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How to know when bitcoin has bust and what replaces is


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How to know when bitcoin has bust and what replaces is

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  #1 (permalink)
 tpredictor 
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It is unknown whether bitcoin will bust. However, I have been trying to think: how do we know when the bubble has burst and what will happen? I have been thinking a problem with bitcoin is that is easily exchangeable with other cryptos. Anyway, when bitcoin burst, we can expect that all other cryptos will bust too just for that simple reason --
except for perhaps one.

So, what can replace bitcoin and why will it bust? I am thinking of a general Compute Coin, think Amazon Compute, could replace bitcoin. Why? Because, now you have an actual "good" of value being produced: compute cycles. The replacement bitcoin could be based on award for doing useful work. Amazon is in prime place with their cloud computing infrastructure to promote the new coin. By rewarding coin for actual work, you accomplish two important things. First, you offer an alternative to money exchange for acquiring the coin which makes it harder to regulate (regulate out of existence). Second, it gives the coin tangible value because computation is a tangible asset. Of course, computation is inflationary. Exactly how this new coin works isn't entirely certain but it would be tied to computation for cost service running on a distributed encrypted virtual machine.

Anyway, how might we know when bitcoin has burst?

1. If new coins fail to be mined because difficulty becomes too great.
2. If new coins become too easy to mine.
3. If less retailers accept bitcoin then in the past. This means they tried the BTC experiment and it failed.
4. If dollar to btc exchange volume decreases and trading volume increases.
5. If regulation stifles it or makes it unusable.
6. Carbon regulation and concern, generally speaking a green coin will be as efficient as possible.

In meantime, Bitcoin could rally a great deal.

Bitcoin is also at risk because it can't benefit properly from its monopoly advantage. Because decentralization without evolution results in fragility and eventual loss of monopoly advantage and deterioration of any network advantage. Basically, if you look at something like ebay or amazon, they have network advantage because they can evolve faster then any competition can introduce change. Unfortunately, bitcoin can not and even if it could then it becomes subject to political powers which negates some of the use.

The question is when will it fail. It is most likely to fail when no new coins can be mined. This is estimated to be around 2040. However, we know markets tend to move in advance, so let's say it only takes half that time. This yields around 2028. This seems somewhat reasonable for a time around when bitcoin should enter perpetual decline.

The key player to watch is Amazon and/or some consortium to see if/when they introduce their compute coin. It could also come from a collaboration between Amazon, Google, and other cloud providers. The new coin will be able to learn from bitcoin's mistakes. The new coin will basically be a distributed encrypted virtual machine, capable of running useful compute task without exposing the answer. This new coin can form the basis of a super computer that can run the internet.

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  #2 (permalink)
Pedro40
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I have been expecting corporation coming out with their own cryptos for years. I guess they are waiting for government regulation. If the government actually OKs them ( a big if) there will be more and more flexible cryptos with better usability than BTC.

As you said, Amazon own coin would be obviously accepted on Amazon, making the biggest online retailer available for using a crypto, maybe protectively not allowing competing cryptos. Then would come Walmart and so on.

Competition is good for the customer, but not so good for the price...

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 rleplae 
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Pedro40 View Post
I have been expecting corporation coming out with their own cryptos for years. I guess they are waiting for government regulation. If the government actually OKs them ( a big if) there will be more and more flexible cryptos with better usability than BTC.

As you said, Amazon own coin would be obviously accepted on Amazon, making the biggest online retailer available for using a crypto, maybe protectively not allowing competing cryptos. Then would come Walmart and so on.

Competition is good for the customer, but not so good for the price...

Not sure governments actually wants non state organisations to start controlling monetary value,
up to know that has been something they kept for themselves.

There are a number of concerns with the growing market value of the crypto's
- lack of KYC and anti-money laundry implementation
- tax evasions
- anonymous

All of which has been studied and parts have been under scruteny

- china forbidding issue of ICOs
- few exchanges have been under scrutiny for money laundering
- few exchanges went bust because of lack of supervision or hacking

etc..

Like with many new things, the regulator is way behind the wave and the evolution...

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 tpredictor 
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A bit expanded...

Most of the attention of the value for bitcoin has been on the blockchain and the network effect. However to expand on my previous thoughts

1. A significant value of bitcoin is the ability to mine it without requiring any official exchange. Even if it is mostly theoretical now as most mining is performed by corporations it was surely important in the start. This is important attribute because without it then it could easily be regulated away. The problem is that the mining is rather inefficient, not doing (much) useful work, and eventually runs out. Once it is impossible to mine bitcoin then it will be possible to regulate it away because there won't be any way to obtain bitcoin without exchanging it.

2. The solution is to have a distributed encrypted virtual machine where a unit of production is a unit of computation. It will always be possible to "mine" such a coin by simply performing work. The coin has intrinsic value in that eventually most of the internet would be run on the "coin/VM". So, it can always be exchanged without requirement for conversion to dollar. Of course, it could also be converted through exchanges to dollars or other denominations. Such a network rewards efficiency and performs useful work (super computing, running banking apps, etc). It will require some collaboration though from multiple industry. There are some missing parts with this idea as-is but that's the general design.

3. We have already seen other internet ideas follows similar patterns. The original captcha was just a unit of work for security against bots. But, later it was realized it was wasting a lot of human productivity and better designs such as uses for captcha's for translation were invented.

4. The monopoly benefits of the network effect also assumes that a central authority can innovate and guide the product. Bitcoin may have benefited from the network effect. However, because it is decentralized it cannot easily integrate innovations.

As an aside, I am still evaluating bitcoin for a small well-timed speculation. As I think it still has more room to run.

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 TWDsje   is a Vendor
 
 
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The key that you need to remember with crypto-currencies is that they are entirely speculative. Larger players take advantage of this by doing pump and dumps. That's why you can end up with these huge dips that end up moving even higher. The major peaks however always come with a news event invalidates a part of the trade. For instance, when Mt Gox initially went down it effectively destroyed the idea of Bitcoin as a currency to replace fiat because it proved that it can't be stable.

I believe this has already happened again in Bitcoin. Bitcoin initially moved up when the Bitcoin Cash fork didn't cause a complete disaster. However, the concerns with the larger blockchain were effectively demolished when they sucessfully mined larger blocks in Bitcoin Cash. Meanwhile Segwit still has issues, and Bitcoin users feel the transaction cost is simply too high. Obviously there's many people that will challenge these assertions, and the propoganda is particularly high from both sides of this fork war. So keep in mind that I personally think crypto-currencies themselves are worthless, and only a vehicle for speculation. So I don't trade them, but I do mine smaller coins for fun.


Anyways when you combine this with the regulatory moves from China, and you have a setup for a short term top. It's unclear however what happens next. Does this eventually lead to the flippening with Etherium taking over? That's what I've believed would happen, but so far Etherium is getting hit just as bad. Does Bitcoin Cash take over, and once everyone has forgotten about it we move for another leg higher? Or maybe that's just the end (I still believe it will happen some day). Impossible to say because again, it's entirely based on speculation. That's why I just stay away.

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 tpredictor 
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Research note:

The common wisdom is that China won't crack down on bitcoin exchange but is rather trying to prevent new/scam coin offerings. However, I noticed also that China released a statement about transitioning to all electric vehicles. If countries don't see the value in Bitcoin and because it waste a lot of energy then they may be more inclined to try to stop it. The exchange ban could be a precursor to a mining ban. More over, one can now see a future where Bitcoin might compete with electricity needed for electric cars.

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 tpredictor 
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One problem I have with placing a valuation on Bitcoin is that it even if we can value the network then it doesn't tell us what the price of Bitcoin should be. I think this is relevant. The value of something doesn't have to relate to the price of it. As an example, the Linux operating system is immensely valuable but it's also free.

If we value Bitcoin at say 50% of one of the major credit card processors, we come up with a valuation of around 50 billion dollars. But, even if the Bitcoin network is worth 50 or even 100 billion dollars then it doesn't tell us what a Bitcoin is worth. I guess you could say if you owned all the Bitcoin then you should own the entire wealth of the network.

In that case, Bitcoin could be worth at 21 million bitcoin and given a major credit card company has a valuation around 100 billion

at 2% of the value of a major credit card = 95k?

100 billion * .02 = 2 billion / 21 million = 95k

Now give or take a 70% margin of error, we get 28k to 162k. This assumes Bitcoin is long term sustainable which still remains to be seen and there are many arguments it wont be. On the other hand, we can be pretty safe there are upper limits simply because there are many interests in keeping it too some small fraction of the economy. But, Bitcoin is further divisible into Satoshi's (100 million per bitcoin). Another way to solve the problem is to just imagine what the minimum price of Bitcoin needs to be to run the network.

https://blog.plan99.net/the-resolution-of-the-bitcoin-experiment-dabb30201f7

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 tpredictor 
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Here's another problem, some people think Bitcoin has to increase in value simply because there are a limited number of coins left to mine: that it is scarce. But just because something is scarce doesn't make it valuable. But, even if it does then that should already be factored in unless there is a surprise factor.

For example, let's imagine bitcoin is a type of programmed annuity, it's not, but less imagine I create a product, i.e digital currency or shares, that is worth $100 today and is programmed to increase in value at 3% per year for 10 years. It is more or less possible to figure out what it is worth. You would want to hold it if it were greater then the risk free return rate. But, you also know how much it is worth.

If Bitcoin will be worth say even 40k one day then we can imagine that it should be priced in more or less already today. So, if Bitcoin is only trading at 4k then that means assuming it is fair value then we can imagine that the market is pricing in a 90% probability of Bitcoin going to zero.

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 tpredictor 
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I think I finally got it. Let's imagine in the worst case scenario the value of Bitcoin is really zero except as a trading, speculating, and gambling vehicle. The fair value is then a function of the money in-flow and out-flow combined with the pricing control exhibited by the traders. Even if Bitcoin is not such vehicle, there could be significant value for such a vehicle especially if markets become perfectly efficient or manipulated. In the future, there could be programmed trading vehicles that exist only for trading but would have some programmed predictability. This would allow for those with the skill to predict minimally predictive markets to profit in accordance with their relative skill over their peers.

Next, let's imagine a hypothetical scenario. Small traders all always buy high and sell low while a few large traders who try to control the product will always sell high and buy low. The value is more or less price of the moving average. The risk is that basically the large traders can manipulate the price. The other risk is that at some point the small speculators overrun the large traders and you end up with a feedback loop that cannot be controlled.

A bit more on a "trading programmed price stream" TPPS could be defined with the following properties. But, first why could a TPPS be an ideal trading product: we can say that traditional futures products for small speculators only serve the purpose of making money by way of relative trading advantage. So, they are just a product -- no different then what a TPPS would be. However, they have some disadvantages: there are trading costs/fees, the exchanges encourage HFT trading (which can disadvantage the small speculator), manipulation is possible, they might be unpredictable according to economists, and they represent large notional values which makes it difficult for the small speculator. A TPPS is designed to resolve all deficiencies while preserving majority of qualities:

1. The price stream is fully defined by its programming or TPPS contract. Manipulation is impossible. Transparency is guaranteed. All functional TPPS would be programmed in an evolutionary adaptive mechanism with varying amounts of randomness possible. The TPPS contract can, also, determine the minimum latency of the network. The TPPS contract would be modeled on a mix of real and idealized markets. For example, a TPPS contract could define a price stream and an artificial symbol/news stream. What is important is that while the TPPS programming is fully transparent, the price stream is defined in such a way that the price stream is not a random walk but not easily predictable and is furthermore always changing. So, the TPPS is an "idealized" trading vehicle where technical analysis is guaranteed to work: however, no particular technical analysis would be guaranteed to work. The system would need to distribute the computation of the TPPS across multiple computers to ensure no manipulation would be possible.

2. Actual trades would have no bearing on the PPS. The trades could be defined as contracts and/or payouts would be defined used some sort of fixed schedule from a pool.

3. The TPPS "markets" could be designed so that there are no trading fees. This makes them more efficient then markets and removes most of the monopoly that trading facilitators enjoy (i.e. the banks and exchanges). However, there might be some payout/reward for running the distributed TPPS machine.

4. This is just one envisioned model. It might also be possible to allow for trades to influence TPPS-- so you'd have the benefit of secondary market function.

For TPPS, you need a virtual machine that can keep the internal state of the program unknown to all participants but deterministically verifiable in the future and protected against tampering because the machine must enter predictable states for indeterminate time.

An initial idea, for TPPS, you could make it such that each trade could be sent to the network with a random number that you can validate on your computer. The combination random numbers would be fed into function that has deterministic but unpredictable output which would be used as the seed basis for the next state of the machine.

It might be such that it could work similar to bitcoin that the state would be indeterminate provided that no one controlled more then 50% of it. There needs to be a way to protect against someone from gaining too much control of the network, i.e. hidden state. The machine could increase or decrease difficulty to facilitate trading.

It could work either on a contract basis, binary options, or on a pool basis. In the pool basis form, you can buy/trade at any price but you would not know what the payout would be until after you made the trade because it would be determined based on the pool of traders. For example, if the machine entered a very easy to predict state and say everyone bought then you'd just get your money returned. On the other hand, if 10 people bought and 1 sold, you'd make a little extra. What's interesting is that you can make trading markets/products that would have idealized characteristics. For example, you could have guaranteed stop losses, step sizes, etc. The volatility could be completely controlled. The risk could be completely defined by the programming contract. A question is technically how you pull off computing the next state while keeping the internal state hidden. This is required so the system doesn't rely on any CA (central authority). At the same time, the state should be be verifiable.

Update

For TPPS markets, they could be defined to state what type of patterns would be programmed, as well. So you might have a market ABC with defined properties as such "Technical analysis, Seasonal, Complex, Behavioral, Adaptive, Fractal" which would describe the complexity and types of properties a programmed price stream would have. I do not think it would be that difficult to make such a system if we could trust a central authority. If you use the pool model then the system could self-adjust the randomness/difficulty level by seeking to make it such that 50% of traders are wrong at each turn. But, that's an interesting aspect in itself because then trades could start to influence the system. If you want to distribute the virtual machine, it is simple to see how it is possible as you just distribute a hash of the prior state and current state. However, you also need to reveal the source code, share product of the state but keep the next state indeterminate but deterministic. The last part is the difficult part. If you distribute the machine then someone could try to compute next states. If you made it just completely random then it would be easier because the next state could be defined as some complex (unpredictable) function of all the inputs and the current state.

A simpler model is to just to exchange dollars for tokens and define a programming contract which pays out based on the value of an existing market. I was thinking the nice thing if you exchange dollars for tokens is that you can get rid of all the frictions except for the transfer of in/out funds. The problem with the programming contract approach is that say it is programmed as a binary option. You send your funds to the program with a buy/sell and market. And every 10 minutes the programs goes out and reads the market and performs the payouts. All payouts are in tokens so can eliminate frictions to nearly nothing (cost of the hardware). The problem is that the program must be fully automated. So, if an external feed is down or whatever then you'd need either the entire network to validate the input or you'd have to make it redundant robust and/or intelligent enough to refund the tokens. This might be something Ether could do unsure. But, if you did allow for some authority or group vote then you become subject to any single entity controlling a large enough of the vote.
For example, say a single trader made a large bet that in 1 hour Bitcoin would be higher and say Bitcoin was actually lower. But, say they made the trade from dozens of shell accounts then those accounts could dispute the true value of Bitcoin -- unless it were completely programmed/automated. If it were a simple majority vote, they could try to reject the trade post fact.

I do see a lot of promise though. Even just considering a small number of possibilities makes the current financial products seem archaic.

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Pedro40
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We have to consider when evaluing bitcoin is the fact that it is incredibly easy to replace... Now one could argue against this, but it is still true. So if whatever reason btc had a glitch or would get banned there are plenty of other cryptos existing to take its place. (assuming they wouldn't get banned)

So how can we put a huge value on something that isn't scarce, easy to ban, easy to replace and has many competitors? Simply we can. It is tulip bulbs all the way up...

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 rleplae 
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Pedro40 View Post
We have to consider when evaluing bitcoin is the fact that it is incredibly easy to replace... Now one could argue against this, but it is still true. So if whatever reason btc had a glitch or would get banned there are plenty of other cryptos existing to take its place. (assuming they wouldn't get banned)

So how can we put a huge value on something that isn't scarce, easy to ban, easy to replace and has many competitors? Simply we can. It is tulip bulbs all the way up...

it had value in the past, that was to 'park' wealth outside the system
but big brother started to understand that and is closing the doors
- china : ban
- russia : regulate
- USA : analyse the ledgers and anonymous was not so anonymous

so the big 'value', from the start has be largely eroded
and for what is left, i couldn't agree more with @Pedro40

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 tpredictor 
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The issue of manipulation is a great reason why a pure programmed price stream would be so useful.

Here is a measure that would be useful:

Measure the actual dollars that have flowed into and out of Bitcoin since inception. For example, the price doesn't tell us the dollars that have flowed into Bitcoin.

For example, imagine a hypothetical market where the price is $200 and imagine that there are 10 coins/shares in this market. And imagine that 5 were bought at $100, 3 were bought at $150, and 2 were about $200 then we can see that $200*10 or the market value is not the amount of money that came in. The money that came in was actually only about half that.

Note: Agree it makes little sense to me how/why Bitcoin managed to obtain value. Disclaimer have est. a micro position for speculation purposes.

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 tpredictor 
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JPMorgan Goes In On Bitcoin: Kolanovic Asks "Are Cryptocurrencies A Pyramid Scheme?" | Zero Hedge

McAfee states cost to mine Bitcoin is over $1,000 per coin. Does that suggest a marginal cost floor for Bitcoin?
https://fortune.com/2017/09/14/john-mcafee-bitcoin-jpmorgan-jamie-dimon/

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 choke35 
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tpredictor View Post
McAfee states cost to mine Bitcoin is over $1,000 per coin. Does that suggest a marginal cost floor for Bitcoin?

The main cost component of mining is energy, second is tech. That's exactly why some of the largest BTC mining
complexes are spread across Asian regions where energy is dirt-cheap and many GPUs are snapped up in bulk at
factories before trading markups, transportation, taxes etc. add up.

If you are interested in First World break-evens of BTC, ETH, LTC etc. mining, see e.g.
https://www.cryptocompare.com/mining/calculator/btc?HashingPower=4730&HashingUnit=GH%2Fs&PowerConsumption=1293&CostPerkWh=0.12

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 tpredictor 
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There is another way to value Bitcoin. Let's just assume that there are 4 participants but only 3 that really matter:

1. Miners
2. Holders
3. New holders
4. Traders


Now let us assume the following:

1. Miners always sell Bitcoin to pay their mining cost.
2. Holders always hold Bitcoin (or if they sell they will always buy back in).
3. New holders always buy and hold Bitcoin.
4. Traders only either increase or decrease volatility but have no effect on the long term price. We also assume users are similar to traders because transfer into bitcoin to make a purchase and then the retailers transfers right back out.

Next let us assume Bitcoin is fairly priced at current level. The growth rate of Bitcoin is a function of the money supply of the new holders able to flow into Bitcoin. Bitcoin increases in value when their are more holders buying then miners selling.

It is reported 1800 Bitcoin are created per day by miners. At current levels, you need appx 6.5 million to flow into Bitcoin per day to maintain current levels. Assuming the average holder buys between $500 and $1000 per day, you need from 6,000 to 13,000 new holders per day.

Next let us assume that Bitcoin is owned by 1% or 2.5 million US citizens. And let us say that Bitcoin is growing at 20% per year, you get 500,000 users per year yields 1400 new users per day.

We can also just ask if all miners sell their bitcoin at market, what the total new money needs to come into system to maintain levels: 1800 bitcoin mined per day * 3600 *365 = 2.3 billion dollars.

What's wrong with this analysis? The biggest question is regarding the last part. 6-7 million dollars flowing into Bitcoin seems like too much. Another buyer might be hedge funds and other institutions. Assuming they'd like to own just 1%-2% of Bitcoin then the math might change dramatically.

Update:
There are some rumors that China's ban might extend to the network. The accepted outlook is negative. However, if we assume miners are the primary sellers then blocking miners could lead to a sharp price increase. Not so sure of this logic.

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 GFIs1 
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1) As long as there is not a real time volume with the price it is the same as for trading Forex.
The missing part in Bitcoin et al. is a large handicap for a trader. Apart of the large volatility implied.
2) Growing number of banks creating own coins right now are a danger to trade only one coin comp.
Of course the banks see their transactions fading - so they are forced to invest into new possibilities.

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 srgtroy 
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@tpredictor

Have you heard of FileCoin? It's not your 'ComputeCoin' but its the closest I can think of, based on distributed storage instead of compute cycles. It recently had its ICO which was closed to only mukkety-muk Silicon Valley venture capital firms. They raised several hundred million in hours. They are also attempting to make it as legit as possible by proposing ICO transparency guidelines and following them.

https://filecoin.io/

In general, part of what makes cryptos so interesting is that they represent a direct challenge to the authority of the nation-state. Almost reflexively, governments will attempt to assert control over the space. Even worse, they might appropriate and morph the technology into some kind of financial surveillance mechanism whereby every transaction made is immediately known to them.

Another possibility is the weaponization of cryptos. Russia, China, et al might realize that the best way to supplant the US dollar as a world reserve currency is to promote internationalized digital currencies.

As for the inherent value of the cryptos, in some sense, they are an appropriate response to a world of central banks furiously creating money out of thin air. The question is which has more value, less maniputable cryptocurrency or fiat currency backed by nothing.

Money is confidence. How confident are you in fiat money these days? Yes, there's gold, but can that not be manipulated as well? Governments control most of the supply, anyway.

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 tpredictor 
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I think with the ICO's it is less about fiat and more about whether or not they've created a more efficient way of raising investor capital. In that way, it more closely resembles the stock market of the 1920's and in fact there are other similarities in politics and other areas (perhaps a 100 year cycle). Yes, after I wrote that I did a 10 minutes of search and found FileCoin but also there is another distributed super computer project which is even more similar.

But, a reason the banks have reason to be worried is that the ICO is more democratic, more accessible, potentially more efficient. The old mentality was about who you know. The new mentality is about breaking down barriers. A quick 30 second assessment will show you who will be more likely to survive: businesses that talk about getting in via working in the back office, businesses that talk about the importance of networks represent the old mentality. They are on the way out. A good example is the prop trading-- OneUp is shifting toward the new mentality but it can shift in that direction even more so. The networks can shift to programmed contracts.

For example, let's say as a business you want to start and use some copyrighted software. Depending on the business model, the software might represent a significant investment. In the future, you just sign some keys or "programmed contracts" and you have access to the software. If your business does well then your income can be automatically debited from your future income tokens.

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 tpredictor 
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GDAX shows volume and price. But, it is a single network. I do agree, however, there is significant risk of gaming. Coinbase charges high fees, as well. Well, that's why I like the pure programmed price stream. It also does away with having to pay the exchanges for real market data.


GFIs1 View Post
1) As long as there is not a real time volume with the price it is the same as for trading Forex.
The missing part in Bitcoin et al. is a large handicap for a trader. Apart of the large volatility implied.
2) Growing number of banks creating own coins right now are a danger to trade only one coin comp.
Of course the banks see their transactions fading - so they are forced to invest into new possibilities.

GFIs1


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interestingstuff
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any idea when cboe will roll out bitcoin futures?

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Pedro40
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tpredictor View Post
There is another way to value Bitcoin.

That is just it. You can come up with 5 different ways to evaluate it and any of them could be right, except we wouldn't know, because what really right is the current price. And the current price can go 20% up or down in a week, so even the current price is wrong!!!

Bottom line: Nobody knows what a crypto should be worth, and even if there was a scientific formula, real life beats science.

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 TMCap 
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Pedro40 View Post

Bottom line: Nobody knows what a crypto should be worth, and even if there was a scientific formula, real life beats science.

A Bitcoin is worth whatever someone will pay. Quite simple really.

It is the same acid test used against any other currency. Fiat currencies have no real inherent value. They are baseless with a massive house of debt generated cards propping them up. They are valueless however you come at it. In the strictest sense, much like bitcoin they too are worth whatever someone will pay.

Now, how does this all play out wrt Bitcoins existence? That question I cannot answer. I suspect that should crypto's ever really threaten the fiats, they will come under fire. Central governments very much want their currencies to be digitized because with that they can more easily impose capital controls when needed. But that does not mean they also want them to follow the digital model of bitcoin or other crypto's.

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 tpredictor 
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https://www.coindesk.com/bitcoins-parimutuel-problem-shorting-doesnt-pay-today/

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 tpredictor 
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What's wrong with Dimon's argument that Bitcoin will be regulated and won't be anymore?

* Previous reports from JPMorgan analyst cited that Bitcoin needed to be regulated to continue to grow.
* Bitcoin is currently appx $4,000 USD. The same arguments could have been made at Bitcoin $100, $500, $1000, $2000, $3000, $4000. That's a lot of times he was wrong.
* As long as Bitcoin maintains at least some value, it will continue to have utility.
* There is some probability that all other currencies will go to virtually nothing (in relation to Bitcoin). It is not likely but it is enough that some fund managers might need to buy 1% to 2% Bitcoin as a hedge. That is potentially a huge amount of money.
* Cyclical tops still a distinct possibility. My initial funds have finally cleared Coinbase. I am watching for any signs that other any opportunistic traders might no longer be locked in and inclined to sale out leading to subsequent return to test 3500.

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 tpredictor 
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Interesting take...
The Bitcoin Bubble and a Bad Hypothesis | The National Interest

However, if Bitcoin were truly able to be exchanged without frictions as originally promised then the utility value could represent the entire sum of fees required to exchange money globally.

This reminds me of something I've been thinking about: why do traders accept black swan risk? It is strange because taking black swan risk is in not in the interest of any short term trader. So, you'd think if both parties do not want something to exist then it shouldn't exist by design or virtue and yet it does. How can we resolve such a strange paradox?

I believe the resolution to paradox might be that the largest traders do not make their money off short term speculation but rather tend to be lower frequency traders. And, basically to gain access to their markets you have to play by their rules which aren't to any short term traders advantage. It's a great question though.

Of course, there are binary options but these markets aren't as efficient. This is why I like the idea of moving to parimutuel, zero friction, binary options trading. This is a win-win solution for traders. In essence, the way it works is all we agree to bet on the market with zero frictions up or down at every given turn and the money that we bet is returned to us in accordance with what was put into the pot.

For example, imagine there are 2 traders on a given turn and both bet the market will be higher in 10 minutes. Market is higher. Okay, you just get your money returned to you because no one was wrong. Now, let's imagine that one trader bet higher and the other low, now you get to collect 100%.

If you contrast this to how binary options are traded today on exchanges, it is different. There is a market maker, also known as a middle man, who will stand on both sides of the market to always take the other side. But, often as a result of the market maker, you give up some edge. The explanation is that it is because he is taking the risk but he's not needed. We can trade binary options at the true mid point. No one needs to stand on either side to make the market.
Basically, instead of giving up the bet to the market maker, you give it up to the market.

So, in the traditional market maker model for binary options: you need to beat the market maker to profit. However, in a zero friction market, you need to beat the other traders or rather your profits aren't guaranteed but rather the result of your relative advantage. But, you need enough people to bet against. What's nice is you can get bet with a tiny edge which also probably will encourage more betting. If you have a big edge, you might prefer to go the market maker because you can be sure you will get payed off. As most discretionary technical traders have small edge though, it makes more sense to bet in the zero friction model.

Of course, one might imagine okay if one is always getting their money returned and not making anything then that wouldn't be much fun. However, if a market has zero frictions then surely it would attract more and more short term traders. And, surely, at least some of those traders will get it wrong. The other way described is that the money goes to whoever predicts the most precisely but I'm not sure I like that because it introduces more risk.

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Pedro40
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tpredictor View Post
What's wrong with Dimon's argument that Bitcoin will be regulated and won't be anymore?

He probably meant by regulation that the government should OK it (owning, trading it has to be legal)and the taxation should be straightforward about the gains. With the possible impending government ban, institutions can't risk to touch cryptos...

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 tpredictor 
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If Bitcoin was known to be limited quantity then what can explain the rise or fall? New use cases. I think that's the consensus analyst thinking. I have also been thinking about whether it would be possible for someone to corner the Bitcoin supply because the user doesn't really care what the price is as long as its stable. So, they are a price taker. But, the problem with any sort of notion of that is that (1) bitcoin is expensive to mine and (2) there are still too many coming into the market. The miners are forced to sell.

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 tpredictor 
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Here is something interesting... note the following

(1) Bitcoin is limited
(2) It is possible to spin off infinite copies of Bitcoin
(3) Thus theoretically Bitcoin isn't limited at all.
(4) Bitcoin has no intrinsic value.

However, what might be mildly interesting is that it is possible for someone to actually give intrinsic value to Bitcoin by offering a guaranteed exchange rate. This is equivalent to placing a bid in the markets for all the Bitcoin at a given price level. For example, someone might offer to "back" all Bitcoin, in contract, for say 1 gold bar. Now the coin is "backed" and has intrinsic value. But, it goes beyond a bid which can be pulled by being a binding contract.

Okay, 1 gold bar isn't enough. But, if a consortium or large investor were to come out and back Bitcoin via trust to something tangible, say 3 to 21 billion worth of gold then any new alt coins cannot gain the same transaction without say an equally large backing. There is interestingly nothing preventing anyone from buying the bitcoins first and then backing them. I mean that they are no longer equivalent provided the the agreement is binding, non reversible, transparent, and viewed as serious.

(2)

But, something else curious happens: if someone were to back them at say $100 to $1,000 a coin then they would never have to pay out because rational traders would always step in and buy them above the floor.

What's wrong with this analysis? If (2) is true then one can argue that the actual gold/backing serves no purpose because it will never be called. But, clearly it does or else the price could fall below the call level.

The only way I can see it gets called (assigned) is if they are regulated in such way they lose all value. In the case where for example it becomes illegal to exchange bitcoin for currency, the backer would be called as last resort.

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Pedro40
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tpredictor View Post
(3) Thus theoretically Bitcoin isn't limited at all.
(4) Bitcoin has no intrinsic value.

Bitcoin is practically not limited (but theoretically is), because of the existing cryptos. Also just because something is limited that doesn't give it value itself. And it does have intrinsic value, but :

1. It is impossible to value correctly.
2. Even if you value it correctly, it is meaningless because it is the market that determines its price, not the intrinsic value.

Because of these 2 points, its intrinsic value is rather irrelevant.

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 tpredictor 
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Okay, let me make it more clear: if a consortium of random people decide to get behind Bitcoin to back it with some sort of backing and if that backing is more sufficient to not be easily duplicated then they will have in-effect created a monopoly coin which can appreciate without competition. Anyone or any group can do this.

It is in effect, the gold standard. I mean theoretically, you or I or any random person could do this. Does it change anything? People say Bitcoin can't be valued because nothing backs it.

The bids in the market are the only thing that back it. However, if someone wanted too they could create a legal entity to back it. If the backing is sufficient, it cannot be easily duplicated and it provides a price floor at which Bitcoin can not fall below.

You could make the min redemption something like say .1 Bitcoin. There are 21 million Bitcoin, to back it at say $500 per Bitcion, you would need around 11 billion dollars. This would be sufficient. But, you'd need to back it in gold, I think. I think the bid backing is probably around $250 or so. At that level, you'd need only 5 billion dollars/equivalent gold. It should be known also that a consortium of bankers could also back a competing or similar coin. They could do this in concert with offering trading on that product. This could be guarded against by going ahead and creating a private internet backing.

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 tpredictor 
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One of my best posts.... explains how to value BTC using basic mathematics and your own intuition

One way to evaluate whether to buy BTC or at what price is you take what you think the low value should be and the high value and you take the mid point. If you can buy in lower then that price then you might want to buy in. On that valuation, I see a few things that make sense. The assumption is the current value of BTC is just some random variable between the low and high and that all prices are equally likely.

Based on current data, I think BTC is most likely worth between

Highest Probability
$2000 and $8,000
FV = $5,000. If you can buy in below $5,000 then it suggest you should buy.

Longer term
$1500 and $10,000
FV = $5750

Widest reasonable
$200 and $30,000
FV = $16000

---
Update slightly revised way.. you calculate what you think it would be at worst case scenario what you think it would be worth at best case scenario for the low and high of your range.

If BTC goes to $200 then I think it would be worth $600 in best case.
If BTC goes to $200 then I think it would be worth $100 in worst case.
If BTC goes to $8000 then I think it would be worth $16000 in best case
If BTC goes to $8000 then I think it would be worth $3000 in worst case

Now you can do it again and average those estimates.

I did it twice and my estimate is between 4925 and 5380 which FWIW is similar to my other estimates.

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