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.
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.
> 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!
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."
> 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.
>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.
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.
> 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’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?
> 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).
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?
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.
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.
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.
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)
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
> 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)...
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?
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.
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).
> 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.
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...
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.
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.
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.
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.
> 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.
> 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?)
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.
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.
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.
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.
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.
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.
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.
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.
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
> 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.
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.
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...
"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.
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
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).
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.
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.
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.
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
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.
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.
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.
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?
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.
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".
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.
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.
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.
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.
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.
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.
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.
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".
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.
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
Readit News
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.
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!
Was blown away
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.
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.
What mechanism forces this?
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?
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).
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 ;)
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.
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.
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)
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.
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?
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.
What difference am I missing?
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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.
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...
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.
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.
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.
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.
There's none though. The markets and especially crypto lunatics themselves clearly show nobody cares about decentralization.
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?)
> Undocumented, conditional, non-displayed order types. Routine wash trading. Shear-but-don’t skin multi-venue arbitrage.
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.
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.
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.
[1] https://www.theverge.com/2022/1/16/22887011/walmart-metavers...
[1] https://gizmodo.com/amazon-to-accept-bitcoin-by-end-of-2021-...
- 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.
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
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.
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...
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.
"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.
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.
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
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).
https://youtu.be/ZiJa9diJOMk
https://genius.com/Harry-enfield-loadsamoney-doin-up-the-hou...
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.
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.
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.
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.
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.
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/
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.
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.
So the real question is whether a coin is being manipulated, but what kind of manipulation you can accept.
> 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.
I think all of it is manipulated at a scale never before seen.
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https://m.blog.naver.com/kwonhs225/222201971395
Pretty hilarious.
https://twitter.com/AlamedaTrabucco/status/14672197118301511...
Ready for a move up again soon.
does not look like it
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
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