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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

  #21 (permalink)
Pedro40
Pittsburgh, Pennsylvania
 
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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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  #22 (permalink)
 TMCap 
Edmonton, Canada
 
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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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  #23 (permalink)
 tpredictor 
North Carolina
 
Experience: Beginner
Platform: NinjaTrader, Tradestation
Trading: es
Posts: 644 since Nov 2011


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

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  #24 (permalink)
 tpredictor 
North Carolina
 
Experience: Beginner
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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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  #25 (permalink)
 tpredictor 
North Carolina
 
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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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  #26 (permalink)
Pedro40
Pittsburgh, Pennsylvania
 
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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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  #27 (permalink)
 tpredictor 
North Carolina
 
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Platform: NinjaTrader, Tradestation
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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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  #28 (permalink)
 tpredictor 
North Carolina
 
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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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  #29 (permalink)
Pedro40
Pittsburgh, Pennsylvania
 
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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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  #30 (permalink)
 tpredictor 
North Carolina
 
Experience: Beginner
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Trading: es
Posts: 644 since Nov 2011


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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