Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

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Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by nisiprius » Mon Jun 26, 2017 9:24 am

One datum to incorporate into judgements of the overall risks of putting money into cryptocurrency, at the present state of the technology's development.

Ethereum crashed from $319 to 10 cents in seconds on one exchange after 'multimillion dollar' trade

My (rudimentary) understanding is that Ethereum is a new cryptocurrency, which has gotten attention from mainstream firms like JPMorgan Chase and Royal Bank of Scotland for its ability to embed some kind of automatic contracts via algorithms embedded in the transactions. Thus it can do more than just transfer cryptocurrency from one owner to another.
The multimillion dollar market sell order resulted in a number of orders being filled from $317.81 to $224.48. As the price continued to fall, another 800 stop loss orders and margin funding liquidations caused ethereum to trade as low as 10 cents.
Unlike the ETF flash crash of 2015, in which transactions that took place during the crash were reversed,
White also noted that these trades are final and will not be reversed.
Stories of serious loss due to the ETF Flash Crash of 2015 are close to nonexistent--has anyone seen any? On the other hand, it seems that real people really lost, and possibly made money as a result of the crash.
On the social forum Reddit, users complained of losing large sums of money from $3,000 to $9,000.

But it also seemed to be a large money making event for some too. On the trading forum StockTwits, user John DeMasie posted a screenshot of trade history around the time of the flash crash. It showed one person had an order in for just over 3,800 ethereum if the price fell to 10 cents on the GDAX exchange. Theoretically this person would have spent $380 to buy these coins, and when the price shot up above $300 again, the trader would be sitting on over $1 million. CNBC has been unable to verify the screenshot posted by DeMasie.
I don't worry much about the ETF flash crash of 2015--I don't use ETFs but that's because of convenience and personal taste, not fear of the flash crash. If I were into cryptocurrency I wouldn't worry too much about this, either--except for the statement that "these trades are final and will not be reversed."
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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by nisiprius » Mon Jun 26, 2017 9:37 am

Update/correction: according to a later story in Fortune
Late Friday, the company reversed its position. The VP of [the Coinbase-owned exchange] GDAX, Adam White, said in a blog post the exchange would make [good] the flash crash losses... it would fund the customer credits with company money, and that it would not unwind the trades of those who had placed "buy" orders during the flash crash. This is terrific news for those who bought Ethereum during this period—it means some fortunate traders snapped up the digital currency—which is trading at $305 as of Monday morning—at a massive discount.
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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by AlohaJoe » Mon Jun 26, 2017 9:52 am

I'm a massive cryptocurrency skeptic but I'm not sure that cryptocurrencies are the real culprit here.

It seems like the problems are:

- Any thinly traded asset. Something to keep in mind when looking at ETFs, especially things that are newly launched or deal with niche areas/factors/regions/sectors. The million dollar trade in a not-high-enough-volume market was the primarily problem.
- Stop loss orders. These contributed to the problem. Also, when people set stop-loss orders they probably don't think of "flash crashes" where it also rebounds instantly. But...maybe that's their fault? I dunno. Most "real" markets have circuit breakers to stop this kind of problem. I think the NYSE has a single-stock circuit breaker of around 20% before they shut down trading. I guess the lesson here is: exchanges have learned these lessons the hard way and haven't implemented circuit breakers just for fun.
- Margin accounts. Most real losses occurred because of margin accounts. The price dropped a lot, so they got a margin call. Except in cryptocurrencies, since everything is automated, there is no "call", they just just start selling your assets at the market price. So the lesson is: margin is tricky & dangerous with hard to understand edge cases.

None of those are specific to cryptocurrencies. That said, combining those bad decisions with cryptocurrencies seems especially......."risky".

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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by barnaclebob » Mon Jun 26, 2017 9:53 am

Why does the company have to fund some of the purchases? Shouldn't that money come from the fool who put in a huge market order and those with stop loss orders not realizing that thinly traded assets can swing fast like this?

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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by Theoretical » Mon Jun 26, 2017 12:55 pm

That's why you don't use stop loss market orders. Heck, it's why market orders themselves are not a good idea. Just do a marketable limit order and call it a day. #twocents

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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by mavenleek » Wed Aug 30, 2017 3:32 pm

And back at $390 now...

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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by asset_chaos » Wed Aug 30, 2017 4:20 pm

Cryptocurrencies fall into that bucket labeled 'things I don't understand at all'. (Admittedly it's a big bucket.) Therefore I'm not enticed to invest there at all, regardless of any touted investment advantage.
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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by rmelvey » Wed Aug 30, 2017 4:27 pm

I wish I had some limit orders in!

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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by kayanco » Wed Aug 30, 2017 5:30 pm

Theoretical wrote:
Mon Jun 26, 2017 12:55 pm
That's why you don't use stop loss market orders. Heck, it's why market orders themselves are not a good idea. Just do a marketable limit order and call it a day. #twocents
Can you share how you define these terms please?
Any video where I can learn more?

Thanks.

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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by Angelus359 » Wed Aug 30, 2017 7:16 pm

Market order: I'd like to buy or sell at current price
Stop loss market order... If the price drops below x, I'd like to sell
Limit order... I'd like to buy but no higher than x, or sell but no lower than y
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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by TropikThunder » Wed Aug 30, 2017 11:11 pm

I'm not going into cryptocurrencies until they find a way for me to buy tulips with them. :twisted:

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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by lack_ey » Thu Aug 31, 2017 12:30 am

TropikThunder wrote:
Wed Aug 30, 2017 11:11 pm
I'm not going into cryptocurrencies until they find a way for me to buy tulips with them. :twisted:
https://www.overstock.com/Home-Garden/P ... efinement=
Image

https://www.overstock.com/bitcoin

Angelus359 wrote:
Wed Aug 30, 2017 7:16 pm
Market order: I'd like to buy or sell at current price
Stop loss market order... If the price drops below x, I'd like to sell
Limit order... I'd like to buy but no higher than x, or sell but no lower than y
just in case it wasn't clear, as further clarification, these have nothing to do with cryptocurrencies and are common orders in stock markets and other markets for buying and selling.

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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by kayanco » Thu Aug 31, 2017 12:44 am

Angelus359 wrote:
Wed Aug 30, 2017 7:16 pm
Market order: I'd like to buy or sell at current price
Stop loss market order... If the price drops below x, I'd like to sell
Limit order... I'd like to buy but no higher than x, or sell but no lower than y
Thank you. It's nice of you to answer!

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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by Angelus359 » Thu Aug 31, 2017 6:40 am

I've yet to see a brokerage offer stop loss limit
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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by Angelus359 » Thu Aug 31, 2017 6:45 am

I think the most complicated operation I'd ever see necessary would be a trailing stop loss limit

I'd like to sell my stock, but only after it reaches x-y where x is the highest price it's reached in my orders lifetime, and y is an arbitrary offset, but I'd not like to sell it if it's dropped below w, which is x minus z, where z is an arbitrary offset larger than y

That's a fun one :P
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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by objectivefunction » Thu Aug 31, 2017 7:36 am

Angelus359 wrote:
Thu Aug 31, 2017 6:45 am
I think the most complicated operation I'd ever see necessary would be a trailing stop loss limit

I'd like to sell my stock, but only after it reaches x-y where x is the highest price it's reached in my orders lifetime, and y is an arbitrary offset, but I'd not like to sell it if it's dropped below w, which is x minus z, where z is an arbitrary offset larger than y

That's a fun one :P
Ironic twist: writing this as an Ethereum smart contract and cutting out the broker all together.

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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by kayanco » Thu Aug 31, 2017 8:50 am

Angelus359 wrote:
Thu Aug 31, 2017 6:40 am
I've yet to see a brokerage offer stop loss limit
I'm just curious, why might that be?

Thanks.

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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by hilink73 » Thu Aug 31, 2017 3:35 pm

kayanco wrote:
Thu Aug 31, 2017 8:50 am
Angelus359 wrote:
Thu Aug 31, 2017 6:40 am
I've yet to see a brokerage offer stop loss limit
I'm just curious, why might that be?

Thanks.
And who would want a stop loss in crypto anyway?
What for?

Buy and hold till it goes up again.
Just saying.... :-)

I mean, we went to EUR 350, back down to EUR 117, up to EUR 320 now within two months.
Much more exciting and fun than any single stock to hold.

Even in a sideway market, I could earn a few percent a day.
Compare that to a normal stock or ETFs. That's boring in comparison.

So, I leave my ETFs where they belong to: long term buy and hold investment. No hustling there.
Do not touch a single stocks anyway. What for? Not enough return for the risk!
And have much excitement, fun and gains with crypto in the mean time... at least with a nice portion of that (and keep the rest for long term, too).
Win-win-win. :-)

For the "sceptics": what's in there for you being a sceptic? Do you have enough money to not risk investing in crypto? Or just pride or something?

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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by totality » Thu Aug 31, 2017 4:28 pm

hilink73 wrote:
Thu Aug 31, 2017 3:35 pm
For the "sceptics": what's in there for you being a sceptic? Do you have enough money to not risk investing in crypto? Or just pride or something?
There is no real asset or economic activity behind crypto currencies, it's just speculation. As such, some people will make money, others will lose money, but it's zero sum: The only return you can get is at the expense of someone else, and thus the average return is zero.

When you consider transaction costs, the average return is negative.

So yeah, I could throw some money in Bitcoin, and maybe it would go up or down, but on average I would lose money. It's not a value proposition that appeals to me.

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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by msk » Thu Aug 31, 2017 4:55 pm

I forget all the precise details but I did get caught in the Flash Crash of 2015(?). My holdings were mainly SPY and Berkshire Hathaway plus a sprinkling of individual stocks. A few days prior my darling daughter insisted that the market is insanely high and is bound to crash forthwith. She went into all-cash herself. To appease her, I put in Stop Loss orders on my holdings, several percent below the then current prices. Flash Crash came, I lost $100k just on my position in Berkshire Hathaway and never got it back. Problem with a Flash Crash is that you sell at a great discount but by the time you realize what happened, prices have recovered and your loss is permanent. Ah well, lesson learned, but then we had never before that been in a Flash Crash... Unless they solve the structural foundations of future flash crashes, I no longer use Stop Loss orders.

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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by Valuethinker » Thu Aug 31, 2017 6:03 pm

msk wrote:
Thu Aug 31, 2017 4:55 pm
I forget all the precise details but I did get caught in the Flash Crash of 2015(?). My holdings were mainly SPY and Berkshire Hathaway plus a sprinkling of individual stocks. A few days prior my darling daughter insisted that the market is insanely high and is bound to crash forthwith. She went into all-cash herself. To appease her, I put in Stop Loss orders on my holdings, several percent below the then current prices. Flash Crash came, I lost $100k just on my position in Berkshire Hathaway and never got it back. Problem with a Flash Crash is that you sell at a great discount but by the time you realize what happened, prices have recovered and your loss is permanent. Ah well, lesson learned, but then we had never before that been in a Flash Crash... Unless they solve the structural foundations of future flash crashes, I no longer use Stop Loss orders.
Any chance of a legal settlement via a Class Action suit?

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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by kosomoto » Thu Aug 31, 2017 6:18 pm

Valuethinker wrote:
Thu Aug 31, 2017 6:03 pm
msk wrote:
Thu Aug 31, 2017 4:55 pm
I forget all the precise details but I did get caught in the Flash Crash of 2015(?). My holdings were mainly SPY and Berkshire Hathaway plus a sprinkling of individual stocks. A few days prior my darling daughter insisted that the market is insanely high and is bound to crash forthwith. She went into all-cash herself. To appease her, I put in Stop Loss orders on my holdings, several percent below the then current prices. Flash Crash came, I lost $100k just on my position in Berkshire Hathaway and never got it back. Problem with a Flash Crash is that you sell at a great discount but by the time you realize what happened, prices have recovered and your loss is permanent. Ah well, lesson learned, but then we had never before that been in a Flash Crash... Unless they solve the structural foundations of future flash crashes, I no longer use Stop Loss orders.
Any chance of a legal settlement via a Class Action suit?
A lawsuit against who? The market?

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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by Water » Fri Sep 01, 2017 1:33 am

totality wrote:
Thu Aug 31, 2017 4:28 pm
hilink73 wrote:
Thu Aug 31, 2017 3:35 pm
For the "sceptics": what's in there for you being a sceptic? Do you have enough money to not risk investing in crypto? Or just pride or something?
There is no real asset or economic activity behind crypto currencies, it's just speculation. As such, some people will make money, others will lose money, but it's zero sum: The only return you can get is at the expense of someone else, and thus the average return is zero.

When you consider transaction costs, the average return is negative.

So yeah, I could throw some money in Bitcoin, and maybe it would go up or down, but on average I would lose money. It's not a value proposition that appeals to me.
I do not agree with you on your statement below
[t]here is no real asset or economic activity behind crypto currencies
Litecoin and Bitcoin function as currency, it is an asset to those who exchange it for goods and services; further, if it is accepted as a currency for goods and services, then it is reasonable to say it does create economic activity.
You might be probably aware of this, human beings do not always behave in a rational manner. - Water

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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by totality » Fri Sep 01, 2017 2:21 am

Water wrote:
Fri Sep 01, 2017 1:33 am
I do not agree with you on your statement below
[t]here is no real asset or economic activity behind crypto currencies
Litecoin and Bitcoin function as currency, it is an asset to those who exchange it for goods and services; further, if it is accepted as a currency for goods and services, then it is reasonable to say it does create economic activity.
Fair enough, I chose my words poorly.

My point was that trading in Bitcoin (or Litecoin or Ethereum or what-have-you) is zero sum, with a negative return once you account for transaction costs. Even if there is value being created by people who transact in Bitcoin, you don't get any of that value simply by holding Bitcoin, any more than I would get a share of the European economy by holding euros. The fact that Bitcoin is a currency does not change the zero-sum nature of trading it.

In fact, trading in central bank issued currencies is another favorite activity of speculators, and it has the exact same properties. (zero-sum in principle, negative-sum after transaction costs)

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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by Tamalak » Fri Sep 01, 2017 9:06 am

I never understood the need for circuit breakers. Who cares if idiots privately trade shares of the same company - or currency - I'm holding for 80% less than fair value? It doesn't change the company. And it only temporarily changes the market value of the company's shares unless that 80% loss is justified.

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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by rmelvey » Fri Sep 01, 2017 9:18 am

totality wrote:
Fri Sep 01, 2017 2:21 am
Even if there is value being created by people who transact in Bitcoin, you don't get any of that value simply by holding Bitcoin, any more than I would get a share of the European economy by holding euros.
That's not quite true. Imagine if the supply of Euros were fixed like it is with bitcoin. As technological progress caused companies to be more productive, the amount of goods relative to the amount of currency would increase so you could purchase more goods.

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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by steadyeddy » Fri Sep 01, 2017 9:57 am

You had better believe every Ether trader just put in a standing buy order at $0.10. But it will never happen again.



The next one will be down to $0.11.

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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by Valuethinker » Fri Sep 01, 2017 10:21 am

totality wrote:
Fri Sep 01, 2017 2:21 am
Water wrote:
Fri Sep 01, 2017 1:33 am
I do not agree with you on your statement below
[t]here is no real asset or economic activity behind crypto currencies
Litecoin and Bitcoin function as currency, it is an asset to those who exchange it for goods and services; further, if it is accepted as a currency for goods and services, then it is reasonable to say it does create economic activity.
Fair enough, I chose my words poorly.

My point was that trading in Bitcoin (or Litecoin or Ethereum or what-have-you) is zero sum, with a negative return once you account for transaction costs. Even if there is value being created by people who transact in Bitcoin, you don't get any of that value simply by holding Bitcoin, any more than I would get a share of the European economy by holding euros. The fact that Bitcoin is a currency does not change the zero-sum nature of trading it.

In fact, trading in central bank issued currencies is another favorite activity of speculators, and it has the exact same properties. (zero-sum in principle, negative-sum after transaction costs)
To the extent that a currency allows you to do something you could not previously do, allows buyers and sellers to exchange in some way, it does create value for the economy and society as a whole.

Life would be a lot harder, and the modern economy couldn't exist, without currencies. Or even without free convertibility into other currencies.

We live in a world where many currencies are freely convertible into other currencies. In particular, the US Dollar serves as the most widely accepted means of exchange, it also is accepted as a unit of account (the default for valuing anything), and as a store of value. The fact that citizens and corporations and governments of other countries will hold dollars rather than immediately exchanging them for another currency means the US earns "seigneurage" (estimated to be 50-60 billion dollars a year of gain to the US economy).

So Bitcoin does in fact create value if it enables exchanges that could not otherwise take place, or could only do so in a more costly way:

- so for example for people who face exchange controls - this is the key I believe to Bitcoin's popularity in China. It's a way of avoiding holding Chinese renimbi assets, particularly as the market is trying to devalue the renimbi (and the Chinese government is trying very hard to prevent that for example by tightening exchange controls)

- for people attempting to conduct other forms of illegal transactions. Such as buying drugs in a less traceable way. Or ransome payments for Wannacry. Now (and this is actually also true of point 1, although most of us would be less worried about that) there may also be a disutility of bitcoin enabling people to make those transactions-- presumably there is a reason why societies choose to ban some of these transactions. Al Capone's rum running operation was not simply a social benefit

- to the extent that bitcoin lowers transactions costs, that also produces a net gain in efficiency in the economy- -reduces the costs of intermediation. Resources consumed by financial services firms to effect transactions are thus released for more productive use in the economy -- same thing as decimalization of stock prices led to more efficient stock markets (tighter bid ask spreads)

- balanced against this is the cost of making the bitcoins. The mining activity consumes electric power and also that will emit pollutants. Thus since most mining is now in China (I believe) where 80% of electricity production is by fossil fuels and electricity is very cheap (perhaps 1-2 cents/ kwhr?), consuming those resources is not, net, a good thing

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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by smallpotato » Fri Sep 01, 2017 4:18 pm

rmelvey wrote:
Fri Sep 01, 2017 9:18 am
That's not quite true. Imagine if the supply of Euros were fixed like it is with bitcoin. As technological progress caused companies to be more productive, the amount of goods relative to the amount of currency would increase so you could purchase more goods.
This is a false notion. Think cryptocurrency not bitcoin. As the blockchain [for any particular flavor] grows and performance wanes people will just move to another. Once people realize that there are in fact an infinite number of blockchains, and therefore 'coins', none of which are enforced by any sort of legal tender law, they will uncover the fact that cryptocurrency is nothing at all.

Euros and dollars are more 'fixed' than cryptocurrency.

And I know, I said "people realize"; a dubious notion, that.

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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by hilink73 » Fri Sep 01, 2017 6:03 pm

totality wrote:
Fri Sep 01, 2017 2:21 am
Water wrote:
Fri Sep 01, 2017 1:33 am
I do not agree with you on your statement below
[t]here is no real asset or economic activity behind crypto currencies
Litecoin and Bitcoin function as currency, it is an asset to those who exchange it for goods and services; further, if it is accepted as a currency for goods and services, then it is reasonable to say it does create economic activity.
Fair enough, I chose my words poorly.

My point was that trading in Bitcoin (or Litecoin or Ethereum or what-have-you) is zero sum, with a negative return once you account for transaction costs. Even if there is value being created by people who transact in Bitcoin, you don't get any of that value simply by holding Bitcoin, any more than I would get a share of the European economy by holding euros. The fact that Bitcoin is a currency does not change the zero-sum nature of trading it.

In fact, trading in central bank issued currencies is another favorite activity of speculators, and it has the exact same properties. (zero-sum in principle, negative-sum after transaction costs)

You "earn" money for securing a transaction through a process called mining, which is power consuming.
This in large is called proof-of-work.

Ethereum is planing to transition to a proof-of-stake model, which won't need that much computation power anymore.
The blockchain (it's transactions) are secured by staking ether, for which you get paid.
This is basically getting paid for "holding" ether. Which is not possible with Bitcoin at the moment (to be honest).

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Re: Ethereum (cryptocurrency) flash crash, 6/21/2017, $339->$0.10 in "seconds"

Post by ClevrChico » Fri Sep 01, 2017 6:29 pm

I have interest in crypto and have used it, but in no way do I invest in it.

I read the crypto forums, and I'm thankful for our helpful userbase and moderators. The amount of undisciplined "investment" behavior discussed in these forums is pretty scary. (Everything from talk of tax evasion, zero diversification, perceived experts, market timing, etc.) I cannot see this ending well for a lot of them, but maybe this time it's different.

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