Author Topic: BitAssets Article  (Read 3137 times)

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Offline gamey

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Re: BitAssets Article
« Reply #15 on: April 30, 2015, 08:25:12 am »
The key phrase in this discussion is "functionally eqiuivalent". IMO if there is anything to be learned it is how things are "functionally equivalent" which is functionally equivalent to learning how to bridge the different contexts in which we learn things.
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Offline mhr

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Re: BitAssets Article
« Reply #16 on: April 30, 2015, 05:10:45 pm »
How is this for stupid?  I just spent two hours writing a reply, during which I guess my session logged out, and I hit post.  Now all that I wrote is gone.  Do I have any recourse?

Offline gamey

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Re: BitAssets Article
« Reply #17 on: April 30, 2015, 05:12:44 pm »
How is this for stupid?  I just spent two hours writing a reply, during which I guess my session logged out, and I hit post.  Now all that I wrote is gone.  Do I have any recourse?

If you haven't closed the tab you can hit back button and see if the browser caches it.  Otherwise I'm afraid no recourse.
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Offline mhr

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Re: BitAssets Article
« Reply #18 on: April 30, 2015, 05:17:46 pm »
OK, well, I'll just have to rewrite that some other time.  Sorry.  I don't spend much time on forums, so I forgot that it is good to copy a post before clicking send.

Offline carpet ride

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Re: BitAssets Article
« Reply #19 on: April 30, 2015, 05:19:52 pm »

OK, well, I'll just have to rewrite that some other time.  Sorry.  I don't spend much time on forums, so I forgot that it is good to copy a post before clicking send.

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Offline gamey

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Re: BitAssets Article
« Reply #20 on: April 30, 2015, 06:03:04 pm »
That sorta thing bites everyone in the ass at some point if they post long messages...
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Offline mhr

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Re: BitAssets Article
« Reply #21 on: May 04, 2015, 12:48:59 am »
OK, I will try to recreate my lost post from the other day.  Unfortunately, I will probably not be able to be as articulate as I was in the post I lost, because I'm trying to rewrite this from memory.  I'll just go down the list of questions.

Gamey and Tonyk2 ask why CFD are more susceptible to manipulation than options are.  First of all, in the US, options and futures very much impact the price of the underlying assets.  For example, in the gold market, the futures market tends to set the price for the physical market in a kind of tail-wags-the-dog kind of way.  This is curious, especially because, in the US, most futures and options contracts are settled for cash.  Nonetheless, many coin shops rely upon the contract markets to set their prices for gold. 

Secondly, as one may exercise an option contract, or take delivery of the asset underlying a futures contract, there is a direct relationship between the derivative (the contract) and the asset.  So, if many traders (or a few wealthy traders, such as in the case of the Hunt brothers) all of a sudden began to take delivery of the underlying assets of their futures contracts, the supply of the asset would have to come from somewhere.  This is not the case with CFDs which are cash settlement only.

I can make a pained analogy to try to convey the relationship.  Let's say a gas station owner has a station in the middle of nowhere, and that the nearest gas station is miles away.  This owner may be inclined to charge a high price for his gas, and he may be inclined to offer poor service and poor quality products.  He does this in the false assumption that he has no competition.  However, if he does this long enough, and if a competing businessman finds that there is enough profit potential in the area, the competitor may decide to open a gas station across the street.  If the competitor sells gas at a fair price and offers quality goods and services, he may put the original gas station owner out of business.  In other words, there is always competition, whether seen or unseen.  OK, that was an awkward analogy, but in the futures and options market, there is always a short squeeze looming around any corner, if the shorts decide to take on the risk of naked short selling.

Have I described naked short selling?  I can't remember what I've written and what I've lost.  Naked short selling in the futures and options market is when a trader sells contracts to an asset he has neither purchased nor borrowed, and therefore cannot deliver.  The result is that, if someone should stand for delivery, the naked short seller must get that asset from somewhere at whatever price the market will offer.  This is a bad situation for the seller to be in.  If enough pressure of this sort occurs at the same time, the result is a short squeeze in which prices shoot upward as shorts scramble to obtain assets that they can deliver.  The ability to squeeze shorts exists in the futures or options market, but it does not exist in the betting market.  There is no short squeeze in the CFD market, as all contracts are settled in cash, rather than in the underlying asset.

Ander, you make a good point about gateways.  I have not given much thought to gateways, but I would think they would help.  Having said that, the gateways would not be directly related to the CFDs either.  In other words, if Alice and Bob traded CFDs among themselves, and Charlie offered a gateway to the underlying asset, Bob would not be directly affected if Bob tried to manipulate the CFD market.  Alice still could not short squeeze Bob, even if Charlie offered a gateway.  That's just my first thought on the matter, though I do think that gateways would help.

Tonyk2, in your example about BitShares and BitUSD, I am treating BitUSD as a receipt or contract.  That means that the two assets pertinent to the trade are BitShares and USD, not BitShares and BitUSD.  Only BitShares are available for delivery in this contract.  Compare that to a gold/USD futures contract in which both the gold and the USD are available for delivery, and you see the problem with the CFD.  No one can stand for delivery of the USD in a BitUSD contract.

Merivercap, you've touched on many points, so I'll try to address the ones that I haven't addressed elsewhere.

3)  I agree that it is good to explain both sides of the trade, but in some cases I'm leaving that out to try to cut down on my already voluminous posts.

5)  My reference to financial regulation was just about the dirty business of government regulation.  I am not a lawyer, but I know that CFDs are considered illegal in the US and some other countries.  Also, betting in general is highly regulated in many countries, so I am recommending that anyone who wants to trade in BitAssets should maybe check with a lawyer to make sure that he may do so unmolested in his jurisdiction. We're all of good intention here, but there are many people out there of questionable intent who may come out of the woodwork and get nasty if these types of trading arrangements come onto their radar.

5.5)  I have a copy of the Big Short which I've never gotten around to reading.  It's on my list.  I'm not suggesting that betting can't be profitable.  I'm not suggesting that betting is bad.  After all, my main example, Jesse Livermore, made enough money betting in bucket shops to enter the stock market as a big player.  I am only pointing out that betting and CFDs are a relatively weak arrangement that are subject to relatively easy and low-risk manipulation.

6)  Quote:
The reason the bucket shops could manipulate trade is that they had knowledge of an additional large order book and vulnerable margin positions, not because traders weren't able to call bluffs or request the delivery of an underlying asset.
End Quote.

These two reasons are not mutually exclusive.  A bucket shop could manipulate markets because it had knowledge of a large order book and vulnerable margin positions and because traders weren't able to call bluffs by taking delivery of the underlying assets.  Large institutions like JPMorganChase have knowledge of order books and vulnerable margin positions, and many market observers believe that such institutions take advantage of this privilege.  There is no doubt that a public ledger could improve upon the current trust-based arrangement, but that would not change the fact that market manipulation is more easily accomplished when no one can stand for delivery.

6.5)  It is ironic that BitAssets was designed to address the immature and illiquid nature of the Bitcoin market, but BitAssets is subject to the same problems of immaturity and illiquidity.  In a future post, I may address that as a “crisis of purpose.”

7) I remember that, while I was reading Bytemaster's Blog, I was thinking that there was a curious lopsided nature to the arrangement which seemed to favor one side of the trade over the other.  I didn't look into it too deeply, but I wondered why it wouldn't be a level playing field.

OK, that is much, much shorter than what I wrote the other day, and of a poorer quality.  I can't remember what I included in the other that I must be leaving out of this post, but maybe I've covered the basics.  Sorry about the loss.

Offline Ander

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Re: BitAssets Article
« Reply #22 on: May 04, 2015, 12:54:45 am »

6.5)  It is ironic that BitAssets was designed to address the immature and illiquid nature of the Bitcoin market, but BitAssets is subject to the same problems of immaturity and illiquidity.  In a future post, I may address that as a “crisis of purpose.”

I dont think bitAssets are trying to solve problems of immaturity and illiquidity in bitcoin.
Rather, they are trying to solve problems of volatility and centralization (requiring you to trust an exchange in order to trade).

So you are removing a couple problems (bitcoin price is volatile so its hard for consumers to count on / merchants to hold), and exchanges getting hacked.  But because bitassets are young you add the problems of immaturity and illiquidity.  Hopefully with the new bitasset version and more users these problems will be diminshed.
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Offline carpet ride

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BitAssets Article
« Reply #23 on: May 04, 2015, 01:33:21 am »

6.5)  It is ironic that BitAssets was designed to address the immature and illiquid nature of the Bitcoin market, but BitAssets is subject to the same problems of immaturity and illiquidity.  In a future post, I may address that as a “crisis of purpose.”

I dont think bitAssets are trying to solve problems of immaturity and illiquidity in bitcoin.
Rather, they are trying to solve problems of volatility and centralization (requiring you to trust an exchange in order to trade).

So you are removing a couple problems (bitcoin price is volatile so its hard for consumers to count on / merchants to hold), and exchanges getting hacked.  But because bitassets are young you add the problems of immaturity and illiquidity.  Hopefully with the new bitasset version and more users these problems will be diminshed.

mhr, I've enjoyed reading all your posts, and I have a desire to point out a difference between BitShares and bucket shops.

I have heard this elsewhere and have adapted it to my own view, it is that the purpose of bitassets is to soak up the world's value allowing bitshares to become the world currency.  Further, bitassets are about getting the power of money into the hands of the world's people and away from govt control, although it's all about utility first and foremost.

If bitshares grows large enough to cause market effects in real asset backed markets, so what?  That means the bts co op has grown large enough to be close to allowing bitshares to become the world currency.

My point is that comparisons to bucket shops do not do justice at all to the potential of bitassets and bitshares.


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« Last Edit: May 04, 2015, 01:37:56 am by Carpet Ride »
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Offline mhr

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Re: BitAssets Article
« Reply #24 on: May 04, 2015, 02:30:11 am »
Ander, I'm sorry for failing to be explicit.  You are correct that BitAssets may address problems of centralization.  If it can do so, that will be a great benefit.  I was referring to volatility, actually.  Volatility is a symptom of immaturity and illiquidity.  Generally, as markets mature, they expand, more people come into the market, and volatility subsides.  That's the aspect of immaturiy and illiquidity that I was referring to, but I agree that decentralization would be a virtue.

Offline mhr

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Re: BitAssets Article
« Reply #25 on: May 04, 2015, 02:33:34 am »
Carpet Ride, thank you for your post.  Let me stew on this one a little bit, and I'll see if I can make a thoughtful response.  However, it may take a bit more elaboration on some more of my thoughts on BitAssets before I can get around to adequately addressing your point.  Hold me to it, if I get sidetracked, please.

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Re: BitAssets Article
« Reply #26 on: May 04, 2015, 02:37:59 am »
Gamey and Tonyk2 ask why CFD are more susceptible to manipulation than options are.  First of all, in the US, options and futures very much impact the price of the underlying assets.  For example, in the gold market, the futures market tends to set the price for the physical market in a kind of tail-wags-the-dog kind of way.  This is curious, especially because, in the US, most futures and options contracts are settled for cash.  Nonetheless, many coin shops rely upon the contract markets to set their prices for gold. 

Secondly, as one may exercise an option contract, or take delivery of the asset underlying a futures contract, there is a direct relationship between the derivative (the contract) and the asset.  So, if many traders (or a few wealthy traders, such as in the case of the Hunt brothers) all of a sudden began to take delivery of the underlying assets of their futures contracts, the supply of the asset would have to come from somewhere.  This is not the case with CFDs which are cash settlement only.


I've never asked such a question as "why CFD are more susceptible to manipulation than options" The question I asked is why do you think bitAssets are more akin to CFD or bucket shops than to option contracts?
Your argument (as artificial as it was) was that because the options give the chance/possibility of delivery of the underlying asset, the CFD does not and the bitAsset do not =>  bitAssets are more akin to CFD and so are therefore more speculative...[whatever speculative means]
I just pointed out that as stupid and baseless as your argument was, the bitAssets still results in delivering of the underlying ...

.....

What I have come to realize is that you are not on a  path to discovery, research or clarity - apparently you have come to whatever conclusions you want and will desperately search for any straw of an argument you can find to prove your utter predetermined final  point.
I for one am not interested in such charade.
« Last Edit: May 04, 2015, 02:40:04 am by tonyk2 »

Offline gamey

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Re: BitAssets Article
« Reply #27 on: May 05, 2015, 12:12:10 am »
Ander, I'm sorry for failing to be explicit.  You are correct that BitAssets may address problems of centralization.  If it can do so, that will be a great benefit.  I was referring to volatility, actually.  Volatility is a symptom of immaturity and illiquidity.  Generally, as markets mature, they expand, more people come into the market, and volatility subsides.  That's the aspect of immaturiy and illiquidity that I was referring to, but I agree that decentralization would be a virtue.

I do not agree bitassets are near as volatile as bitcoin. I wonder where you get this premise?  Have you researched it empirically in any fashion?
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Offline mhr

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Re: BitAssets Article
« Reply #28 on: May 07, 2015, 10:27:40 pm »
Tonyk2, you stated, “The question I asked is why do you think bitAssets are more akin to CFD or bucket shops than to option contracts?”

If you'll scroll up to the top of this thread, and look at the third post, you'll see that it is by Bytemaster, and it says, “They are easily understood by the existing financial sector as Exchange Traded Contract For Difference.”  I'm assuming that Bytemaster has access to some information about these things.

You also state, “I just pointed out that as stupid and baseless as your argument was, the bitAssets still results in delivering of the underlying ...”

Are you here suggesting that BitGold entitles the holder to take delivery of a physical, tangible unit of gold... that he can put in his pocket, bite into, roll across the floor, or hide in his mattress?  Does BitGold obligate the counterparty to deliver that gold by hand, or through Federal Express, or through the postal system?  In what way does BitGold result in delivery of the underlying gold?  And by gold, I mean the stuff represented on the periodic table as Au.  The yellow, shiny stuff.  Please tell me, because I am on a path to discovery.

Offline mhr

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Re: BitAssets Article
« Reply #29 on: May 07, 2015, 10:28:19 pm »
Gamey, you stated, “I do not agree bitassets are near as volatile as bitcoin. I wonder where you get this premise?  Have you researched it empirically in any fashion?”

You make a valid point.  I have not researched the prices of the various BitAssets, and I have not even researched the price of BitShares.  I have a sense that BitShares are volatile, and I think that I have heard that the BitAssets are tracking their underlying assets quite well.  Is that reasonably accurate information?

But the problem was described in the Preston Byrne article.  BitShares collateralizes BitAssets, and if BitShares (which I have heard is volatile) craters in value, then it will create margin calls in BitAssets.  Has this happened yet?  One must own BitShares to get involved in BitAssets.  So, in a certain sense, BitAssets can offload its volatility onto BitShares.  If Alice were to hold Bitcoin, but seek the price stability of the USD through BitAssets, she must enter the volatile BitShares market to gain access to BitUSD.  If BitShares were to crater against the dollar, would Bob, the counterparty to the BitUSD, get a margin call, thereby canceling the contract, thereby leaving Alice exposed to the volatility of BitShares?  There is an old expression that says something like, “If you owe a bank thousands, you have a problem; owe a bank millions, the bank has a problem.”

I don't know how stable these markets are in general.  Perhaps you know.  Are people trading and redeeming BitAssets?  Are people getting margin calls?  Where can I observe BitAssets market data?  Thanks.