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Crypto Currency Trading Platforms

matthewr said:
This is (more or less) what happens in futures markets (where I worked for about 15 years) where the futures contract is used to stabilize the underlying market to protect the "legitimate users" of that market. <snip> In modern markets the amount of "legitimate use" is dwarfed by people using these markets for speculation.
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It was once explained to me that this created the conditions for the 2008 crash because a lot of "insurance" futures had been sold - way beyond the value of what was being "insured" - to folks who did not own the "insured asset" and sold by "insurers" who were completely unable to pay out in the event that the "insurance" was triggered.

In short derivatives, which were originally created as a form of financial insurance (to de-risk holders of actual assets) were never regulated as insurance and were thus wildly abused. It would be like if anyone could setup shop as an insurer and collect premiums for insuring all manner of things, but without any actual assets to be able to pay out in the event of a claim.
 
sean99 said:
It was once explained to me that this created the conditions for the 2008 crash because a lot of "insurance" futures had been sold - way beyond the value of what was being "insured" - to folks who did not own the "insured asset" and sold by "insurers" who were completely unable to pay out in the event that the "insurance" was triggered.

In short derivatives, which were originally created as a form of financial insurance (to de-risk holders of actual assets) were never regulated as insurance and were thus wildly abused. It would be like if anyone could setup shop as an insurer and collect premiums for insuring all manner of things, but without any actual assets to be able to pay out in the event of a claim.
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Although the infamous Credit Default Swap is, as the name implies, a swap not a future. Which matters as if it had been a future it would have been exchange traded (i.e. regulated) and required margin, whereas the swap is an OTC ("over the counter") contract between two parties, not via an exchange and requires no margin.

Also the use of derivatives caused the problem to be orders of magnitude bigger than it should have been (aka "weaponised") but the underlying problem was due to other factors (subprime lending, banks selling cheap debt as AAA, credit rating failings, etc). And, as ever with these things, the real problem was down to a massive globs of moral hazard woven into the entire system at multiple points. Which brings us back to crypto.
 
This is good on Terra collapse and what it might mean for stablecoins and crypto in general.

"But at the same time it could mark the end of what will in retrospect seem like a decade of blissful innocence in crypto. Mainstream finance has been happy to collect trading fees on crypto and invest in startups. But when serious traders backed by big piles of money start looking for ways to profit by eating crypto’s weak and frail, they may find a target-rich environment."

https://www.coindesk.com/layer2/2022/05/20/there-was-no-terra-attack/
 
davidsrsb said:
Intel getting into mining chips https://www.theregister.com/2022/02/11/intel_bitcoin_mining/
This won't save energy as the mining algorithm self tunes. It will lead to mass scrapping of the current mining rigs

Obviously we live on a planet with unlimited resources and no e-waste or energy problems
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Indeed. :-/

I heard some idiot on the radio a day or two ago saying that crypto was 'safe' as it had some kind of (mysterious) certain 'value' so couldn't go up and down because Governments couldn't interfere.

I guess he was an economist given how clueless he was. :)

The basic reality is that the value of any kind of 'money' is that it is only worth what *someone else will exchange it for WHEN you want to buy something with it*. Its value in a 'wallet' is meaningless. Just like money in a bank with a ruler's head neatly stuck on it. Having machines waste energy to 'create' it doesn't change this. It just sets the price the owners of those machines need to stay 'mining'.
 
There's an unusual aspect about these "crypto" things in that they are being touted both as replacements for traditional currencies (hence the term cryptocurrency) and as investment assets. That combination cannot work.

Regardless of any other properties, a workable currency must be stable, with the allowance of moderate inflation. A volatile currency only leads to chaos, historical examples of which are plentiful. Meanwhile, the only way to profit from currency-like instruments (tokens without intrinsic value used to represent actual value) is through fluctuations in exchange rates. The more volatile the currency, the greater the potential gains and, crucially, losses. In the long term, currencies of stable economies largely track one another, provided trade volumes are sufficient. If everybody adopted cryptocurrencies, that avenue to quick profits would instantly become a dead end.

Moreover, the limit, whether hard or practical, on the amount of "coins" along with the inevitability of people losing their wallets means that there will ultimately be a diminishing supply of currency (when paper money is lost, the central bank simply prints more). This leads to a deflationary economy, something any number of experts will agree is a Very Bad Thing. As much fun as it can be to deride economists, they are not all wrong all the time, as the cryptobros would have you believe.

This leaves the possibility of crypto-tulips as potential investment assets. Again, bad idea. The only "value" they represent is the expectation that someone will be willing to pay more for them at some future time, based on the very same expectation. That can't continue forever. Sooner or later, the supply of new buyers, or shall we say marks, will dry up, and the last to enter the game will be left in the hole, having financed the winnings of everybody who came before them. Simply put, it's a Ponzi scheme.

Regarding value, most of the hype around crypto-tokens these days centres around their valuation in terms of established currencies, usually USD. Any increase is trumpeted with vigour while downturns are dismissed as momentary setbacks. Social media is (or was, until a few weeks ago) full of people boasting about how much their holdings have increased in value. What this fails to recognise is that most of this "value" cannot be converted to real, spendable currency. The exchanges have nowhere near the requisite liquidity, should there be a surge in demand. In other words, actually accessing those gains relies on an influx of buyers. In other words, it's a Ponzi scheme.

Yet another problem with "crypto" is the absurd energy consumption. A single Bitcoin transaction consumes over 2,000 kWh of electricity [1] while Ethereum demands a little more than 200 kWh per transaction [2]. While the latter figure is obviously better, the amount of wasted energy is still ludicrous. At current electricity prices, an Ethereum transaction costs around £60. Imagine having that much added to the total every time you shop for groceries or have a pint at the pub. With the average value of a card transaction in the UK being around £50 [3], this is comparable to having a VAT rate of around 120%. Obviously, someone has to pay this extra cost. Who is this, and where does that money come from? The money comes from people "investing" real currency in crypto. Without continuous new investments, the system would collapse. If that sounds familiar, it is because such an arrangement is commonly known as a Ponzi scheme.

No matter how things are twisted, the inescapable fact remains that every gain in "crypto" today is a loss taken from someone down the line, someone who will get nothing in return. That, to me, makes the entire endeavour unethical.

1. https://digiconomist.net/bitcoin-energy-consumption/
2. https://digiconomist.net/ethereum-energy-consumption/
3. https://www.finder.com/uk/credit-card-statistics
 
mansr said:
There's an unusual aspect about these "crypto" things in that they are being touted both as replacements for traditional currencies (hence the term cryptocurrency) and as investment assets. That combination cannot work.

Regardless of any other properties, a workable currency must be stable, with the allowance of moderate inflation. A volatile currency only leads to chaos, historical examples of which are plentiful. Meanwhile, the only way to profit from currency-like instruments (tokens without intrinsic value used to represent actual value) is through fluctuations in exchange rates. The more volatile the currency, the greater the potential gains and, crucially, losses. In the long term, currencies of stable economies largely track one another, provided trade volumes are sufficient. If everybody adopted cryptocurrencies, that avenue to quick profits would instantly become a dead end.

Moreover, the limit, whether hard or practical, on the amount of "coins" along with the inevitability of people losing their wallets means that there will ultimately be a diminishing supply of currency (when paper money is lost, the central bank simply prints more). This leads to a deflationary economy, something any number of experts will agree is a Very Bad Thing. As much fun as it can be to deride economists, they are not all wrong all the time, as the cryptobros would have you believe.

This leaves the possibility of crypto-tulips as potential investment assets. Again, bad idea. The only "value" they represent is the expectation that someone will be willing to pay more for them at some future time, based on the very same expectation. That can't continue forever. Sooner or later, the supply of new buyers, or shall we say marks, will dry up, and the last to enter the game will be left in the hole, having financed the winnings of everybody who came before them. Simply put, it's a Ponzi scheme.

Regarding value, most of the hype around crypto-tokens these days centres around their valuation in terms of established currencies, usually USD. Any increase is trumpeted with vigour while downturns are dismissed as momentary setbacks. Social media is (or was, until a few weeks ago) full of people boasting about how much their holdings have increased in value. What this fails to recognise is that most of this "value" cannot be converted to real, spendable currency. The exchanges have nowhere near the requisite liquidity, should there be a surge in demand. In other words, actually accessing those gains relies on an influx of buyers. In other words, it's a Ponzi scheme.

Yet another problem with "crypto" is the absurd energy consumption. A single Bitcoin transaction consumes over 2,000 kWh of electricity [1] while Ethereum demands a little more than 200 kWh per transaction [2]. While the latter figure is obviously better, the amount of wasted energy is still ludicrous. At current electricity prices, an Ethereum transaction costs around £60. Imagine having that much added to the total every time you shop for groceries or have a pint at the pub. With the average value of a card transaction in the UK being around £50 [3], this is comparable to having a VAT rate of around 120%. Obviously, someone has to pay this extra cost. Who is this, and where does that money come from? The money comes from people "investing" real currency in crypto. Without continuous new investments, the system would collapse. If that sounds familiar, it is because such an arrangement is commonly known as a Ponzi scheme.

No matter how things are twisted, the inescapable fact remains that every gain in "crypto" today is a loss taken from someone down the line, someone who will get nothing in return. That, to me, makes the entire endeavour unethical.

1. https://digiconomist.net/bitcoin-energy-consumption/
2. https://digiconomist.net/ethereum-energy-consumption/
3. https://www.finder.com/uk/credit-card-statistics
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Ethereum will move to proof of stake, allegedly in the next few months so assume a year, which will reduce energy costs by a factor of 2000.

https://ethereum.org/en/energy-consumption/
 
paulfromcamden said:
Why wouldn't you want it regulated like any other financial product?
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I'm not bothered whether it is or it's not, I meant there seems to be a lot of hand wringing and panic about something that is "worthless".

Shame Legarde can't even convince her own son it's worthless lol.
 
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