypto space is a "lawless wasteland" just because some folks are trying to manipulate the markets?

Gonna need a bit better argument to buy that.

SZJX• 4 years ago

IMO the other explanatory post by Coral Alexander linked at the beginning this post did a better job to describe the hypothesis in a more accessible and clearer language. https://www.coalexander.com/post/binance-spoofy-bots-and-liq... In this post, the central thesis that spoofing was the key igniter of the event was not clear IMO and it didn’t explain well how spoofing works, while the other post lays it out very well, along with dedicated explainers for the key terms.

An anatomy of Bitcoin price manipulation

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