Dogecoin is at $0.60. This cryptocurrency was made as a joke. That’s really all you need to know about it.
The Fed and SEC etc all claim they want to make things safe for retail investors, but we are seeing the manifestation of a malicious bubble right before our eyes and they are all doing nothing. Zero. Zilch.
Lots of people are going to lose a lot of money when this is over. And please remember that the government agencies that are supposed to be helping us are doing absolutely nothing.
And then, once the dust settles, just like after the dotcom bust, you will see a ton of regulations coming down like SOX to “protect” investors when we could have been protected RIGHT NOW, May 2021. It’s utter bullshit.
When people say conspiracies like the government is using covid to control us and try to take away our freedom, I would normally laugh. But after 9-11 and the “Patriot” act, the dotcom bust and SOX, and whatever regulations come from the fallout of crypto, I’m starting to wonder if they have a point.
What's fundamentally wrong with people losing a lot of their money on crypto? A lot of people lose money on Penny stocks, OTC markets, casinos, a lot of people buy new cars that depreciate 30% in one day, etc.
Everyone knows DOGE is a joke - so if you assume we're all capable of independent thought, what would you propose that is not a paternalistic view of the world?
We don't need more bullshit like accredited investor credentials which create huge differences in access to investments - that is real economic inequality justified by protecting the poor from their own stupidity.
This is my fourth bubble. Bitcoin in 2011 and every one since. It's old hat and quite amusing at this point. I certainly know not to put any money into it I cannot lose.
Do they, though? Even if they know DOGE is a joke, do they have the rest of the knowledge on cryptocurrency to quite understand what they're putting their money into? The risks? The issues of things like time delay and transaction fees which may inhibit pulling funds out quickly? Etc.
The first result on Google for Dogecoin currently auto-completes to "Dogecoin stock". This indicates the degree of ignorance some people are coming into it with.
Large-scale price instability is a general negative. As is lack of wealth among the middle class. For an individual, losing a bunch of wealth on DOGE would just be a silly, or tragic, story. And I tend to agree that fools should be parted from their money...
But if a significant number of ordinary middle class and working class people are vaporizing their savings, that's a social and institutional problem to some degree. It would have ramifications that go beyond those individuals. See when large banks fail. One can wash their hands of it and say they should have chosen a better bank. But you still have mass unemployment and lack of liquidity issues to deal with, from a policymaker's perspective.
And as you say, wealth inequality is a problem. And chances are it's not the 19 year old college student who bought 100,000 of a DOGE a year ago who is cleaning house, on average. Much of this is flowing into investors who have six to eight $ figures locked in DEX exchange contracts raking in fees. For all the democraticizing potential of cryptocurrencies, a lot the wealth is flowing from the gullible to the already-rich.
"I tend to agree that fools should be parted from their money"
I disagree with this. Fools have a hard enough life without permitting predators to take their money. Nobody chooses to be a fool.
I don't know what a good solution is, or how to stop something like dogecoin without being too paternalistic, but it also feels wrong to me to just ignore this game of musical money even though the most likely outcome is many people losing and a small number gaining, in a zero-sum gambling game designed to look a bit like investing.
The difference is Bitcoin is much more widely used for payments. It now has a second layer payment protocol, which makes transactions fast and cheap, while remaining permissionless. And yes, it is useful. I just recently contributed to an imprisoned political dissident in my country. If made through regular credit card channels, that contribution could land me in jail.
It can still end you up in jail once your regulating authorities catch up to the technology. It's a distributed ledger. This should translate to "queryable public datastore of your financial transactions" in your head.
Just look at how the U.S. IRS is starting to get a subpoena process off the ground with regards to identities of wallet holders from exchanges. Even though the glacier doesn't appear to move, I assure you, it most certainly does.
Never make the mistake of assuming just because something is new meaning it will always remain that way, and if your nation state is cracking down on political people non grata, they may have no compunction with figuring out who was behind those transactions with or without your help.
This is ironically why cash not in a bank vault is the king of anonymous, difficult to trace financial activity. No paper trail.
Note: Of course banks and regulators know that too, and capital markets will do anything to make sure the maximum number of people entrust their finances to an institution to a loanmaking institution. People don't realize that ease of transaction and traceability is in and of itself a populational control mechanism.
For what it's worth, I do feel the same way about bitcoin. I just feel like the argument is even more clear when discussing dogecoin. I also think that once you reach this conclusion on dogecoin it is easy to think "Well dogecoin is basically bitcoin, so..."
I'd need to know more than I do about Ethereum in order to have a solid opinion. My current impression is that Ethereum tries to provide some value or innovation in the form of distributed computation, which is good, but also that there is no useful program being run on the distributed computation layer.
I haven't looked too much into it, so maybe I'm wrong about the useful program thing, but to my knowledge smart contracts are mainly used for creating digital tokens and things like that. Maybe Ethereum could be a useful way to conduct raffles, lotteries, or sports betting.
If you know more about Ethereum could you point out any useful applications that use it?
People choose to behave foolishly all the time. It's not hard to follow a rule "I am not smart enough to guess profitable investments, and I should invest only in simple things like major investment funds". If you can not figure out this rule yourself, there are literally hundreds of "for dummies" books and thousands of advisors that would tell you. If you think you can do better, it's your choice. You may be right, or you may be revealed as a fool - in any case, the consequences are yours, not somebody else's.
To be fair, there are just as many books and “investment gurus” out there trying to convince you that you can beat the market if you follow their advice. Your “rule” might seem obvious for those who already implement it, but it’s actually difficult for many people to follow because it requires having a certain level of both self-awareness and knowledge of investing.
And, while most of the consequences of poor investment strategies do fall on individuals - at least superficially, both the hyper-social nature of our species and the political/economic structure of our societies ensure that those consequences frequently extend far beyond them.
You're right. I did mean it in the gentlest sense, that someone who can afford to lose a bit perhaps should. Maybe that is too much faith that it will at least end up in circulation on something more useful. I have little use for fraudsters and those relying on huge differentials in knowledge. When it comes to ordinary people investing their transfer payments on something they may not understand actually can shrink 90% in 2 hours with zero recourse, it becomes a serious wrong.
I've been following since near the beginning, and my circle's rather techy so they largely get it. But I'm not sure what the average person today understands about something like Bitcoin and similar, technically or financially. I've struggled to inform myself before. I looked into the protocols for some decentralized exchanges and I noticed that it's hard to find much about them because in-depth or neutral discussion is buried under a pile of buzz and hype. The biggest advocates promise the Moon, sometimes literally.
Perhaps public education of some kind could help, so that more people understand risks and unknowns? When everything that comes up on cryptocurrency is from the biggest stakeholders in the game, people will not be getting a fair understanding.
Nobody is permitting anyone to take their money but themselves. And beyond that, there are ample resources to learn how not to behave like a fool in the markets. And even further beyond that, there are plenty of fools that are good at one thing and do well with it, taking away the opportunity to try their hand at something they might be good at to save people who were too busy watching tiktok to save themselves is not how you create a just society.
Also I'd like to add that the only thing speculative investing has in common with gambling is that risk is being taken, it isn't gambling, and speculation in cryptocurrencies is certainly not a zero sum game.
There are at least two kinds of fools. Perhaps you are thinking of "ignorant fools" - people who could know better but don't. There are also people who basically just can't know better.
Chris Sacca, who went on to become a billionaire investor in companies like Twitter, tells a funny story [1] about how he made foolish decisions in the stock market and lost a ton of money. Over the course of his career he reverses his fortune and becomes rich. The message of the story is something like "Don't stop grinding or hustling" or something like that. I think he's a good example of the ignorant fool that I imagine you are thinking of.
There's another class of fool though that basically cannot know better. This could include a wide variety of people, mentally unwell, gambling addicts, desperate people, elderly, people with an IQ of 80, etc. These people flat out are not going to read books on investing, or whatever mitigation path you would recommend to the ignorant fool, and if they did, they might not understand them or be able to use what they learned effectively. This is something like an "inherent fool" that I was thinking of.
What proportion of people who are going to lose money on dogecoin are ignorant fools, for whom this will be a valuable lesson and a stepping stone on their way to better living, versus inherent fools for whom this will be a setback in an already challenging life?
I can't speak for all cryptocurrencies in general, and I can only share my opinion, but I'm pretty confident that coins like dogecoin are certainly zero sum games. The best argument I can make for this is that zero value is being produced from dogecoin. Money is being put in, eventually people will want to take money out, but with no value being produced all the money that comes out of the system will come at the expense of those who put money in. It's kind of the quintessential example of a zero sum game.
I'd compare it to the company Coke. I can buy a share of Coke like I can put money into dogecoin. Coke is going to produce cans of sugar water. People are going to buy that sugar water, putting their money into the system, and, crucially, never expecting to get it back. They put their money in so that they can consume the value that is the can of sugar water.
This addition of money to the system, and the consumption of value, are what makes owning Coke not a zero sum game. Money games into the system from participants who do not expect their money back. As a shareholder of Coke, some of that money will come to me. I can own my share of Coke and benefit from the increased value that comes from the value Coke produces and the money of people who consume that value.
Conversely, dogecoin doesn't produce any value. You can move dogecoins around, but nothing is getting made and nothing is getting consumed. Every participant who is putting money in expects money back. There is nobody analogous to the person buying and drinking the Coke. Worse, everyone is hoping for MORE than the money they put in to come back.
As a simple matter of math, there is no real way for this to work so that everyone, or even most people, can benefit. If someone makes money, then someone else loses it. In this way, dogecoin is not at all investment. You aren't putting money towards a company or a venture, you are just buying lottery tickets that may or may not be worth more later. It's a gambling game of musical chairs.
When you say "inherent fools" what I think of is "some people are too stupid to be in charge of their own lives." Call me an optimist or a utopian, but I don't think that's true, and even if it is they still have a right to try, and even if they don't, the onus is still on them and nobody can change that. If they're inherent fools no amount of nerfing is going to protect them from tanking their own lives. It's like mandating tags on chairs that tell you not to eat the chair fabric. It's catering to the lowest common denominator. Do you want to live in a world where all of us, even you, are herded like cattle in some futile attempt to prevent people from behaving in ways that aren't good for themselves?
Some speculative vehicles are not zero sum games because they have one or more of the following characteristics: they are an experiment in some technology or tool that can benefit all people, or the simple fact that they exist is useful, or they enable capital to be allocated more efficiently. Almost all speculative assets have the last trait, all currencies have the second trait, and right now as far as speculative assets go, only cryptocurrencies have the first trait.
When you say "benefit" you mean to get profit. But "benefit" can mean much more than that. The benefit of the invention of electricity cannot simply be attributed to the amount of profit made from it, or the amount used by the purchaser. It has a myriad of less tangible yet more impactful benefits, such as it helped humanity understand electromagnetism and it helped humanity get out of the mud. The same applies to new ways to abstract value. Would you say the concept of money has value beyond simply who has how much?
I think there is a compromise between nerfing the whole world and herding everyone like cattle, and allowing people who aren't well equipped lose more than they can afford in speculative gambling. As I mentioned before, I don't think I have this compromise worked out, and I don't know what the answer is, but it feels wrong to leave things at "Caveat emptor".
One idea might be some kind of test. Can you pass a basic financial literacy test? If so, then maybe you should be allowed to gamble even on high risk things. If not, maybe finance isn't for you right now. When you pass the test you get a license and need to provide that license when doing KYC checks with financial institutions.
I think we'll just have to agree to disagree on the question of whether all people have sufficient mental equipment to handle risky financial decisions.
I do think the concept of money is valuable. To put it in my earlier framework, I think the people who are consuming the value are the people who use money to exchange it for goods or services.
I don't think dogecoin innovates on money though. In many ways, I think dogecoin is a step back from money. For example, our current systems have vastly greater throughput.
Crypto has yet to have a killer use case. Once that comes online, all this future value speculation work will make sense. Likely will be something around payments for AI models.
A use case is a list of actions or event steps typically defining the interactions between a role and a system to achieve a goal. Defi is a system. The role is yet to be filled. It’s like saying check out the Internet, it will change everything.
While true, it takes people filling roles using the system to increase adoption and a killer use case (watching videos) creates a new market in which those roles will expand.
A killer use case is not a cool system, it’s the USE of the system by the role holders.
> I disagree with this. Fools have a hard enough life without permitting predators to take their money. Nobody chooses to be a fool.
And yet, it will always happen. Some of us are fools, some of us will be fools, and some of us will never know how much of a fool we really were. Those will be the lucky ones.
Nature works this way for a reason.
Misguided compassion is a big part of why we are even having this discussion in the first place: people wanting to help wholeheartedly without realizing they are being fools themselves.
Were our previous best intentions not good enough? or maybe were they the cause of it all? Who can tell, who can tell...
In this analogy I think that a law against is mugging is analogous to a law against financial scams like dogecoin. Of course the existence of the law won't prevent anyone from getting scammed or mugged, but it may reduce the frequency with which people get scammed or mugged, and it may reduce the incentive to scam or mug by introducing the threat of punishment for scammers/muggers.
No, I got it, as sophisticated as it was. But my analogy is this:
A law against fraud is like a law against mugging, you cannot commit fraud and you cannot mug. Both pretty clear and reasonable.
But a law against trading because you might get scammed is like a law against getting mugged: YOU ARE NOW FORBIDDEN TO GET MUGGED, problem solved!
Of course people, because they are good hearted and their intentions are so pure, often fail to see the difference. After all, how can anyone be against a law prohibiting mugging?!
>I don't know what a good solution is, or how to stop something like dogecoin without being too paternalistic
"dumb money" IRA? By default you can only invest in index ETFs, but you you can contribute up to 5% of your income per year to a "dumb money" account that allows you to do whatever you want with it.
Some European countries are using a variant of this. When I opened a brokerage account, I had to give an estimate of my level of familiarity with various asset classes and was excluded from trading the ones I am not proficient in.
Unfortunately, the implementation is absolute bullshit. Proficiency is exclusively measured in experience, leading to a textbook example of Catch-22: You can trade precisely whatever you've already been trading in the past.
I do believe that some basic level of understanding of the mechanics of markets and various asset classes should be a pre-requirement, and I like the driver's license analogy: Just like in road traffic, with investment decisions, your actions don't only endanger yourself.
Unfortunately I don't know how that could be implemented without being yet another driver of inequality or being extremely easy to bypass.
Hm, depends on a country perhaps. I did the test twice in Poland, and yes - there were questions about experience, but also questions from knowledge. My guess is that if you fail answering questions about the experience you will get access to fewer instruments, and with time you can get access to more.
The test could be definitely done better though, perhaps closer to the new tests for basic drone piloting.
For basic drone piloting, in Poland at least, you have to take an online course, and then take a test with I think 40 knowledge questions selected randomly from a pool of 90 or so.
You have 90 sec to answer each question, so if you're a good Googler, you can cheat, but really after taking the online course you don't need to.
Took me 2-3h to get my basic permissions to fly a drone.
Advanced permissions require a weekend in-person training and a more complicated exam. Still pretty accessible.
I think we could have the same thing with investor qualification - a good test, and also a single "license", instead of each bank implementing their own testing scheme to answer 10 basic questions.
>I disagree with this. Fools have a hard enough life without permitting predators to take their money. Nobody chooses to be a fool.
If you risk more than you can afford to lose an anarcho-capitalist free market economy, then yes, you choose to be a fool. You're choosing to opt out of a regulated financial system with insurance and legal protections into a system whose only rule is "caveat emptor, lol. Git gud noob" because you think it's easy money.
There's a rule in poker - if you look around the table and can't tell who the mark is, it's you.
In markets money does sometimes flow from the gullible to the rich. Or I should say, the competent, caveat that with free market. A service provided by heavily abstracted markets such as financial instrument markets is that it allocates capital in the hands of those that are competent at managing it. It might sound calloused, but really, any time real wealth is being risked it is calloused, nobody can change that.
Crowd SAFE under Reg CF [1] allows you to invest pre-seed to late stage. Gumroad on Republic.co is a recent example [2] [3]. Whether a startup brokerage flying by the seat of it's risk management department should be handing out high risk options levels to unsophisticated investors for meme stocks is an issue for FINRA (Rule 2359, 2360).
I'm in the UK which isn't in a hugely different place. I'd quite like to invest my pension fund into residential property run with an ethical approach through a co-op. I was actually laughed at by a financial advisor, who explained that ethics (other than ESG) aren't something he can help with, and that residential property investment is for the big boys - eg, institutional investors.
My bank can invest in property and be morally awful in the process, but I can't do it without losing tax relief on my pension.
I'd like to do activist investments too, but they're savagely time consuming.
By ethical, I mean no-eviction tenancies, long tenancies, no rent increases, etc. The fact is that lower income families have no hope whatsoever in the UK of buying a house because low incomes are now a signifier of insecure work. There's a section of the population that rotate through housing regularly enough through no fault of their own (because of landlords) that their kids can't go to the same school each year etc. Shelter has an introduction to the idea here: https://blog.shelter.org.uk/2012/11/a-return-to-revolving-do...
I'm aware of many of the other 'ethical' schemes on the market, but mostly, they're not actually that ethical once you scratch the surface. The genuinely interesting ethical stuff does carry some risk, but also accomplishes a lot. See the kinds of things listed here for what I mean: https://www.ethex.org.uk/investments
What I'd really like in my pension is freedom to take some risks, and representative democracy. It boils my blood to know that fund managers don't have to respect my values when they've investing my money. Likewise when the government says I can't invest in things I understand and approve of.
I'm not fammiliar with the UK system, so I'm speaking in US terms here.
The government gives you a tax advantaged account specifically to encourage saving for retirement. It sounds like you want to use that money to do something else, and are complaining that you need to loose your tax advantage to do so.
The tax advantage is for investing for retirement. I think there are good gains to be made in certain things (such as coops) but regulations forbid me from investing in them, while the tax system incentivises me to put as as much money as possible away in tax friendly wrappers, which stifles my ability to invest.
My gf didn't. She found it on Robinhood and keeps calling it a "stock." The main reason she bought it was because of something Elon Musk tweeted and a bunch of her friends did too. I've always been pro cyrpto currency but this freaks me out.
I personally support the crypto-anarchist take you're espousing, but assuming that most of this stuff isn't a predatory cesspool pushing unsophisticated retail investors off of a cliff by the force of isolation-induced FOMO seems a little naïve.
If enough people lose their life savings, it will be regulated.
At this point, I believe that humans are well aware of blind spots in the masses online, so assuming there is a predatory chess pool of sharks waiting to consume or rob the unwary should be a given.
If there is a place where no light or monitoring shines, the question I would ask is how frothily the waters teem with predators.
That is what is implied by the policies we have in place today. I don't believe your intelligence is measured by your bank account, that is the whole point of the comment.
The regulations are not really in place to protect "the poor from their own stupidity." The regulations are in place because the lesson of the Depression is that one person losing their shirt is personal responsibility, and that's fine, but millions of people losing their shirts at the same time will pull the rug out from under the wider economy and be a societal disaster.
The criteria for accredited investors is a very crude way to address this problem by reducing blast radius; we could come up with something more convoluted like requiring a minimum amount of bond posted to act as a floor (similar to how non-insured people driving cars works in some states) but the effect would be roughly the same.
The lesson of the Depression is that the Fed at the time sat on their ass and let the economy collapse around them instead of doing something. It had little to do with retail investor euphoria.
Wasn't that a synopsis of Ben Bernanke's entire output over his whole career? Personally I don't completely agree, especially as Bernanke used that theory to justify some of his own questionable actions...
I just saw an ad on Twitter today from eToro saying basically "Doge is a joke. But seriously we sell doge and you can't deny the returns have been impressive this past year. Buy doge with us"
They were emphasizing the returns being impressive without the expected caveat "past performance is no guarantee of future results" stock brokers must make to ensure people think before chugging the hype.
Crypto exchanges have a duty to educate and make sure people aren't putting their life savings and taking out loans to buy crypto. That's not happening right now.
> What's fundamentally wrong with people losing a lot of their money on crypto? A lot of people lose money on Penny stocks, OTC markets, casinos,
Yes, and people who lose all their money in casinos also need to be protected. I would be in favor of anyone who loses the equivalent of a mortgage payment at a casino and then misses said payment being forbidden from gambling for five years, as an example.
> Everyone knows DOGE is a joke
You know DOGE is a joke. Some people really are investing in it to make money. They are taking savings, not entertainment, funds and putting them in DOGE.
> if you assume we're all capable of independent thought, what would you propose that is not a paternalistic view of the world?
I'm not convinced that people are capable of being purely rational economic actors if that's what you're asking. Even if they were, they're overworked and don't understand the risks. It's not a coincidence that cigarette smoking trailed off once the surgeon general started putting warnings on packs as opposed to the previous few decades when he just announced it in statements.
> We don't need more bullshit like accredited investor credentials which create huge differences in access to investments
Well, we could just outlaw things like DogeCoin. We outlaw snakeoil and chain letter pyramid schemes for the same reason.
You know what would align the incentives beautifully? A law that says that if someone gambles money they can't afford to lose then they are allowed to claw the money back.
The gambler can get their mortgage money back, automatically gets banned from casinos, and maybe the casino would try to prevent the situation from arising in the first place.
Sorry, it's too late to edit my other reply, but it occurs to me that we have some similar rules to what you proposed in finance. Robin Hood had to eat millions of dollars in losses because they overextended leverage to some people who lost it all, because they were worried (in addition to the inability to collect all that cash) that regulators would find out they had overextended margin to people they should not have.
That's an elegant idea, except that people who gamble money they cannot afford to lose usually cannot afford the legal process to claw the money back. Maybe they claw back an additional 50% that goes directly to the lawyer who helps them?
In the US, we still aren't free of getting called and mailed by a vehicle warranty service because your car is going to "go out of warranty soon" (total scam).
True, but that's a technical problem with the phone system (I've never heard of a mailed scam like that.) Trivial to fix, except for the powerful collections agency/cold call lobby that feels like they have to have the ability to lie about their phone numbers.
> What's fundamentally wrong with people losing a lot of their money on crypto?
The problem with any economic disruption that's large enough is that "the economy" includes both you and them. A concrete example is how "people" lost their homes in mortgages they shouldn't have taken in the first place: it didn't just affect them, the whole market crashed because everyone had an overvalued home. These things will cause rings on the water.
Dogecoin, Bitcoin, the TINA symptoms in the general equity market are all symptoms of a bubble. I just pray that it will peter out and not blow, because an economy where everybody's grasping their savings for dear life is not a very enjoyable economy to live in.
> wait for these 50+ billion dollar IPOs. Would love to invest earlier
the reason these early institutional investors of pre-IPO stock gets massive gains is because there are few of them compared to retail. A startup that needs the capital is in a less commanding position, and thus, the institutional investors can demand a better price.
If a lot of retail investors invest in pre-IPO like you describe, it would push the price higher earlier, and thus, there will not be a price pop _at_ IPO, and the gains that make pre-IPO allocation so attractive to retail investors will not happen.
I agree that if people are free for other life decisions (some worst like driving when they can kill themeselves), then they should be free to manage their money. But maybe the additional problem in the US is that people can lose their retirement money, so you need a level of protection, whereas a French person losing all in stock doesn’t impact its retirement.
I suppose this is a philosophical argument more than anything, and I can't claim what's the right answer vis a vis accredited investor requirements, but it's worth contemplating that those rules originate from the crash of 29, when an unregulated market led to the financial destruction of a huge number of ordinary Americans.
I don't think anyone is arguing that lack accredited investor requirements was the main reason for the crash of 29, just that it's one of many common-sense regulations put in place to prevent a repeat of the worst outcomes.
penny stocks may or may not be a scam. if the are a scam they should be put on trial. nobody goes on trial in crypto. that's the difference. casino is gambling, regulated, paying taxes and all. these 3 are not the same.
Tsla buys Bitcoin, tsla makes it into the s&p. That’s what’s wrong with it. It’s not stupid greedy easy come easy go money, it’s honest folks retirement account money that is in effect stolen from them.
Regulation does not exist to prevent people from taking risks. It exist to prevent people from buying something with a risk profile that they do not understand.
Spot cryptocurrencies are not a complex product, so very little need to protect retail from it. The risk is first order and easily understandable by retail investor. At least as much as going to a casino.
What requires regation are sophisticated products where the risk/reward is more complex, such as (inverse) futures, which require understanding margining, leverage, liquiditation, etc and would be really deceptive for a retail investor.
AFAIK crypto futures are already forbidden for retail in US & UK and require to be institutional/HNW with KYC.
As for the token themselves, regulation is there too, there are clear distinctions for most regulator on utility, security, commodity tokens, etc.
> Spot cryptocurrencies are not a complex product.
This is certainly not true. The highest ranking economists would have a month long debate on if there is intrinsic value or not and how to value their network effects and still come out with no consensus. It couldn't actually be further from the truth that these are simple instruments. The risk and utility of those are totally unknown. At least in a startup that makes EV cars you know that if they sell X cars you will get Y money.
The valuation of the product is of course hard to predict, but that is the case for any asset. Don't get fooled, equity prices are not easier to predict than crypto currencies.
But I'm not talking about valuation here, but risk profile.
If a token value is at $100 and drops to $95, you lost 5%. This is intuitive and simple, there is no surprise or hidden risk. Everyone is able to understand the direct relationship between the price of the token and your portfolio valuation.
For derivatives, this is not the case. Depending on your leverage, maintenance margin, etc, a 10% drop in price of the contract can mean game over you lost 100% of your stake. This is the kind of complexity that you want retail investors to be protected against.
> Regulation does not exist to prevent people from taking risks. It exist to prevent people from buying something with a risk profile that they do not understand.
I agree, but I think the difficult question here is determining when somebody understands a risk profile.
If a person, at some rational level, understands that a casino is a zero-sum game, that their real return will rapidly approach the expected return of zero the more often you bet etc., but at the same time has a pathological gambling problem, should they still be allowed to play?
> The risk is first order and easily understandable by retail investor. At least as much as going to a casino.
Casinos are heavily regulated in some jurisdictions for precisely these reasons.
Pretty much all the markets are going crazy right now, people are getting 100+k all-cash offers on top of their asking prices on their houses for sale, sp500 p/e ratio average is at like 44, pokemon cards are increasing in value, etc.
What's happening is not specific to dogecoin/crypto in my opinion.
In fact I just sold my house in SF Bay Area last month for $500k above listing price, all cash no contingencies. We are now renting in hopes that the market cools down but we are worried that this housing mania won’t stop and we will get priced out of the market. But for 500k above list, I couldn’t say no.
This is pretty much the gist of the article. People are worried about holding cash right now because they think it’s losing value. We’ve got trillions more about to be injected. All assets are priced high because of it.
If you can get a low interest mortgage right now you’re in a good spot.
inflation makes buying stuff on credit more attractive, especially when you can get it with really low interest rates which everyone expect to rise sooner than later
Priced in, in what? Assets prices? That would make for, inst-ainflation, I guess...
In any case, the thing is that cannot be priced into the rates of loans, because the same factor that will contribute to a rising inflation (increasing the monetary mass faster than real economic productivity) makes the loans very cheap by definition.
I for sure would get into all the long term fixed low rate debt I can handle to acquire assets that I think will not depreciate as fast
Only in retrospect, if inflation was unexpected. But if it was unexpected you couldn't have taken advantage of it, because, by definition, you weren't expecting it.
I don't see how the expectation change anything. Either inflation dilute the monetary value of your debt quicker than your asset depreciation or it doesn't.
So, any scenario were you bet (correctly) that inflation will rise at a higher rate than a fixed interest rate is very attractive
List price is meaningless. When I was looking at Bay Area houses plenty of realtor set the listing price intentionally low to drum up interest and a potential bidding war.
It’s like the house that went for $1M over list. Sold at $2.1M, just like the other comps in the neighborhood. The list price was $1M below comp.
Of course it can. People are just lazy and prefer repeating easy solutions that worked in the past rather than trying something that has real value but has inherent risks.
Sure, so uh, there are many known ways to change this.
What's the hold-up?
You're describing what's been the case for quite some time, it doesn't explain why nothing's been done about it when just about anyone with a brain can see where it's headed.
People born between the 40s-80s saw the largest economic expansion in history resulting from a massive expansion of labor power and social spending and decided it was because they worked so hard.
The hold up is the mass manufacturing of consent by the media oligopoly.
I don't think anyone knows where it's heading. My bet is neo-feudalism
Please familiarize yourself with reality. Wages haven't been up in my lifetime. Capital has been beating labor for five decades, and now that there's a slight chance that labor might claw back a small portion of its massive losses, all the temporarily embarrassed billionaires are eager to cry about it.
The 2019 real median incomes of White, Black, Asian, and Hispanic households all increased from their 2018 medians [between 5.7% (Blacks) and 10.6% (Asians)]
Percentage change in share of aggregate income was highest for the lowest income quintile (+1.8%). High income quintile saw decrease in share of aggregate income (-0.6%)
I pretty much think this is the case too, most of these things are soaking up excess liquidity that is leaking from the financial system. It feels more like every canary in the coal mine is going off, but people are focusing too much on the birds passing out and not the things that are causing them to do so.
> And then, once the dust settles, just like after the dotcom bust, you will see a ton of regulations coming down like SOX to “protect” investors when we could have been protected RIGHT NOW, May 2021. It’s utter bullshit.
Absolutely correct. The SEC will make this as another argument for crypto regulations and are waiting for another disaster after this mania ends in tears and lost money designed to 'help' and 'protect' the retail investor.
Then we'll see a 'real' pull back from crypto and a repeat of 2018.
To the late comers buying DOGE from Robinhood, welcome to crypto.
It's a bold new world of investing no longer controlled by behind doors paperwork, government, and traditional brick and mortar business names. Whom exactly are we protecting? There's no hidden costs, no hidden contracts or things you didn't sign up for. Simply 1 doge is equal to some amount of USD. It may go up or down. Investing is and always has been a more sophisticated game of gambling. At least here it's over hashes, and not irreplaceable needs like land/homes.
I don't see how they're meant to be "helping". That'd be like if the government swooped in to save your companies stocks from falling. What conspiracy is there here? Value has always been what we believe it to be, or what an authority says it is. There is no inherent value to anything. Gold/silver are just as valuable as some doge hashes.
> There's no hidden costs, no hidden contracts or things you didn't sign up for
, no protection against collusion, no rules against "insider" trading (as in, people acting before publishing token information, groups orchestrating pump&dumps), no rules about publishing false information about companies/projects, etc.
Slander doesn't apply to your company saying things about itself. Fraud doesn't easily apply to people outside of your country. (Especially if you don't know where they are)
The co-creator of Dogecoin sold his coins to buy a Honda Civic. Now Dogecoin has a market capitalization that is higher than Honda.
Why? it doesn't matter. People decided to speculate over the money of Dogecoin, that's it. It doesn't matter that it is a cryptocurrency or that it is based on doge. People will speculate over anything if it's profitable. Frozen concentrated orange juice? Gamestop? Whatever, it doesn't matter.
> Fed and SEC etc all claim they want to make things safe for retail investors
The Fed makes no such claim and has no such mandate.
The SEC does, though it's hampered by its jurisdiction over securities and little else. Cryptocurrencies have succeeded, in part, by branding as and behaving like currencies more than securities. They operate in a space that likely requires legislation to be regulated.
> you will see a ton of regulations coming down like SOX to “protect” investors when we could have been protected RIGHT NOW, May 2021. It’s utter bullshit.
Rulemaking has a cost, economically and politically. For better or for worse, the most effective rule making tends to be reactionary. Regulating cryptocurrencies now would be political suicide. There isn't a clear cut, broadly comprehensible case for it.
> Regulating cryptocurrencies now would be political suicide.
That seems like a stretch. Most people wouldn't care, and the institutions that own it haven't bet that heavily on it. It's a fear-of-missing-out trade for the most part.
But a rich minority would. A rich, motivated group of single-issue activists is political white phosphorous. To say nothing of the fact that the main beneficiaries of such regulation would said minority. The disinterested majority doesn't have much downside if cryptocurrencies go to zero.
If they were rich before cryptocurrencies, they shouldn't care (unless they unwisely bet the farm on it); and if they're rich because of cryptocurrencies, no one else should care, because if cryptocurrencies crash, they wouldn't be rich anymore.
Since you mentioned political, which infers government, what is the impact of cryptocurrencies to governments and the Treasuries if fiat experiences inflation, loss of 'trust', and devaluation? I would likely be more comfortable in a decentralized 'gamble' than the USD or the current banking/financial system.
> what is the impact of cryptocurrencies to governments and the Treasuries if fiat experiences inflation, loss of 'trust', and devaluation?
Not as much as some people think. We've been on fixed-supply currencies before; built empires, waged wars, and administered continent-spanning states on them. America has experienced inflation without banning the ownership of gold or foreign currencies. (And repressive states have survived, even thrived, after doing both.)
If the U.S. Treasury started issuing debt and accepting tax payments in Bitcoin, it prompt a rocky transition. But it wouldn't be unprecedented. Switching to a multi-currency regime would create a short-term (as in generational) boost in compensation for financial professionals, as the entire morass of financial plumbing gets re-written and overhauled. Players closely tied to attributes unique to the U.S. dollar, like printers and SWIFT, would die. Players operating at higher levels of abstraction, securities houses and depository banks, would do quite well. Assuming Bitcoin continues deflating, lenders would do phenomenally.
The US has banned the ownership of gold in the past, but not because of inflation, although it did result in inflation right away because it also took the US off the gold standard.
So, I am not American, but I am curious, what do you expect from your institutions? Do you expect them to intervene with the markets harsher and sooner? The thing is, lot of people disagree on that one.
Also, I feel like in a democracy (yes, maybe US isn't but I am talking about your vision now), institutions are owned by the public. It's the public (i.e. you) that needs to take initiative about what their government should do. Otherwise it just runs on autopilot (which has benefits, too), or is overtaken by business interests.
My feeling is that people are actually happy in the bubble. Yes, some if not most are going to be unhappy, eventually, when it blows up. But who should tell them better?
> SEC Chair Gary Gensler talked about cryptocurrency policies and bitcoin in an interview with CNBC Friday. Gensler taught classes at the Massachusetts Institute of Technology (MIT) in financial technology, cryptocurrency, and blockchain technology. He was confirmed as the new SEC chairman last month.
> Replying to a question about how he would regulate cryptocurrencies, the chairman replied, “To the extent that something is a security, the SEC has a lot of authority.” Noting he will refer to cryptocurrencies as “crypto tokens,” the former MIT professor emphasized that “a lot of crypto tokens … are indeed securities.”
> We will be working with Congress, and if they see fit, to try to bring some protection for people that want to invest in this speculative asset class.
https://www.natlawreview.com/article/cftc-s-approach-to-virt... (The CFTC has taken the position to apply “robust enforcement” to “prosecute fraud, abuse, manipulation, or false solicitation in markets for virtual currency derivatives and underlying spot trading.”)
Nobody needs to be protected from Doge. If there's a plausible argument that we need protecting from foreign terrorism (maybe not by means of security services clandestinely surveilling every citizen 24x7, but by some means at least), nobody is forced into dogecoin. Nobody has dogecoin as their only investment option - in fact, most prominent crypto exchanges don't even support it, and average retail investor doesn't even use crypto exchanges - they use Fidelity and Schwab, where there's no way to buy dogecoin at all. The idea that some naive investors somehow could be trapped into this and are in desperate need of "protection" RIGHT NOW is complete and utter bullshit. Everybody knows it's a wild gamble, some do it out of greed, some do it out of YOLO, some do it because it sounds fun thing to do, whatever floats your boat. But let's not pretend anybody needs protecting from something they chose to do and went to a great length to get done.
That's the grand irony to me. People construct all these bizarre theories to justify narratives to themselves when the real "government plot" is always in plain view and it's so painfully obvious : direct the money to where it is convenient to go.
I call it a conspiracy of boredom. If the average person knew all the details of how our monetary system worked, they'd be in the streets throwing molotov cocktails. The problem is that the details are just too boring and complicated for a vast majority of people to be interested in so nobody cares.
The Matt Taibbi articles of the 2008 era attempted to get people interested but covering it in sex drugs and rock n roll and putting it in rolling stone wasn't enough to get anybody interested.
Bitcoin was a stupid at a penny. $60,000 doesn't make it somehow smarter.
Everyone knows. No one is buying it because it's worth anything. They are buying it because they think there's someone more ignorant behind them to believe the lies.
Dollars and Euros, everyone knows. No one is buying it because it's worth anything. They are buying it because they think there's someone more ignorant behind them to believe the lies.
First of all, armies operate abroad (for good reason). And they don't collect taxes there.
Secondly, the entity that collects and spends taxes, is not the entity that prints the money (also for good reason). So in the end your government is just a user like any other user in the fiat system.
If most IT consultants demand to get paid in crypto, and government wants to hire IT consultants, then government will try to get their hands on crypto. Same deal but reversed.
There is no point in a government collecting taxes when they cannot spend it.
No, the government will not demand to get paid in crypto. It will demand to get paid on the market equivalent of the crypto in Euros and Dollars. Then they can convert it back if they so choose.
Armies in this case are a stand-in for state power.
The entities that collect money and who decides how much money is printed are in reality the same persons.
So what you said is already proven wrong: They do not demand to be paid in the state currency.
> are in reality the same persons
I'm from Belgium.... how so? I'm sure the ones who collect taxes here (=Country, region Flanders, province and town) are different than the European Central Bank.
Those governments are directly converting the bitcoin to US dollars, thereby creating demand for US dollars when they spend it. The result is exactly the same.
The EU is a bit different, but broadly the director of the ECB is chosen by the European Council, which is part of the EU government, which your government is part of, and also spends some of the money collected directly, and instructs national governments to implement and collect quite a few taxes
> Those governments are directly converting the bitcoin to US dollars, thereby creating demand for US dollars when they spend it. The result is exactly the same.
So now you are saying that the whole economy could run on crypto: Pay taxes in crypto, getting paid by government in crypto.
So the only user of fiat would be the government, because somehow they want to convert first to dollars to go back to crypto.
I think you just made my point, that government has no control over what we will use as currency.
People have to buy Dollars and Euros because governments require people to pay taxes in those currencies. If you don't pay then they'll seize your assets by force.
Well, not a ponzi scheme, but a type of scheme akin to a pyramid scheme, yes. The last one holding bitcoin when the sun burns out is going to be broke. Or whenever it happens.
But this situation is no different from any fiat currency, or even commodity backed currency if the commodity has no utilitarian value. Here is a fact: eventually the US dollar is going to become worthless and everyone left holding dollars is going to be broke. The game with anything like this is kicking the can down the road. Anything that is valuable solely because someone else wants it is going to be worthless eventually. That doesn't mean that in the meantime it has no utility.
The situation is fundamentally different compared to fiat currencies. A moderate rate of inflation like we have in advanced economies means that all nominal prices adjust gradually upwards, and this includes salaries. Therefore, for most people, their purchasing power is largely unaffected.
Thats not a fundamental difference with regard to whether this is a pyramid scheme (or a ponzi scheme) or not. The US dollar will be valueless one day. Maybe that day is when the sun burns out. Maybe that day is next week. Regardless, someone is left holding the bag. This is the definition of either of these schemes. Cryptocurrencies are no different from fiat currencies in this regard, though they may be different in terms of technical details, like emission schedule.
All investments will be worthless at some point in the future, but that's not what a pyramid scheme is. A pyramid scheme is an investment scheme where the revenue streams come from the investors themselves.
Yeah, but isn't that how the dollar works? Or any asset who's valuation is based on demand? We may not give money for dollars, we give work and production for it, but that's what real value is.
The return on an asset is the selling price plus any income received during the holding period minus the purchase price. A dollar provides no income and its selling and purchase price are the same in nominal terms, which means it provides a return of zero in nominal terms. In real terms, the return is minus the inflation rate, which usually is a negative number. So clearly the dollar doesn't rely on revenues from current investors to provide a return to earlier investors... because it provides no such return. Therefore I don't see how it might qualify as a pyramid scheme.
You are forgetting that the FED can and has printed enormous sums of dollars for example over the last 18 months. This dilutes the real-world purchasing power of the dollar leading to increased inflation in scarce assets such as real estate, equities, and some cryptocurrencies. Wages are rising at the advertised inflation rate or a little better while all the scarce assets you would need to obtain healthcare, higher education, housing or retirement are all increasing at a rate that puts wage earners further and further behind.
This is a series of made up facts. Real wages have increased over the last 10 years in the US [1] despite the fact that the money supply has increased substantially over the same period.
Which of my facts are made up? Real wages have fallen for the past 50 years. The fact that they may have made up some ground recently doesn't change the fact that wage growth is falling behind asset price growth and the problem is only getting worse.
Also, you are measuring wage growth vs consumer price infation so ~2%. The article talks about asset price inflation which depending on how you measure it is closer to 15%.
All of them. You said wages were "falling behind" and I showed that was not the case. Now you say wages are "falling behind asset price growth" which is a meaningless statement because there will always be some asset prices that have increased more that wages have, just like there will always be some asset prices that have increased less than wages.
According to the article real wages have been climbing for the past 20 years or so and only in the last year have caught up to the average wage in 1974. I don’t believe the article states what you claim.
Based on your experience which of the following have increased in price less than wages have increased over the past N years?
- Housing / residential real estate
- Commercial/Industrial real estate
- Stocks
- Cryptocurrencies
- Healthcare
- Higher Education
The article specifically discusses asset inflation which you ignore. Consumer price inflation only applies if you live in rented housing, never aspire for higher education, never get sick or old. For the rest of us asset price inflation is just as relevant as consumer price inflation.
The data shows that, roughly speaking, real wages declined during 1970-1995 and increased during 1995-2020, so they have not been falling for the last 50 years. That was the point. Asset inflation is not an economic concept, but a concept made up by propagandists, as far as I know. For example, the stock market goes up and down randomly. It's actually impossible to predict. So what does the fact that the S&P500 has gone up, say, 20% tell us? Nothing, because it's random. Asset price inflation tells us absolutely nothing. Consumer price indexes do include housing, education and healthcare, so the argument that CPIs don't accurately reflect the actual cost of living because they don't account for these services is false. I can't tell you what my experience with prices in the US is, because I don't live in the US, and even if I did, my perception of prices would be unreliable compared actual price statistics that are collected by statisticians and economists that study prices for a living.
The dollar does rely on demand from new users of it to keep it's value for existing users, which is the same thing. Real terms are all that matter here.
You're conflating value with price. This is common, we are taught that the two are synonymous throughout our lives.
Exploring this might help you understand what I'm saying better: when people buy dogecoin, say, with dollars, they're not actually just trading dollars for dogecoin. They're using dollars as a medium through which to trade their wealth (again, not money, similar to the value vs price thing) which could be their labor, land, other property, intellect they've sold for dollars, for dogecoin. In both instances, they're trading real wealth for something that is valuable because other people want it.
It isn't about the return. It is about the fact that both liquid storage mechanisms, dollars and dogecoin, have a "value" that is only valuable because at some point someone else will wind up with it when it inevitably becomes worth nothing. For both systems, the value is solely that people want it for now, and when they no longer want it, the people left holding it are broke, and the people that traded it to them for real wealth benefit. This is a pyramid scheme.
What you're saying is that prices can be expressed in nominal terms (i.e. in units of some currency) or in real terms (i.e. in units of some other good or service, for example, "hours of work"). The same applies to returns, there are nominal returns and real returns. Changes in a variable expressed in real terms exclude the effects of inflation. [1]
Then you argue that the dollar is a pyramid scheme because people only want dollars to buy things that have real value. It's true that people only want dollars to trade them for other stuff, but, again this is not what a pyramid scheme is. All mediums of exchange that have no intrinsic value are only wanted in order to exchange them for other stuff. A pyramid scheme is not that, a pyramid scheme is an investment scheme in which all revenues come from the investors themselves. [2]
Cash cannot be a pyramid scheme for the simple reason that the revenue streams of an investment in cash add up to zero, and therefore it's not something that an investor would consider investing in in order to earn a profit. Therefore cash is not an investment scheme, and something that is not an investment scheme can't be a pyramid scheme.
Cash is absolutely used as an investment scheme, by forex traders, by people in other countries to hedge against the weakening of their currencies, by foreign governments and banks. This is encouraged by the US deliberately as an effect of the petrodollar.
Nominal terms amount to how much of your investment in dollars you lost (or gained) while holding dollars, in real terms. Real terms are all that matter.
Cryptocurrencies are also used to trade for other stuff, as is their stated purpose.
They both have the same characteristic that makes one a pyramid scheme, but somehow not the other. They're fundamentally similar assets, but for some reason one is given a special category carved out specifically for it that actually does not exist. When you take away this special status that is only ascribed to fiat currency to differentiate it for the sake of discussions like this, they're interchangeable assets that share all fundamental characteristics. All fiat currencies are speculative assets.
Now you're talking about foreign currencies. Yes, foreign currencies can be traded for speculation purposes. When a speculator invests in a foreign currency, they think that the currency will appreciate in the future. The important fact is that currencies appreciate and depreciate according to international trade and a whole bunch of other factors unrelated to speculation. The speculator does not rely on other speculators buying the currency for it to appreciate and making a profit. Therefore, speculation with foreign currencies is not a pyramid scheme. This is in stark contrast with crypto-coins, because unlike the demand for foreign currencies the demand for crypto-coins is mainly fuelled by speculation. The only non-speculative uses of crypto-coins (as far as I know, ransom payments and purchasing of illegal substances) constitute a tiny minority of the trading volume. Therefore a crypto-coin investor absolutely depends on other "fools" investing in crypto-coins at some later time in order to make profit. This is confirmed by the fact that they're constantly trying to talk other people into buying crypto-coins, which is never the case with fx speculators. When they run out fools, they will no longer be able to make a profit. And this is why crypt-coins are a pyramid scheme and international currencies are not.
What? Protected how? People see things they don't like and demand that the government "does something about it." It's a natural reaction, but it's exactly that kind of reaction that leads to legislation like the Patriot Act.
As far as anyone currently knows, free markets have cycles and there isn't anything you can do about that. Central planning historically goes a lot worse. Perhaps just assume that the winners in the market cycle will on average be more productive deployers of capital than the losers, and that all the losers participated willingly in something they knew was a meme?
How do you propose the SEC protect investors from this “malicious bubble”? Would you make it illegal for me to buy into a joke cryptocurrency or any other sort of bubble? And who ultimately gets to decide what’s a bubble that we dumb money need to be protected from vs something that is just in its infancy or whose potential despite risks is greater than its current value? People use this sort of “protect the retail investor” rhetoric so often to reduce the capabilities of retail investors to participate in markets. This sounds like more of that.
>SEC etc all claim they want to make things safe for retail investors
Completely wrong. There is no "safe", risk/reward is always balanced.
The SEC is supposed to prevent people form being mislead, tricked, scammed whatever you wanna call it. That's absolutely not the same as making it "safe".
If you buy crypto today you are either uninformed or you know the risk exactly. Both ways its your fault and not the SECs task to prevent you from buying stuff.
With Crypto people are just being people. They jump on bandwagons on all kind of hype trains are ride it but when the music stops harsh awakening begins.
Bitcoin was not the first electronic currency or even first cryptocurrency but it was the first one decentralized and with open transparent database of all transactions not anonymous, criminal and anarchist let's destroy government thing.
Egold and DigiCash failed because of the things aforementioned but cryptocoins will fail because of the wild "pump and dump" schemes going on over and over again. And I hate to see celebs and CEOs like Elon Musk jumping on it only because it is fun. Musk could talk about technology behind Bitcoin but he chooses to promote DogeCoin/s because of the memes and lolz.
I would personally prefer US banning cryptocoins and then bringing some act and approving them one by one.
This is nothing Satoshi envisioned for Bitcoin; wild market speculation and manipulation construct it was meant to be "A Peer-to-Peer Electronic Cash System".
> Dogecoin is at $0.60. ... That’s really all you need to know about it.
I have a rock based currency worth 1$ per rockcoin. Not anything impressive about that at all.
What is impressive about Dogecoin currently isn't the exchange rate, it's the $78 Billion market cap and the fact that the market has liquidity at that market cap. The unit price of something you can almost arbitrarily subdivide isn't really worthwhile mentioning on it's own. Without additional information, it might just be another rockcoin isolated with a hypothetical or low total value.
Dogecoin is not a joke, it was made for adoption of crypto with its large quantities and tipping community and it very much succeeded in doing that creating a great decentralized cryptocurrency. What its price is is irrelevant and for me even the worst of crypto is much much better than fiat.
You say retailers should be protected against themselves through regulation.
Interestingly my stance is the complete opposite: the only markets where retailers have by far the best opportunity of making a buck are decentralized unregulated markets.
Why do I say this? Regulations of the "normal" (US) financial markets have rigged the game in a completely unfair way at the expense of retail investors and pension funds. They are referred to by institutions as "dumb money". Not so much because retail is dumb at investing, but because they are forced to play by different rules that guarantee that retail loses most of the time compared to the institutions they trade against.
If you don't know what I'm talking about or think that I'm a conspiracy theorist, you might want to google: "wash trading" (deliberate illegal price manipulation by trading back and forth between large firms on "the same team"), share rehypothecation / short selling more than 100% of the float, illegal naked short selling, selling of order flow (Robinghood), market makers like Citadel scalping off every single retail and pension fund trade for their own benefit, complex order types at various exchanges that retail doesn't have access too that have been designed specifically to benefit certain trading institutions, metals price market manipulation and so on and so forth: https://www.nasdaq.com/articles/jpmorgan-to-pay-%24920-mln-f...
One of the main root causes of this all (including the 2008 crash and the flash crash) is that hedge funds and other institutions have been in bed with the SEC. AKA: corruption and conflicts of interest. In the many cases where the SEC takes action, the fines are completely disproportional (way way lower) than whatever the institutional criminals made with their behavior. Example: the almost 1 billion USD fine that JP Morgan paid in the link above is a fraction of what they made on metals market price manipulation. This means that retailers (the poor and middle class) are essentially paying a "tax" to the rich through the money they lose on trading against big firms.
All of the above is almost certainly still ongoing, because: why wouldn't it be? Nothing changed. The fines for cheating are still tiny compared to the gains.
Here's an interesting interview with an ex-high-frequency-trader (Citadel) about the types of conflicts of interest (and cheating) in that type of trading. In case you're curious for more substantiation of my weird opinion: https://www.youtube.com/watch?v=AYct0XX0uTU
Besides. IMO the adequate article title should be "What Happens to Stocks and Cryptocurrencies When the Fed NEVER Stops Raining Money?". For the past 20 years the trend was clear: lower interest rates, negative interest rates and now helicopter money. Why would the FED stop now? or in the future? I don't see how they could? Assuming I'm right this means that a guaranteed way to lose buying power is to keep your savings in USD.
Do you know that joke about the FED raising interest rates? Right. They didn't and won't. (just my opinion)
All of the above is why companies like Tesla starting buying crypto (Tesla was almost shorted into bankruptcy. Likely by Citadel and the Bill Gates family fund among others) and this is why Elon Tweeted something like "Bitcoin, in retrospect it will seem inevitable". I believe he's just venting his frustration about the rigged unfair markets that almost cost him his company. To me personally those Tweets made a lot of sense instantly.
you are one of those very dangerous followers who touts the virtues of independence, and fighting against the system, pointing to something that seems new. Telling us it is better and different, and if we weren't such sheep we could be free, at least those of us brave enough to follow you.
I no longer believe in pretending in the good faith of posters here on HN. This kind of anti-social clap-trap is dangerous and stupid.
If I keep my money in a savings account, the worst that can happen to it is that inflation slowly, slowly erodes its value.
If I keep my money in a stock, the worst that can happen is its value craters tomorrow.
If I keep my money in a cryptocurrency, the worst that can happen is the wallet site gets hacked, the value craters tomorrow, or the government outlaws converting it back to something you can actually exchange for non-darknet goods and services.
This. My USD loose value every day, while my crypto just grow. It can turn I know that, but right now and basically the last 2 years one by far outperformed the other.
Just compare against a different strong currency to see how fragil the USD is
Perhaps the only thing that actually happens is that bubbles pop (as they always have and always will) and all that remains is anything of substance? Many cryptocurrencies and stocks are garbage but quite a number of cryptocurrencies and stocks are backed by solid companies and technology.
A few greedy people get lucky and pull out of the bubble with returns. Most greedy people get burned by their get- rich-quick gambling.
This is not anything new or terrible. Of course, all of this craziness can be used to mask genuine scams or scamish-marketed "investments". Those are what the Feds need to chase and prosecute. There are plenty of cryptocurrencies (and inflated stock evaluations) that are genuine pump and dump scams. These pump and dumps really should be prosecuted harshly.
We really need to get over this idea that we can regulate away losses and negative outcomes of basic stupid human behavior simply because it seems like an ideal that we be able to do so.
I guess the counterpoint to this would be to say that it's policy, not human stupidity which has led to the bubble. By keeping the interest rate at almost zero for over a decade, the fed has incentivized dumping money in the market, since there's really nowhere else to put it. And dumping trillions into the economy in the past year has only added fuel to the fire.
It can be argued that trying to "regulate away losses and negative outcomes" is exactly what has been happening over the past decade.
> It can be argued that trying to "regulate away losses and negative outcomes" is exactly what has been happening over the past decade.
Yes, this is because we have been living in a boomer-retirement-fund driven crony capitalistic market for the past 2-3 decades.
Wall Street and politicians in bed doing whatever they can to squeeze the economy of every last drop (usually through regulations + consolidations) to put in the old peoples last-wishes/bucket-list fund.
We are a society that went from having too many impoverished elderly to having too many narcissistic and lavish elderly who have no idea what too even do with their 3 homes and 7 figures. Rich hippies, basically.
>Cryptocurrencies now equal the value of U.S. dollars in circulation.
NO, the market cap is not the value of something real. If the author doesn't know that hes already disqualified to make any useful comment on the matter.
Fed only reluctantly raised rates several years after '08. I would be surprised if they began staking them higher anytime soon regardless of any 'strong recovery' narrative.
The banks and courts still haven't dealt with a wave of evictions and the resulting property consolidation that will result when the moratoriums are lifted.
Plus, if you believe in speculation, the markets are frothy right now. Survey says: S&P500 is held up by FAANG, corporate bonds 'a fiasco' [zombie companies], SEC snoozing as usual. If market adjusts, then rates will have to remain low; or perhaps go negative. If you believe speculation.
I think the fed would need to take back money to reverse the inflation. I don't know via which mechanisms they would do this. Does anybody here know?
It is important to remember that this would bankrupt the government unless the government finds ways to raise capital elsewhere. So we will probably not see any de-inflationary actions unless we also see higher taxes.
My feeling: We will see a fast rise in taxes and a slow rise in interest rates.
In other words: Governments will try to take away peoples money and only afterwards slowly make money more valuable again. Maybe. Maybe they will just keep the value of money at the current level.
They have tens of knobs, some strange and esoteric, targeting specific corners of the banking system, but I believe if they want to control inflation they simply need to cut back on bond purchases.
As they buy less bonds, their price drops, as the price drops risk-free yields drift higher. As risk-free yields drift higher, consumer credit becomes simultaneously more expensive and less available, as lenders allocate less of their capital to risky lending and more to risk-free (government) lending. This credit shrinkage causes the deflationary effect.
The trouble is that every time the fed has even hinted at this on past occasions (stretching back a decade), an immediate violent market event has usually followed. https://www.investopedia.com/terms/t/taper-tantrum.asp
I'm surprised no one else has mentioned it but I would say a bigger problem is that the stimulus is encouraging people to not work which discourages production of goods/services. A lot of the inflation I've experienced it directly from less people providing goods/services so those who are producing have more pricing power and simply raise their prices. I recently got quotes for some construction work and all of these contractors say they're booked out for MONTHS!
We need to start rolling back on all of the stimulus and COVID rules we've implemented to encourage people to return back to work.
Once this happens, I believe production will increase and inflation will dissipate quicker.
I wonder if this is what the fed and treasury are really shooting for, trying to push some inflation into worker salaries. If so they may willingly sacrifice some gains in the market.
Because it isn't just happening in the construction industry. There are restaurants in my town offering a $3000 bonus if servers and cooks commit to 4 months of work. They literally cannot open entire sections of their restaurant because they cannot find enough people willing to work. Same thing with the trucking industry, there was a driver shortage before the pandemic, and it has only gotten worse. People are simply not willing to work so long as they are being paid to sit at home.
To take back the money they would need to sell the assets they bought to inject money into the economy in the first place, then they would need to pretend the money gained in that sale never existed. Usually those assets are bonds so it’s unlikely they can call in those bonds before they are due and hopefully when they are due the bond debtors are able to pay.
They do it basically by raising interest rates -- when the Fed issues new currency they do it by buying bonds (usually Treasuries). When they want to take currency out of circulation, they just sell the bonds. This lowers the price of bonds, which raises interest rates.
With "money" I meant FED money. I did not count IOUs from banks as money.
So that leaves us with selling bonds.
As for the IOUs from banks: It is an interesting question how much stocks are bought with that kind of pseudo money. Since banks probably do not give those IOUs to people who want to buy stocks with them, I would think not so much.
The IOUs would have to go through zombie companies which give the IOUs to their employees who then buy stocks with them.
Do you know how much BILLIONS of bonds the FED is DIRECTLY buying?
"The Federal Reserve is expected to announce it will begin trimming its $120 billion in monthly asset purchases before the end of the year as the U.S. economy recovers strongly from Covid-19, according to economists surveyed by Bloomberg."
https://www.bloomberg.com/news/articles/2021-04-26/fed-to-ta...
It just has to stop buying them, and maybe actually start selling from their giant portfolio...
>With "money" I meant FED money. I did not count IOUs from banks as money.
That's not a reasonable take (in the context of the question). Controlling reserve rates controls the money supply, and the money supply is relevant when it comes to the level of inflation in the economy. What you're referencing is the 'monetary base'. (which is actually only a relatively small fraction of money in circulation).
I have the feeling you did not read my comment in full.
I explained why I think for that for this context the monetary base is the right type of money to look at.
For crypto and stock we do the same. People say Bitcoin is capped at 21 million and stocks in circulation is the amount the companies issued. If someone owes someone else a coin or a share, we do not count that towards the supply.
Maybe I still should be. I invested heavily into it years ago because most of the actual uses of cryptocurrency benefit from the privacy advantages of Monero.
I've sold out now. The truth is that since Monero came out, it has become much, much easier to wash or launder all other coins. I think long-term this is going to hurt its value. We're going to see long-term consolidation into a few main cryptocurrencies and there will just be a button in the wallet software that swaps all your coins or washes them using some crazy cross-chain technology or something. As an example, you don't really need to hold monero to benefit from its privacy advantages. Just sell your ETH into monero, move it between a few wallets, then sell it back into ETH. This could be done automatically.
So idk, I'm less bullish on it now even though I used to be a diehard fan.
This is not really very easy to predict. It will definitely rise from it's bottom because it has some utility even when illegal, but what that bottom is and how high it will go is the question. Will a government be capable of stopping its use? The DoD could 51% attack monero with 0.1% of it's yearly budget. But say they couldn't stop it, the next question is, is there a use for it for people who aren't engaged in black markets, for example, is it made illegal in a pending currency collapse? There are a lot of variables that affect the value of an asset, particularly currencies, and particularly when they're made illegal.
Oh please, less than 3 months ago outlets like the WSJ were openly denying asset inflation was being caused by the Fed and the Treasury’s actions. Now that Dogecoin is getting lots of attention they want to pretend like a big crash is coming? FUD plain and simple. The market will fluctuate, then it will adjust, life will go on. Ignore.
Yeah. I subscribe to WSJ. Their reporting is usually pretty good. But their editorials and even pieces like this are driven by a capitol-over-labor ideology. They had no problem with massive corporate tax breaks. Large scale spending on the other hand is a boogey man.
The government has had its foot on the gas for a long time. The economic engine meat indeed be about to overheat. But this article is more a reaction to which gas pedal is being pressed not the risk of overheating.
People lose money on buying trophy cars.
People buy stamps to collect as a memorabilia.
We lose health due to inaction on climate change and pollution.
Should the government fix those by heavy-handed restrictions on public’s actions first? It is up to WSJ to raise awareness on those issues first.
I believe that some cryptos have some innovation and bring some utility (Ethereum smart contracts for example) BUT most of it is just a huge Ponzi scheme derived from cheap and abundant money (low interest rates and easy credit).
I remembered about +- 10 years a go in Portugal, everyone started talking and participating in this Pyramid scheme game, called "The Bubble/Ball Game" with the only difference in being presented as concentric circles instead of a pyramid:
https://i.servimg.com/u/f44/12/54/78/75/folha_11.jpg
I went to check the exact dates that this happened and was reported by newspapers:
Boom! Right at the same time the last big bubble in US (subprime crisis).
This proves not only that low interests and easy credit spreads between asset classes, but also between geographies.
Each day it passes, the worst the burst of the bubble will be for EVERYONE.
Of course the most difficult part is to guess when, it can be tomorrow or it can be in 2 years, and knowing that the latest stages the most outrageous are the returns, we still could be 50%/100%/200% from the top.
For me, I'm almost all invested in S&P 500 and Nasdaq 100, they would also be affected when the bubble burst, but at least I will have productive assets generating cash-flows and selling actual things that people want and need, instead of gold-like (or with even less utility than gold) "tokens".
It's a good point what if the governments and fed just continue on this path forever. Is there any downside? I guess no one can purchase homes and live in cities anymore. But rent is still cheap. I guess it would create this sick twisted landlord / tennant distopoa where the top 1% own all the real estate and the rest of humanity must continue appeasing the landlords or be evicted aka terminated.
Somehow a fund I’m holding returned 36% in the last year, and a new one reached 10% in 4 months. I have a lot of questions about what’s about to happen.
I've always wondered why someone doesn't come out with a disruptive lighting company that doesn't do planned obsolescence, build a reputation for your bulbs lasting 10-20 years, charge the same price as your competitors, and get all the free PR from being the most eco-friendly company out there so you dominate the market while actually providing some real value.
Everything is over inflated at the moment so it's a dammed if you do dammed if you don't kind of situation. However, a global ETF is going to return the highest yield for minimised risk, and even if the world markets crash. You're still holding something of value.
Everything is jacked up. This one is a full send for better or worse. I don't think there is a good way to diversify that way - short of maybe crypto if you're a believer
“What Happens to Stocks and Cryptocurrencies When the Fed Stops Raining Money?”
Even asking the question is evidence of failure; the economy and its participants should have been robust enough to withstand this kind of shock. Instead there is an inverted economy where irresponsible and indebted risk takers are bailed out with money from those who trusted the system, while amongst other things saving for a rainy day. This bankrupt philosophy ends with social credit and cast-like systems with printing and debt at their core.
It seems that those who love freedom and responsibility have attempted to build a safe haven from all this garbage, let's hope that crypto survives.
It is the systematic breakdown of trust. High trust societies like USA take trust for granted and don’t consider how difficult it is to rebuild that fabric of trust once it has been deteriorated. It affects everything from institutions to the individual economic transactions between individuals.
Because of this, I’ve always thought it’s better to allow bigger economic downturns but don’t mess with that fabric of trust.
I don't think that's a reasonable expectation. There are countless books on the topic and it's unreasonable to expect they have this level of knowledge.
There's a reason a we don't say, "Well, if the bridge collapses while they are on it, it's their fault for not having studied civil engineering. Shoulda known better."
We will never know because they aren't going to stop raining money. Specific stocks, bonds, cryptos, properties, and currencies will go down, some to zero, but, the sum of all assets will keep going up for a very long time.
1) Neither houses nor stocks actually qualify for hyperinflation (50%+ rise per month); crypto is the only one that potentially could, though again, hyperinflation is generally not a concept applied to assets - it's specifically for consumption goods. If hypothetically the U.S. government announced that they are banning cryptos tomorrow and the value crashes, what happens to your hyperinflation?
(The FED has the lever to control "inflation" - or rather asset price appreciation in all three of the above by controlling the interest rate and rate of bond purchases, so talking about inflation in them is kind of useless. The FED could crash all three markets (stocks, crypto & housing) tomorrow if they wanted to)
I can live my life just fine without owning a house, stocks or crypto, and in fact many people do.
Bitcoin regularly moves in tandem with SPX and this effect will continue to strengthen as more ETFs become available, and futures volume (on classic regulated exchanges) increases. These instruments are gateways that enable a much larger class of investors to come into Bitcoin cheaply, but it also means Bitcoin joins their portfolios and is treated similarly to other asset classes during market events. Uncorrelated, mass adoption: pick one.
During the massively undersubscribed 7 year note auction last month BTC absolutely tanked and recovered in perfect synchrony with SPX, TLT and gold.
During a recent deleveraging event (last month I believe), it was possible to observe BTC following an identical path to SPX for almost the entire day.
You say it moves in tandem but the only time I’ve ever see it approach mathematical correlation was the Covid dump day when all markets were correlated.
Play around with the link I provided and see for yourself.
Watching charts we can see all sorts of things we think are correlated but mathematics provides a way to check if those things are real or noise.
Bitcoin is more international, perhaps? It's certainly easier for many to acquire than a mix of American stocks. Of course, the US is the largest part of the cryptocurrency market and if they thrash about in the pool, it should at least result in some ripples.
This simply isn't true. I live in Thailand. Most locals here don't have access to US stocks, or don't know that they do. Young people here have a Thai stock trading app (for the SET, which is the exchange) on their phone and another one for their domestic cryptocurrency exchange of choice. I think very few of them are buying AMZN or TSLA.
I'd bet fewer than 3% of the population here are buying US stocks.
You cannot fill two buckets at the same time. You're right though that from bird's eye view, they are both correlated with the overall amount of available money.
The Fed and SEC etc all claim they want to make things safe for retail investors, but we are seeing the manifestation of a malicious bubble right before our eyes and they are all doing nothing. Zero. Zilch.
Lots of people are going to lose a lot of money when this is over. And please remember that the government agencies that are supposed to be helping us are doing absolutely nothing.
And then, once the dust settles, just like after the dotcom bust, you will see a ton of regulations coming down like SOX to “protect” investors when we could have been protected RIGHT NOW, May 2021. It’s utter bullshit.
When people say conspiracies like the government is using covid to control us and try to take away our freedom, I would normally laugh. But after 9-11 and the “Patriot” act, the dotcom bust and SOX, and whatever regulations come from the fallout of crypto, I’m starting to wonder if they have a point.