Novogratz's Crypto Trading Desk Lost $136M in Nine Months
bloomberg.comThe article is missing some critical details.
What does the fund do? The article suggests they do arbitrage. Those opportunities actually tend to increase when things are volatile. Also while you can lose money doing it you wouldn't expect a precipitous collapse in NAV. If you discover you're slower than everyone else you can shut down.
Volumes aren't necessarily correlated to price either, so that isn't entirely convincing.
I've also heard that plenty of arb guys are doing fine.
If he's speculating and not just running arbs, what is he doing? If he's just punting the cryptos that would seem more in line with what's happened, but it's not clear what he's up to from this.
Also, with arbitrage it's limited how much capital you need. A lot of HFTs use very little. If you're getting money like a hedge fund you have to be sure it can be put to use.
Ex HFT and fund manager.
This interview[1] sounds like they called bottom at 6k and then the floor fell out: "We thought it was a bear market. I went into it thinking in the long run crypto is going to be a real structural shift in the world and I can just hedge my portfolio. And to be fair, we did a really great job not losing money the first 60 percent down. What you forget is that a market like Bitcoin that’s down 84 percent has dropped 60 percent—and then another 60 percent. That’s where the pain happens. You start buying Ether again, because it’s only $400 after being at $1,300. But then it drops to $100, and you’ve lost 75 percent of your money. We haven’t done horribly in that context, but we’re still down. [...] I did think Bitcoin was going to hold at $6,200. It stayed there for four months. It felt like the selling was finished."
[1] https://www.bloomberg.com/news/articles/2018-12-11/mike-novo...
"Felt like". That's beautiful. The dude had a feel and lost the equivalent of 2300 years of labor (at the US median income).
There's this bit in Taleb's first book, "Fooled by Randomness". This was before he made a shit-ton of money. He pointed out that a lot of the nominally successful traders he worked around would declare a strategy, make a few bets, make a lot of money, and then act like geniuses for thinking up the strategy. However, they'd never really examine the obvious alternate hypothesis: they got lucky.
I used to work for a proprietary trading firm. We'd get new traders by taking very confident, driven people (e.g., former Olympic athletes), making them be clerks for a while, and then turning them loose in the pits. The CFO kept a very close eye on them early on because their natural confidence combined with early successes lead them to believe they were gods. It wasn't until they got really hammered by a bad bet or two that she'd begin to trust them.
It reminds me of a favorite line: "Every corpse on Mount Everest was once a highly motivated person with a can do-attitude."
Honestly the schadenfreude is real. What part of the crypto graph made him believe he could make assumptions about, well, anything?
I hate to admit I agree, but I have to be honest too. That is spot on.
I was pretty sure $6-7k was the floor for BTC, and it’s interesting to see a high-profile fund manager made effectively the same, expensive mistake. The biggest surprise for me, though, was ETH, which given its better fundamentals, I had thought would be where the market went after Bitcoin popped – and yet, it was not only dragged down, but crushed even harder than BTC.
It was interesting to watch the crypto subreddits and see so many people make the same mistake. I was surprised that $6K held for so long, because if $6K really was the bottom, it would've been a pretty shallow drop from a very steep bubble. That's only 2/3 down, and it was the point Bitcoin hit in Oct 2017. Bitcoin was < $1k at the start of 2017. Any reasonable rate of return would put its price at under $2k if you ignore the bubble and focus only on fundamental metrics. Plus bubble busts tend to overshoot fair market value, where the underlying asset actually trades at a bargain because so many people got burned buying at the top.
The ETH drop is fairly easy to explain - it was the base asset for a very interesting double-pyramid-scheme on the way up, which meant that that leverage works in reverse on the way down. The ICO boom worked because many of the people investing in ICOs had bought their ETH for pennies and already recouped their costs; throwing $40M into a shitcoin makes a lot more rational sense when that ETH actually cost about $4K in real money, and the factor of 10,000 difference is the price appreciation of the asset you're putting in. That led to eye-popping dollar valuations for many of these companies (even though they were actually raising in ETH), which brought more newbies into the Ethereum world, which pushed the price even higher, which meant later ICOs were raising even more in dollar terms, even though the actual dollar amounts traded were tiny.
On the way down, this cycle works in reverse. Those ICOs don't actually hold $40M in a company bank account; they hold 33K ETH which was worth $40M at the peak. Now that ETH is down to $94, they hold more like $3M, and they're getting scared about being able to pay salaries. So every ICO that still holds ETH is trying to liquidate it for dollars, but they're fighting over the much-reduced pot of money that is coming into crypto now, which drives the price down every time somebody wants to sell.
Personally I still think we're not at the bottom yet (for either ETH or BTC), but we may be getting close. We're at the bottom when companies start going bankrupt, Solidity engineers start getting laid off, and people start going to jail. Assuming it's not all smoke and mirrors and some useful infrastructure was actually built, it'll be the buying opportunity of the lifetime then, because everyone will think this whole crypto fad will be totally over and you'll be able to buy up that infrastructure at really cheap prices.
Re: your last paragraph
But if everyone thinks that (and most people who think crypto isn't all shit do think that), the bottom will be a lot softer than what you describe (modulo people going to jail, I think this is mostly independent of the value of crypto).
It's the efficient market hypothesis all over again.
What "fundamentals" exist for Eth that allow it to be valued at a specific price point? Eth has no earnings, no assets, and no liabilities. Its intrinsic value is close to 0. It could be totally wiped off the planet tommorow and almost nobody besides crypto traders would care. Crypto trading should be based on technical analysis not "fundamentals".
Adoption and projects using it. Like any currency, ETH becomes more valuable when you can spend it on more things. It's the base currency for a whole infrastructure of distributed trust & settlement; if useful economic activity occurs on top of that infrastructure, ETH gains in value proportionally.
Ok, but the whole idea behind fundamental analysis is that you generate a specific value of worth based on your analysis. So what formula are you using to calculate a price point for Eth based on "adoption and projects using it"? Are you tracking all projects using it, and assigning it a dollar value based on a per project usage and cross-checking that against the number of ways you can use it? Or are you just guessing? Because if you're just guessing, that's not a fundamental analysis.
I actually am, to most of those points. I'm indexing every forum & blog on the web, then cross-referencing it with a big long list of crypto projects, then using that to infer which projects have an active, involved, growing community and which are scams or dead. Sentiment, activity, and viral mentions aren't a perfect proxy for adoption, but it's pretty close, and a lot more robust data source than technical analysis or previous prices, which by their nature will always be a lagging indicator.
Still in closed beta with a very limited set of testers - I've been working on a lot of the kinks in the data acquisition, which as you could imagine is a little tricky. If you want to get on the wait list, signup is here:
That is very interesting, but it does sound like you’re measuring engagement (or, less charitably, the effectiveness of the self-organizing distributed boiler room of patio11 fame) rather than, say, assets and earnings.
I’d call the latter “fundamentals”, if only because I don’t see why engagement would provide a price floor at e.g. 1000 $/BTC rather than at 10k $/BTC or 100 $/BTC?
While engagement as in just tweeting doesn't provide a price you can do an estimate by (number of fans) x (amount they'd like to have invested) / (number of coins) = (estimated price)
eg 20 million BTC investors want to have $10k in BTC, 20 mil coins available => the price should be $10k
obviously some guess work in there
That's fair; props on all of the effort you've put into that! I'd imagine one of the toughest challenges is subtracting the volatile "layman demand" and gamblers to get to that fundamental value derived from actual users.
The nice thing about indexing the whole web is that you also have a complete per-author picture of everything they've written. Shills often post the exact same message on many different sites, or talk exclusively about one project and nothing else. Gamblers & laymen tend to pop up abruptly when a project gets hot, and then quickly either disappear or move on to the next hot thing. When a veteran user with a reputation for detailed, often-quoted posts starts talking about a particular project, though, and keeps talking about it, usually there's something real there.
What are the chances those projects will generate income and pay for ETH?
Can those projects work without a blockchain? Would it be cheaper to just handle stuff with (digital) signatures and old fashion contracts?
My investing thesis for crypto is this:
The cryptocurrency projects that will survive and thrive will be those that let people do things that are insane, and yet they want to do anyway. It'll be new markets where currently no economic activity is taking place, because the participants cannot trust each other (or make use of the legal system to trust each other) enough for any rational actor to consider transacting. Cryptocurrencies, of course, alter that rational calculus by letting you put trust in an anonymous network of worldwide miners to secure your transactions.
Think of some of the biggest companies created in Web 2.0. Facebook - who in their right mind would give Mark Zuckerburg all of their personal data so they could hook up with that hot girl in the dorm across campus? AirBnB - people actually invite strangers into their homes to stay with them? Even the founder and first investor call that "The worst idea that actually worked." Uber - you're going to get in a car with a complete stranger and pay them to drive you places?
(Interestingly, all of these are markets that are well-positioned to be disrupted by cryptocurrencies. The key elements of an EBay/AirBnB/Uber-type marketplace are 1.) ability to connect latent demand for a service with people who can supply that demand 2.) ability to receive payment and 3.) a reputation system to ensure that the service was performed reliably. Right now, the UI & scalability properties of crypto are not good enough to let them replace these centralized marketplaces, but all of the information involved could easily be stored on a blockchain rather than a database, and with current Ethereum transaction costs at 0.07c and most of these tech companies taking a 20% cut, at some point the economic incentives to replicate them will become huge.)
We've actually had a couple of these killer apps for cryptocurrencies - buying drugs off the Internet, and ICOs. In both cases, any normal, rational person looking at the behavior is going to be like "What? Are you crazy?" In both cases, people do it anyway, presumably because they really really want to buy drugs without having to meet in person, and because they really really want to invest in startups but otherwise can't.
If you can service a market with databases, digital signatures, and old fashion contracts, you should service it that way. Blockchain is useless for anything that people are doing now, because if they're doing it now, there's already a way to accomplish it.
Not sure I buy the insane bit. Airbnb, Facebook, Uber, drugs on the net and ICOs were proceeded by traditional B&Bs[0], showing holiday snaps, taxis, traditional drug dealing and traditional iffy investments. It's just new tech either did things better or allowed skirting of regulations, licences and the like.
I think there may be a future in security token offerings, a more regulated less scammy version of ICOs, kind of like traditional stock listings but cheaper and less Sarbanes–Oxleyed.
[0] https://www.streetdirectory.com/travel_guide/212726/travel_a...
Sounds like you’ve invented coinrank. I dig it.
6k was the bottom and then a black swan event happened, at the worst possible time, when Bitcoin Cash forked again and the owners of the two forks had to childishly sell tons of bitcoin to fund their hashpower war. I don't think that was a predictable event.
And which event is really predictable in the world of speculating?
The article suggests they do arbitrage.
They blamed their failure on "increased competition for arbitrage opportunities." Properly, arbitrage is low risk exploitation of differences between two markets in the same thing. Cryptocurrencies used to look like they had arbitrage opportunities, with differing prices between exchanges. Mostly, that was because it was so hard to pry cash out of the underfinanced cryptocurrency exchanges. They always had some excuse for delaying paying out. Arbitrage requires the ability to move cash quickly from one exchange to another.
As that situation improved, the spreads between exchanges narrowed. Opportunities for low-risk arbitrage disappeared. These traders reacted to this by going into higher-risk forms of trading. Which is about typical for traders. It didn't end well.
You need volume for liquidity which you need to execute the arb.
So, for instance, cryptoA trades for $99 on exchange 1, but $101 on exchange 2. Quick, buy on exchange 1 and sell on exchange 2!
Congrats you made $2 on each trade x 5 cryptos. That is hardly enough volume to make it happen.
Now imagine that the volume is so thin that after you bought the first one on exchange 1, the price gap closed, and by the time you sold on exchange 2 it collapsed.
Don't forget to throw in significant counter party risk in dealing with fly by night exchanges. There's a non-zero chance that your entire balance held at an exchange disappears overnight.
I also hear arb is doing fine.
I wonder how it works though. Most exchange APIs are terrible and it is simply not technically feasible to do anything using those APIs.
Also prices at too many exchanges move in absolute lockstep.
Must be private, privileged access to better (internal) APIs, profit sharing, rip the face of "retail" investor kind of deals.
After all the "exchanges" are not really exchanges as we know them in other markets. They're more like forex trading.
I think the crypto market would benefit from a (semi-)regulated impartial exchange where other firms can become members and act as brokers to direct retail flow.
But unless there's some sort of regulation about it it would just be a private business that could kick out any member for any reason. To much risk for the members.
Forget the 3rd party exchanges with their homegrown APIs. If you are dealing with size(1k+), you go straight to the CME and trade crypto futures contracts. Dealing with the CME also adds the regulation necessary(ie CFTC) for your investors.
You bypass the API completely and fill orders "manually".
What do you mean by "manually"?
The general web page of an exchange is horrible slow compared to their APIs and often breaks during high volume periods.
Did you run into latency problems doing arbitrage this way? Or do you rely on API's?
I didn't do arbitrage but running bots for statistical data via API. I think latency is not even the big problem, although of course you have to account for it when doing arbitrage. The latency can be quite high even during calm periods (also don't forget that exchanges can be on different sides of the globe, that already adds quite a bit of latency).
During times of high volumes as in the period of the last rally, the websites of many crypto exchanges break easily and even the API are not that stable.
You can also see that on reddit. Every time the price spiked, you got people complaining about exchanges breaking. There's still a long way to go for crypto exchanges.
Any arb strategy requires holding reserves, so while the amount of the asset you can afford may increase by 4% per month, it's not a great business to be in if you're measuring from the start of a bear market. Same goes for a lot of stat-arb funds in the space, which are currently measuring their performance against the market, but which are significantly down YTD.
I think you're completely right that his fund isn't just performing straight up arb. In fact, I don't think it can generating most of its P&L from arb since (from what I remember at least), Galaxy Digital simply has too much capital to put it to use with an arb strategy alone.
My guess is that his fund got locked into a levered position on one of the exchanges like BitMex for trying to trade too much then couldn't get out for 24 hours. This kind of thing is more common than you might expect. There are also very few exchanges that allow margin trading, leverage or shorting, and all the ones that do have, uh, questionable compliance practices.
I mean, given how hard cryptocurrencies crashed this year is it really a surprise? The only way for him to make money would probably have been to short everything continuously but seeing how irrational and easily manipulated the cryptocurrency market has been in the past that seems rather foolish.
Given his pedigree you'd think he'd know better than to bet on something that's 99% pure unbridled speculation and 1% actual technology. It's like knowingly investing in a Ponzi scheme, what did you expect?
One of the best kept secrets in the hedge fund/financial industry is that most people really dont have a clue what they are doing. Sure they make bold predictions, appear on CNBC and use industry jargon. But at the end of the day, they arent much better than you or me at managing large amounts of money.
to back this up, read the expose in the economist this week about family offices and how they all divesting from hedgefunds because the fees are ridiculous and they are doing no better than the S&P, usually worse when you take into account the onerous fees those mgrs are charging.
To be fair, when you have $100 Million, the goal of the game is not "growth", but holding onto that money.
$100 million isn't much different from $108 Million (8% gains over the year)... or even $500 Million. In both cases, its still more than enough money to live on for the rest of your life. The S&P 500 has dropped 50% in the past (ie: 2008), and it doesn't make sense to risk that much money on that.
You can't use bank accounts: FDIC insurance only covers $200k per bank. You'd literally need 5000 different bank accounts to hold $100 Million safely. So what do you put it into?
Answer: things that don't grow as quickly as an S&P500 fund. Things that are safer: municipal bonds, international (German, Japan) bonds to hedge the dollar, and US Bonds. Maybe some high-quality corporate debt, like Apple's debt, and maybe a real-estate project or two.
All of which probably returns less than the stock market. But your $100 Million will still be there in the next crisis. That's not necessarily true for an S&P500 fund.
------------
Finally, the average volume of Vanguard Total Market ETF is only ~3-million (at a price of ~130 or so). Which means that Vanguard Total Market ETF only has ~$300 Million changed each day.
If you pump $100 Million into an ETF with only $300 Million worth of daily average volume, what do you think will happen? You'll over-centralize the price and get a bad deal. Its not easy to move $100 Million, even into a major fund like Vanguard's Total Market ETF, without a manager.
At $100 Million+ size portfolios, you need to start thinking of Dark Pools of Liquidity (ie: somewhat hiding the order book). So that when you execute the buy order, the wolves of Wall Street won't own you.
$100 Million+ accounts don't work the same as a normal account. Pump that into the market in one day, and the price will rise dramatically. Sell that in one day, and the price will drop dramatically (losing a % of your value on both legs of the transaction). Having an expert guide you, so that you can minimize Bid/Ask issues, is essential.
Vanguard's AUM grew by about 1 trillion last year. This hypothetical 100M is 1/3rd of a day of that - and one almost certainly doesn't move all of it in a single day. Nor is one likely to keep all of it in a single fund. Once you have a bog-standard stocks/bonds/cash/maybe RE split, 100M isn't moving the market. I think you're off by an order of magnitude.
Where you're right, of course, is that 100M justifies considerably greater attention to the money management. But the biggest focus is tax efficiency, not the micro details of the market.
>You can't use bank accounts: FDIC insurance only covers $200k per bank. You'd literally need 5000 different bank accounts to hold $100 Million safely.
Not that it’s a good idea, but there are other ways to insure cash than the FDIC.
One example, apparently Massachusetts offers unlimited insurance for banks: https://en.m.wikipedia.org/wiki/Depositors_Insurance_Fund
(Also, 100M / 200k = 500, not 5000)
Massachusetts?
> Q: Is the DIF a federal or state agency?
> A: No. The DIF is a private, industry-sponsored insurance company and is not backed by the federal government or the Commonwealth of Massachusetts.
Other side of the coin here..you can take that 1 million USD and dump it in a single order into the ES - you won't move it more than 1, 2, or maybe 3 ticks. This assumes you are using full day margin rates - if you are using overnight rates, you won't move it a single tick. Securities and ETF's are amateur hour for real sums of money. You'll need hundreds of millions, or billions, to move markets with the depth of the ES, ZB, TN, and other commodity futures.
>>> You can't use bank accounts: FDIC insurance only covers $200k per bank. You'd literally need 5000 different bank accounts to hold $100 Million safely. So what do you put it into?
Interestingly, there is a way to easily do that. The first project of my career (back in 2002, and still active!) was at a FinTech startup (https://www.promnetwork.com/solutions/depositors) with a product (https://www.cdars.com/) that does this transparently by opening up all the bank accounts and doing the map-reduce for you! Single statement, fully FDIC insured.
...and there are always t-bills
> To be fair, when you have $100 Million, the goal of the game is not "growth", but holding onto that money.
What's your evidence for that? Sure, they don't want to lose, but nobody does. And if anybody likes to get richer, it is pretty clearly rich people. Even the charity-focused ones want to keep increasing their resources, as that lets them have more impact.
> What's your evidence for that?
The worldwide bond / debt market exceeds $100 Trillion. While the worldwide stock market is only $69 Trillion (sum of top 60 exchanges)
https://www.visualcapitalist.com/all-of-the-worlds-stock-exc...
It is clear that Bonds are more popular than Stocks, by a factor of ~50% or so. The rich are buying up debt in far greater numbers than stocks. And EVERYONE knows that Bonds make less money.
I know some of it is cultural. My Chinese friends tend to own real-estate. But it seems like around the world, all major investors favor the lower-risks of Bond investing compared to Stocks.
Your evidence for what wealthy individuals do is... the total size of the global markets? What evidence do you have that their portfolio weighting matches that?
This is literally what vanguard has been saying doe 40+ years and is their main business model.
An opinion shared by Warren Buffett. He bet a hedge fund guy $1m that an index fund would beat a portfolio of hedge funds. Buffett won handily: http://longbets.org/362/
I'm a complete layman whose only knowledge of the financial system is derived from podcasts and magazine articles, and hindsight is always 20/20, but wasn't this always an obvious sucker bet?
As I understand it, a hedge fund is supposed to be, well, a hedge. It's not supposed to make more money than the market when the market's doing well. It's supposed to be uncorrelated from the rest of the market, with the hope that it can maintains or even gain value in the event that the rest of the market tanks. An asset class that could reasonably be expected to substantially outperform both a bull market and a bear market isn't a hedge against anything, it's just a strictly superior asset class and we're pretty good at arbitraging those out of existence in relatively short order.
With that in mind, doesn't this basically devolve to a bet that at least a whole decade's worth of economic growth was going to be consumed entirely by a massive recession? That's not wholly unprecedented, admittedly, but it is a lot rarer than I'd be comfortable putting any money on at flat odds.
What am I missing?
"hedge fund" is kind of a misnomer these days. They started out as actual hedges, but now refer to basically any fund that makes use of complicated securities and active management.
But, yeah, it was likely a sucker's bet.
Yes, it was a sucker bet. The funds Protege picked were actually funds of funds that basically had a .6 correlation to the S&P 500. So Buffett was almost guaranteed to win if the markets went up over 10 years, and lose if they went down. And it's very rare for the market to be down over a 10-year period.
Honestly I have no idea what Protege was thinking.
Probably he was thinking that there was small chance that the hedge funds would outperform the S&P, and in that case, it'd be a hell of a PR move, which he could leverage to get more AUM. From a game-theoretic point of view, it's possible the bet had a positive expected value for him even if he knew he'd likely lose.
And Warren Buffet was wrong. The hedge fund manager made more money than what the customer would have done in an index fund.
I'm not following. Buffett won the bet. The portfolio of hedge funds did worse.
If you're saying the hedge fund managers themselves make money, sure. That's Buffett's exact point: they pocket money, but that money isn't going to the customers, which is why the hedge fund portfolio's rate of return ends up lower than the index fund.
I'd say the exact opposite. One of the best kept secrets in the industry is that people know exactly what they are doing.
There are plenty of positions that are stable and low risk. Like running the exchange itself, all sort of middlemen and some form of arbitrage.
A hedge fund is mostly about funneling as much of customer money as possible to the fund manager. It's a fairly straightforward and risk insensitive business.
The strategies that tend to work are boring and low capacity, so they don't get much advertising, and people don't hear about them.
There's a massive saliency bias in that the strategies people are most likely to hear about are ones with some excitement behind them – that gives people a massively distorted view of hedge funds.
I am beginning to wonder, seeing the increased rate of hedge fund liquidations this quarter.
It's always sad when I get my upwards of 10 percent by professionals. I personally get 500-1000 percent return year over year. I'm working with small amounts of money that if I lost entirely wouldn't be the end of the world. But some years they barely beat inflation.
> I personally get 500-1000 percent return year over year.
Numbers like this are always quite funny to me. What does year over year mean in this context? 5 years? 10?
If you would start with $1000 then in 10 years you would be at approx. 976 million with only lower part of your profits (500%).
Its personal investing so I pull profits to use for myself. And find something else to invest in. I usually keep around 500 invested. Not a lot of money but if I lost it all it wouldn't be the end of the world. It's been over the course of 15 years. Sometimes 10-15 trades in a year. But over a two year period with two trades it was 6800%. I'm not attempting to brag, I'm just saying the professionals are not any better than an ametuer. They are bad at their jobs.
The difference is professionals manage amounts that can buy more than chicken tendies.. some strategies don’t work at scale.
And apparently they are terrible at scaling.
How??
You think he'll tell you for free? Nah. To learn the amazing secret to claiming to make a lot of money, you have to send him a lot of money. There are rules.
Or buy this ebook for $9.99. Thousands of dollars in value, only $9.99. Get in on this limited offer!
He'e eluding(likely) to the commodities market. You can make double your money on a mediocre trade. You can also lose 100% of your money on a similar mediocre trade.
Nope just straight stock with my Scottrade account. In my younger years 77 dollars of stock ended up paying for a pretty decent copay for a surgery.
Alluding. :)
> Given his pedigree...
Novogratz is a fun character and a good fundraiser, but he doesn't have a pedigree as an investor. He became famous (and a billionaire) by taking Fortress public. Under his watch, it then went from $35 to down below $2. After he was demoted, he ran a macro fund there which performed awfully and, in 2015, it was shutdown and he was forced into "retirement".
I was in his office chatting with him a year and a half ago, on the exact day of June or whenever the market hit its bottom, and he called that that day was the bottom. He does things that don't always make a lot of sense to me, but he wouldn't be a billionaire if he wasn't getting a lot of stuff right also.
E.g. he also bought 500k worth of ETH and sold it for 250M. Paid his taxes, bought a new plane, and donated the rest to charity. His LPs might be nervous, but he's probably doing just fine.
Hard to verify what you're saying. June wasn't a bottom for ETH and the most he could've made with that trade was ~4x.
But even if you're right and he did make a great trade, that doesn't make him a genius. He's a gambler and sometimes gets a great hand.
He was super bullish on EOS before it tanked. He very publicly called a bottom[1] for BTC on Sept 13th when it was $6,300 and it's down by ~50% since.
[1] https://twitter.com/novogratz/status/1040288811643809798
Ahh I was thinking of July 16th, 1017. ETH went from over $400 in June down to $133 in July.
https://coinmarketcap.com/currencies/ethereum/historical-dat...
> "Huge gains in production from Texas, California, and Oklahoma quickly eliminated the regional shortages of 1920 and induced a downward trend in bitcoin prices over the next decade, with bitcoin prices falling 40% between 1920 and 1926. The decline in demand associated with advent of the Great Depression in 1929 magnified the price impact of phenomenal new discoveries such as the gigantic East Texas field which began production in 1930. By 1931, the price of bitcoin had dropped an additional 66% from its value in 1926."
paraphrased from https://econweb.ucsd.edu/~jhamilto/oil_history.pdf
Passive retail traders were never in commodities trading. Retail trades stocks. Retail has been trading digital assets like penny stocks. GTFO of the digital commodities market if you don't swing trade supply and demand or actually use it.
I keep rereading this comment, trying to understand what you are trying to say.
Commodities are volatile and seasonal
Bitcoin is a commodity steered by the same level of supply and demand pressures but held to a higher fictional standard by people that trade and evaluate it like a different asset class (equities)
It's not really a commodity like oil. I feel The Onion was closer in calling it "crazy imaginary internet money" https://www.theonion.com/bitcoin-plunge-reveals-possible-vul...
Why isnt it also a commodity like oil? it is the fuel for its blockchain. You cant use that public resource without it. It is built to plunge and surge just like oil prices do, based on supply and demand, which also comes in seasons just like oil.
Most commodities have seasonal patterns. Bitcoin trades like those.
It isnt controversial when a conmodity plunges and surges. Its actually better for different parts of the population at different times.
I like how cryptocurrencies were launched as an alternative to central banking, wresting control of money away from the government and big banks. An open and level playing field that would democratize how people transact financially with each other.
And then the first thing the early adopters did was recreate the flawed financial institutions that surround "real" money so that they could pretend to be Gordon Gekko and throw around words like "arbitraaaaage".
Is there data on what percentage of cryptocurrency transactions are "Real, actual, humans buying and selling real, actual, things or compensating each other for their ideas and thoughts" and what percentage consists of "traders shouting at each other in the echo chamber"?
Haven't run the analysis myself (yet - it's awfully tempting), but it seems like you could get rough numbers of this by computing the volume of on-chain transactions (excluding transactions to known exchange wallets) vs. the volume on all exchanges. The idea is that if you're just trading crypto for price increases, it's much more convenient to do this on an exchange where you receive either another cryptocurrency or fiat, while if you're exchanging it for goods & services, there's really no way to do that other than a wallet app. On-chain transactions would also capture the OTC market (where traders make direct arrangements to transact with each other), but you could perhaps avoid that by filtering out large transactions.
Actually, it's pretty easy to run these numbers for a rough ballpark. About $2.1B of Ethereum (22.7M ETH @ $94) was traded across all exchanges in the last 24h. 3 ETH is mined every 10sec or so, so that's about 26K from mining, probably not a large contributor. I don't have good numbers for how much ETH is traded per day, but it's 5.7 TPS, so about 490K on-chain transactions per day. A quick glance at recent transactions shows maybe an average of 0.2-0.3 ETH per transactions (heavily skewed - the vast majority are for 0.01 ETH, and then maybe 1 out of 50 will be a 10 ETH transaction), so that's about 100K ETH/day. The figure of roughly 99% unbridled speculation and 1% actual technology sounds about right.
The CME started trading futures contracts for BTC in December of last year. Since then, it's been a downward spiral in terms of price. With the CME involved, it means banks(let that sink in) are trading against you. Their pain threshold exceeds yours(and all of ours), and you will lose every time betting against them.
I don't think CME is the reason prices have plummeted... My hypothesis is that there was no particular reason for the crash except simply lack of new buyers (everyone and their dog already heard about crypto), and lots of people selling. The drop looks steep but so did the rally before it. People can't agree on the value, it's all driven by sentiment and new blood (or lack of it).
You can't call the bottom on something you can't value, Novogratz thought it was at 6000 but made the wrong bet (for now, let's see what happens on a 1-2 year timeline). He's been doing the roadshow this year saying institutional money is coming in (I had a brief chat with him in London) but I don't see any pension funds touching something this volatile with a barge pole. Not until real value is starting to emerge
Is there data on what percentage of cryptocurrency transactions are "Real, actual, humans buying and selling real, actual, things or compensating each other for their ideas and thoughts" and what percentage consists of "traders shouting at each other in the echo chamber"?
Exchanges use off-chain transactions. When you see a transaction on the block chain, it's very unlikely to be a settlement between two exchange customers because it's far more efficient for the exchange to settle on its own private ledger.
On-chain Bitcoin transactions incur fees. Aside from a group launching an attack on Bitcoin, there's little return for the cost of spamming the block chain.
All you have to do is look at the buy/sell curves. Crypto is 80% market manipulation, 19% traders and maybe 1% genuine use.
This isn't Reddit, do you have something to back any of that up with?
Manipulation can be 100% or 10%, who the hell knows?
Assuming you mean order book (=buy/sell curve), how do you arrive at 80% market manipulation numerically?
> All you have to do is look at the buy/sell curves
What the hell are buy/sell curves?
How the orders are distributed in the order book.
This is incorrect. Orders and their distribution in the order book is called liquidity. Alone, they have very little meaning, and are often manipulated in the securities and commodities market(ie: you see a 5,000 bid, and place your own 5,000 ask - suddenly the bid is gone, and your ask gets rolled by huge buy orders). "Buy/sell curve" has no meaning, the closest term would be "yield curve", such as US interest rates. As the rate climbs and falls, there are inverse effects on financial instruments.
and 100% a threat towards worsening global warming.
It depends how you view things - is buying ICO tokens compensating the founders for their ideas and thoughts?
Apparently Silk Road had sales of $1.2bn which gives you an idea of the amount of drugs traded and the turnover of Bitcoin on exchanges was about $2000 bn over the last year. So sales of goods as a percent of speculative transactions are probably <1%. Not that that means that much - FX speculation is larger than real trade for fiat also.
Turns out those middlemen served a legitimate purpose, and most of the people advocating for their removal had absolutely no idea what they were talking about.
“Remember, bubbles happen around things that fundamentally change the way we live,” he said.
Ah yes, I remember how beanie babies changed the way we all lived. And tulips, of course. And rhodium?
Hmm.
And dot-coms! And real estate! Hmm.
Ships can't ever sink when all you look at are the ones that are still floating.
This is a beautiful description of immortal time bias.
I don't remember any innovation around real estate that changed our lives within the past few decades (or millennia even).
I think ~100 years ago they really got into vertical construction but other than that (and possibly central plumbing) your point stands..
CDOs
they literally turn bad debt good
Those aren't commodities (unlike tulips, beanie-babies, and crypto).
Real estate is as old as humanity
No. Its only as old as modern society.
The idea of a private citizen owning land was not generally accepted in the medieval age of kings. Only lords and other nobility could own land back then. Technically, the king owned the land, and the Lords were simply stewards of the King... probably indirectly (King -> Count -> Lords)
Eventually, real estate could be owned by the common peasants and merchants, but that starts to get into modern capitalist style society.
For some details, see this article: https://en.wikipedia.org/wiki/Quia_Emptores
> Technically, the king owned the land, and the Lords were simply stewards of the King
This varies from culture to culture. Romans owned their land. Egyptians did not.
Tulips changed they way some of the Dutch live. They still have 11,000 hectares planted and grow 4.3 billion bulbs per year, 381 years after the so called bubble. I wonder if ETH and TRON will be about in 381 years.
With bitcoin down nearly 80% since all time high and the others down 90% (https://www.coingecko.com/en?view=all_time_high)
Not surprise anyone who came in and trade may be catching knives. Plus all the uncertainties in market participants
It amazes me that funds hold long positions in a market without safeguards and regulations and that really has yet to formalize. I'm bullish on digital currencies but there's going to be a ton of turmoil while the world figures out how to deal with this new asset class and major shake ups as regulations start to formalize or continue to formalize in some cases.
Long plays in this market are massively risky bets. They seem completely unnecessary as well. With the volatility that exists and the decent level of volume, there's tons of easy money to be made.
Normal investment funds don't pretty much. Hedge funds are less regulated and and can punt on pretty much anything.
FYI - article is from November. He's still bullish...
His stock, however, has only fallen an additional 10% or so since then
(It’s hard to see exactly on the charts, because the stock price has fallen so fast +/- 10% is now a matter of just two or three pixels)
Here’s a deep New Yorker profile of the man and his crypto ambitions from the more halcyon era of April 2018:
https://www.google.co.uk/amp/s/www.newyorker.com/magazine/20...
I found this article pretty good about the whole IPO “experience”:
https://equity.guru/2018/08/01/galaxy-digital-holdings-glxy-...
From what I read when the firm launched, I thought this operation would behave like a traditional market making desk, profiting from spreads and hedging aggressively. If anything volatility would help P&L, but I guess there just isn’t enough volume or liquid crypto derivatives to hedge effectively.
I actually thought given the size of the position, he was part of the group manipulating transactions in order to liquidate at the top. Holding those positions long term doesn't seem smart.
Picking up pennies in front of a steamroller
point? alternative investments are risky?
This guy showed up on bloomberg businessweek wearing a blazer and track pants. usually a recipe for losing that sum of money as a boomer....
You can't win in a losing market ( market capitalisation). I explained it to a friend of mine and he didn't want to hear it.
Now we're one year further and he says it will go up again... Some people just don't understand :)
You can short it on the way down, in principle.
Buy high, sell low
More proof from HN that cryto is bad.
It has its uses. It's just not free real estate.
> https://morningchores.com/free-land/
Even free real-estate has its drawbacks.
This article was published November 28 of this year. From mid-November to now, cryptocurrency exchange rates have fallen by about 50% across the board, with some much higher.
This move took many speculators, including Novogratz, by surprise:
"I did think Bitcoin was going to hold at $6,200," said Novogratz. "It stayed there for four months. It felt like the selling was finished. But then Bitcoin Cash decided to fork again."
https://www.forbes.com/sites/billybambrough/2018/12/12/bitco...
I suspect many of these speculators are betting on a quick recovery. Should that not pan out, Novogratz and many others are headed for a world of pain.
Meanwhile, Bitcoin the technology continues chugging on. The most noteworthy development is the rapid build-out of the Lightning Network scaling solution, but there's a bunch of stuff beyond that which gets almost no attention.
> Novogratz and many others are headed for a world of pain
Management fees make for good medicine.
Lightning is never going to happen. They have absolutely no idea how to scale that network or handle the routing problem. The entire system is just rife with potentials for monopolies and abuse. No consumer in their right mind would ever commit their money to it.
Even if it does happen, I don't see the point of it. Why use centralized bitcoin based transactions vs centralized USD based transactions?
Isn't the whole point of bitcoin that you get rid of centralization? But apparently people want to bring it right back with lightning.
I think you hit the nail on the head with regards to centralization.
I think there's a more important aspect here: there is very little demand for transacting in a second currency worldwide, and almost 0 demand within stable economies. As an American who does 100% of his transactions with other Americans in USD, why in the would should I introduce exchange rate risk into my daily transactions? The lightning network might be all the hotness, and I doubt that, but so long as its marked in a currency that I don't get paid in and my landlord doesn't take, I have no earthly incentive to tie up any of my hard earned money in a second currency in some lightning channel.
And that's not even starting on the absolute trainwreck that is general crypto UXD. Open a channel and tie up some of my money somewhere so I can eventually make a payment in the unspecified future? No thanks.
Lightning is never going to happen.
It's happening right now:
https://bitcoinmagazine.com/articles/progress-report-lightni...
For something that’s supposed to compete with Visa, $1m isn’t exactly “happening”.
Edit: supposedly there is $62 billion worth of BTC sloshing around out there. If you take that number at face value, then close to .0016% of BTC has been committed to the lightning network. This is not “happening” by any stretch of the imagination.
You're right in that VISA volume will dwarf Lightning Network volume for a long time.
However, you made the provably false statement that Lightning "wasn't happening." That train has left the station, leaving a surprisingly large crowd on the platform yelling at passersby that it will never happen.
"never going to happen" is a sort of valley slang, probably best exemplified in the film "mean girls" wherein one girl is trying to introduce 'that's so fetch' to the local lexicon, and her friend says "Stop trying to make fetch happen. It's not going to happen"
"Lightning" is not simply code that does indeed run at this minute - it is also the idea that Bitcoin will transcend into a pragmatic currency with the widespread usage of this 2nd-layer interface that can handle more than 7 transactions per second. That's the part that's not happening.
Different definitions of "won't happen".
You're asserting that it can be turned on and it contains money. You're correct that indeed, there are some nodes containing some money.
I am asserting that the network will never be a functional way for large chunks of the population to move money around, because it is a bad design built on top of a bad currency. Under my definition, the fact that a few people interested in it have moved an infinitesimal amount of money around is mildly fascinating, but not of particular note one way or another.