Bitcoin Exchange Had Too Many Bitcoins(bloomberg.com) |
Bitcoin Exchange Had Too Many Bitcoins(bloomberg.com) |
This is a concise and accurate description of the fun that occurred with Bitfinex's handling of the BCH fork.
At least, it's fun if you weren't involved. If you naively held BTC on Bitfinex and were hoping to receive an equal amount of BCH you probably didn't think it was fun. If you carefully read Bitfinex's statements and decided to take advantage of their policy to acquire risk-free BCH, you probably think it's even less fun. But for the rest of us, it's fun.
Imagine if I announced tomorrow that I had created a new blockchain,
called Bitcoin Matt, and that everyone who owned a BTC today
will tomorrow own both a BTC and a BCM.
Fine, great, you all own BCMs, congratulations. But also anyone
short a BTC today will be short a BCM tomorrow, and will be
forced to go buy in those BCM shorts.
Even with no economic support for BCM -- with nobody mining
it, or using it, or treating it as a store of value -- I have
magically created demand for it, just because BTC short-sellers
will be forced to buy it in to cover their shorts.
And if no one else is using it, then it will trade very thinly,
and it will be very expensive to cover. (And anyone who does sell
it will make a lot of free money.) Nothing stops me from just
announcing that I've cloned a copy of the bitcoin blockchain
for BCM; the only way to avoid this abuse is for people to ignore
it -- and that means not forcing short sellers to cover it.If on the other hand you short a stock, and a third party says "Hey, I'm going to give everyone who owns this stock on this date a bag of cash!" I don't think that shorts would be obligated to cover that. This is, I guess, like what happened with Dole, except that there the third party was a judge, who has the force of law at his back. And this strikes me as similar to what happened to BTC/BCH, except without said force of law. Wherein lies the ability of someone to compel a BTC short to now owe BCH too? What exactly is it that shorts have agreed upon to return to the longs that they borrowed from, and if it's just BTC, isn't returning a BTC enough? If not, what stops someone else from making their own fork and compelling shorts to come up with that too?
Besides, the exchanges do not seem to have implemented this as a demerger spin-off (you were short BTC, but you do not need to return BCH - just bTC), and as a consequence NOT created "forced buy in".
Published by another guy worth reading
> As one trader puts it Short 1 btc. Buy 1 btc. Get 1 bcc free :).
Because there is greatly reduced liquidity of BCH (most exchanges don't support, hard/slow to deposit into exchanges that do), supply of BCH is artificially limited at the moment. Proponents of BCH can trade their BTC for BCH at a rate greater than they believe it is worth to easily pump the value and 'market cap' (most market cap stats have no measure of this 'locked supply') to make BCH appear more popular than it is at a fraction of the price that would be necessary if selling was easy. This could sway more miners to choose to mine BCH over BTC, and in doing so, actually increase the real value of BCH.
From: https://www.reddit.com/r/btc/comments/6ooorn/small_blockers_...
This really has nothing to do with the Bitcoin Cash blockchain, since there’s no connection between it and the tickers on the exchanges (you can’t convert one to the other).
An analogy would be ten different commodity exchanges who all trade “steel” instruments, but neither allow you to either sell “steel” instruments and receive actual steel, or deposit actual steel and receive “steel” instruments. In this case, can we really say these exchanges are trading steel? Why would their steel prices ever reflect the actual price of steel, when the two markets are not connected in any way?
This is what I'm always repeating about blockchains: they're very valuable if and only if you cannot use the protection of contracts and laws when making a transation - for example because you're doing something illegal. In Every. Other. Case. systems based on trust, contracts and law (such as the banking system for example) are more efficient.
It doesn't mean that there isn't room for improving existing systems, just this is probably best done with regular servers and databases rather than a blockchain.
Doesn't this throw up any red-flags to the btc/crypto apologist? This type of behavior is not how healthy markets work.
This is a misleading analogy, because EBAY holders can only be granted PYPL shared because EBAY owned PYPL. So unless BCH was an existing entity before the fork, which was covered under BTC already, this analogy doesn’t capture what happened here.
We’re not talking about companies, were talking about distributed databases. Databases contain information, and can be copied, as opposed to a company. A better analogy would be someone scraping Twitter, making a copy called Twooter with all past tweets from Twitter, and then forking off from there with their own “twoots”. In other words: it’s a copy, not a stock split.
Fair and no way to game. Why aren't exchanges doing this?
In a sense, what you suggest is exactly what the exchange did: They calculated the number of "actual" BTCs in the exchange, and split the appropriate number of BCHs evenly among everyone.
Random: there two YouTube live streams during the fork - WorldCryptoNetwork and Cryptoverse - both with 3000+ liveviewers - both featured on YouTube home page in technology section.
Massive event!
There are some new wallets that support BitcoinCash, but being new, they are not trusted yet. Here's the official procedure to safely use the Electrum Cash (fork) wallet according to the non-fork creators: https://electrum.org/bcc2.txt
Even after you do that, most exchanges are not yet supporting importing BitcoinCash into their accounts. Once everyone is able to do so, the price is expected to tank. I guess we'll see...
I won't claim to know any more than you, mostly because ~80% of bitcoin use is in Asia and i know little about it. All of China and Japan and 2/3 of korean exchanges offer withdrawals or trading of BCH.
Instead, we're back where we started where legalities and regulations matter and the reliability of your durable ledger is limited to the transactions it actually captures.
Is that really true? That would mean that both Y and Z should get dividend payment, which doesn't make sense. I always assumed that when X borrows one share from Y, the Y does not own that share any more.
> What doesn't make sense is for both Y and Z to vote, for example.
Very good point. But it just confirms that it makes no sense to say that Y still owns a share.
All BTC wallet balances will receive BCH
They did not issue another post saying that this would not be the case and broke their distribution terms. Regardless of whether it was "free money" (it wasn't if you consider opportunity cost), they did not respect this simple and clear statement from their terms.
1. Set up an account, borrow one bitcoin, sell it short, collect $2,700.
2. Set up another account, buy a bitcoin, spend $2,700.
3. When the fork happens, your long account ends up with +1 BTC and +0.8 BCH.
4. Your short account ends up with -1 BTC and -0 BCH (because Bitfinex doesn't require you to come up with the BCH).
5. Net, you have $0, 0 BTC and 0.8 BCH.
6. The 0.8 BCH were worth as much as $560.
7. That money was totally free.
[1] Ninja edit to specify to whom credit is due.
The money wasn't totally free. There was a huge opportunity cost to holding BTC at that time, and even having any in the margin wallet was a huge liability as opposed to funding your margin account with altcoins. Any serious trader knew that alts would rise immediately following the fork and Bitcoin would drop.
And regardless of whether it was free, their terms explicitly stated that those with a BTC balance in their wallets would receive BCH [1]. They did not issue a follow up post clarifying that hedging was strictly not allowed and thus robbed people. After how they handled both this and their hack, I urge/beg people not to use this exchange.
2. Get mad when said organization amends policy so you can't get your free money.
If you're gonna try to profit in the wild west it looks kind of unseemly to get mad when your scheme doesn't go off quite as easily as you had hoped.
If existing providers are anticompetitive, blockchains allow you to bootstrap an alternative without the same capital requirements you might need to compete with, say, VISA or Wells Fargo.
I'd also note that transacting across borders can easily make legal remedies cost prohibitive, especially for smaller transactions, even if both countries have mature legal systems. So I expect cross border activity to be more typical than the illegality example in the long run. But that fits your conditions as written, so this is just a quibble.
I don't think that's entirely fair. They're also valuable to those who want to transfer money without ridiculous fees, excessive bureaucratic friction, and many mandatory middlemen.
What other system would allow you to instantly be able to accept payments without giving an exorbitant portion of your revenue?
This invention or exaggeration of issues with modern banking just shows how weirdly desperate these people are for a problem their get-rich-quick scheme actually solves.
Fix the banking system. Make new banks. Whatever. You don't need the blockchain for that.
But well, governments won't move fast.
Then, me and my intellectualism lost big to the australopitheconomists-with-crypto.
So yeah pretty impressive to see that currencies based on unicorn blockchains of the future jump right into the old bandwagon of making up complex financial instruments that few people really understand on top of an experimental core concept.
I mean, the Dutch Tulip Bubble was driven by derivatives (and in particular, a law change forced by the politically connected that retroactively changed some future contracts into option contracts), so if you're looking for some halcyon age prior to "complex products", bailouts, and people using lobbying to reap outsize profits, you're apparently thinking of the 1500s, if not earlier. :)
Similarly, short selling is integral to markets correctly performing their role of allocating investment. Saying "we should ban this thing required for A to work so we can get back to having A work" is...not a compelling argument.
The markets are worse without them, the market was worse before HFT which is the only thing new here, trades used to cost way more due to wall street middle men taking a big cut of every trade, far far bigger than HFT's take now. The only people who have a logically valid reason to hate HFT are the old school manual traders who were displaced by them and can no long make a living trading chart patterns. As late as the 70's and 80's there were people getting rich with strategies as stupid simple as buy the 10 day high and sell the 10 day low. Those people hate HFT, it took away their cash cow.
HFT is a sign of a healthy free market, better traders came in and offered to take your trades for far less money than the manual traders could, and took over; that's healthy competition, and they competed with each other driving the prices lower and lower until they hit the penny. Now they all fight over that penny to see who can be fastest because congress won't let them compete on price anymore (the sub penny rule) so they compete on speed instead.
that's why, to protect the pensions and savings of its citizens from a catastrophic collapse in equity markets a couple of years ago, the chinese government decided to ban short selling. up and up and up, baby!
i think the government should go one step further, and prevent anyone from selling stock lower than the price they paid for it. guaranteed profit for everyone!
Short selling is what keeps the cheerleaders in check.
Seems like the people who do understand banking history are unwilling or unable to make any kind of improvements, at least in regards to the issues that digital currencies are working to address.
They could have started fresh like the zillion other cryptocurrencies that have started up since 2009, some of which appear to have real value. You wouldn't look askance at those, at least from a healthy-market perspective. The only difference here is they distributed initial currency fairly perfectly to the best possible audience of Bitcoin fanatics -- without a single spam email!
Cloning a company makes no sense in the physical world. But when it's a purely digital asset, it can be copied very cheaply.
Why isn't this zero-sum? Because it increases the TAM, rather than competing with its doppelganger in a saturated market. Maybe one ends up killing the other, but for now there's room for both.
And that doesn't sound... insane to you? I mean, skipping the problems with physics where a "split" company would have to clone its employee talent pool as well: such a company would share the same products and the same markets and the same sales channels and have zero share of all of those at the start. And you're saying that a "healthy market" would be expected to bid up shares of that crazy reincarnated zombie company thing to like 20% or whatever of the original value? Based on "different mission"?
This is crazy, and I want no part of it. The coin community is literally inventing phantom cash and pretending like there's no bubble. How often has that been true in history?
With companies it is usually done with a particular division, or business area - but in the case of an anti-trust settlement (go and compete with yourself) it would be exactly what you describe and be implemented as a demerger.
Also possible that the split generated free publicity that made some people invest in it.
Seriously, though, there's all sorts of weird psychological stuff like that going on in all markets. This isn't really any stranger. (Plus, the $700 seems to be illusory. Hardly anyone (or no one) managed to sell them at that price.)
If I gave away a tulip bulb so every Alphabet shareholder, would that diminish the value of Google stock? What if I gave away a sports car?
It's weird free money, sure, but that's because someone is willing to speculate against you. The reason it's initially given away instead of sold is marketing. There are new coins being made every week and you have to stand out.
I don't see any more red flags than with every other altcoin out there. If anything the fact that Bitcoin value hasn't changed means the market doesn't value this new coin very much. It's unfortunate that Levine repeats the $700 value because it's not possible to trade in the open market yet.
You cannot deposit Bcash in any exchanges. Make sense now?
How can that be measured?
This is pretty funny though - it turns out that you don't need to control 50% of the mining pool to mess with it - you only need enough to start a half-credible fork that presents BTC holders with enough paper-losses to make them angry and potentially expose exchanges to lawsuits.
BCC is far from pointless since it serves those who have a different ideology. Whether it remains as valuable is uncertain. Whether it is already valuable to some, is clear.
There seems to be a lot of propaganda out there trying to marginalize and minimize Bitcoin Cash. The belief that literally everyone will instantly sell their BCH as soon as they can seems to be one of the messages of that propaganda rather than a reflection of reality.
Perhaps's that's not what you intended but if you had an explanation for why parent's response doesn't work I'd love to read it.
Not trying to minimize BCH, but if you don't see that, look at what happened when people had trouble withdrawing from Gox, or when BitFinex had issues with USD withdrawals. It leads to pressure on the price.
The same can be said for everything you own.
For exemple just look at the shape of AAPL in the long run, instead of a steady curve associated with profit growth, you have an unstable mess for no reason. And people that place selling stop (that brokers recommand because they it's "safer") happens to sell/buy at worst possible moment. And this is where profit from HFT actually comes... Not thin air random people getting burned.
If investing in a company mean more thinking because you could effectively bein burned by investing in bad stock I call that the normal state. Because currently the mindset of trader is more that even if it's non-sensical to invest in Unicorn-ass-corp, it still worth supporting it because they can make profits with options anyway as long as there is movement.
I'm not radically against regulation -- precisely because too often there are information asymmetries that markets (not only in capital but labor, consumer goods, etc.) can't penetrate -- but most people who think market economics should make things good (and be repressed otherwise) also think reality can be sustainably manipulated by good will, hope and faith in unicorns.
Is Max-Hervé George still making 68% ROI per year at Aviva's expense? Did Aviva weasel out of it? Did they pay him off at a level he deemed acceptable? Did they go with the economical alternative of hiring a hit-man?
Within the Single Euro Payments Area, credit transfers (i.e. bank transfers) have been free for almost a decade and will be instant (<10s), effective November of this year. Another regulation, Payment Services Directive 2 will bring more open access to bank accounts as well, requiring banks to provide access to APIs.
Relatedly, the EU also limits interchange fees for credit and debit cards (to 0.2 and 0.3%, respectively). This is the reason why integrators like Stripe charge 1.4% for European and 2.9% for non-European cards.
Payments can be quick, simple and cheap. All you need is some competition, or regulation to favour end-users' interests.
But more importantly, that protection money becomes actual protection money, since you can't opt-out. I've bought a lot of used stuff over the years to strangers using cash, deliberately abdicating that protection. Yet if I want to do that online, I can't.
Short sellers were blamed for the Wall Street Crash of 1929.[15] Regulations governing short selling were implemented in the United States in 1929 and in 1940.[citation needed] Political fallout from the 1929 crash led Congress to enact a law banning short sellers from selling shares during a downtick; this was known as the uptick rule, and this was in effect until 3 July 2007 when it was removed by the Securities and Exchange Commission (SEC Release No. 34-55970).
So one is actually entitled to wonder if regulations are not needed. While the article fail to explain categorically in which way it is "incredibly important".
If it's any consolation, money doesn't disappear, it just becomes someone else's. It's still in the economy. Think of it as an overpriced research project, that the media went nuts over.
I could not find any stats on the amount of fiat flowing in and out of these "exchanges", which, by the way, have zero oversight and tend to disappear every few months or so.
Let's stay with purely digital. There's an app on your phone that you bought for $1, which seemed like a fair deal to you at the time -- you paid $1 for something you thought was worth $1.
The author adds a feature to the app. You like the feature, and now if someone asked you what the app were worth to you, you'd say $2. In effect, a dollar of value just appeared out of thin air. No magic needed so far for this to happen, I hope.
Same situation but you don't care about the feature -- it's something you don't personally use. But now new buyers are more interested in the app, so more people pay $1 for it. Again, some extra wealth got created just by coding up the new feature. Bubble? New paradigm? It's different this time? Nope.
A new feature got added to Bitcoin. The market says it's more valuable now.
All money is funny money. The US government regularly invents phantom cash out of thin air in order to maintain the desired 3% annual inflation. That's hundreds of billions of dollars every year that just poof into existence.
I'm basically with you though, but just out of having not had any need for it yet.
If a need arises, I'll get some just like I had to get 8 different currencies while traveling Europe before the EU. Those leftover bills feel pretty much like funny money to me. There are lots of people who would trade me US currency for them, but I still subjectively value them as basically worthless because ... well it doesn't really matter why (truth is, I'm too lazy/"busy" to go to the bank).
The value of a currency, any currency, (like any other object) is subjective to the holder.
Sounds like an opportunity for exchanges to do off-chain transfers using legal contracts.
I should know: I'm actively trying to sell BCH right now with just that kind of mechanism. What would have otherwise been a few clicks on a screen is proving to be hours worth of back-and-forth, and that's for a relatively small deal with a large degree of trust on both sides.
What the real scenario is when there is a spin off where Stock A becomes Stock A + Stock B. In that case short sellers are responsible for the value of stock B. Though no one will try going this route just to screw some short sellers. If the spun off division (or company) is worthless, the stock prices will come around to reflect that and even Stock A's price will suffer from this "trick" used by management.
Let's start with a simple example. A company has a single class of shares. All these shares are fungible. This means that it does not matter that you hold share number 545 our of 1,000,000 or share number 390,056 out of a million. Each of these million shares is identical to the others. Just the same way each $1 bill is identical to each other $1 bill.
A stock split happens. Now there are twice as many shares. However, at the moment of the split, each share is worth half as much. The total market value has not changed. Of course, trading continues and the shares will move up or down in value.
Short holders will need to come up with 1 additional share for each 1 share that they hold. This is because the stock split affects the exact class of shares that the short holder owe.
If a company issues more shares of the same class, short sellers do not need to do anything. Nothing happened to their shares. I would imagine that the value of each outstanding share would drop, and short sellers would actually profit.
If the company issued shares of another class, that would not introduce new responsibilities to short holders.
Short holders are obliged to do things on shares that they actually own. A dividend affects existing shares, hence short sellers need to pay those dividends. A split affects existing shares, hence short sellers need to find extra shares to make the lender whole. A new stock issue does not affect those existing shares: new shares are being introduced.
Another way to think about this is to think what happens if you are long 1 share of a company. If a dividend is paid, then you are paid 1 share's worth of a dividend. If a split happens, your 1 share is now 2 shares (each at half the price of the original). However, if a company issues more stock, you do not get more shares. The same rules govern short sellers. However, they must give instead of receiving.
Otherwise it's just noise.
(The real solution would be for HN to support an actual quote style, like Markdown's leading > style, but alas....)
2. Thousands of people make trades according to foolish policy
3. Organization changes terms of foolish policy, telling nobody.
4. Organization then waits until after the fact to tell everyone that they have changed the policy, which dictate d the actions of a non trivial percentage of their customers.
If you're going to try to look like a legitimate exchange, this kind of thing looks pretty unseemly.
Oh I agree! The whole thing has bitfinex looking a little foolish. It was step #1 that was the problem though. Steps 3 and 4 were them fixing it as best they could. Those parts weren't mistakes, it's just them keeping you from stealing Bitcoin Cash from their other customers.
Somehow I'm penalized for trying to maximize my profit based on the terms that were stated, even though that's what every single other person on the exchange is doing. Basically they chose to favor those who didn't understand the terms or what was going on in favor of those who did.
If Bitfinex violated it's own terms with this change, then there might be a case for suing in civil court, but something tells me that Bitfinex covered this with their lawyers before making the change.
There is no need for anyone to have BCH in hand today, no reason for someone to value a BCH today more than a BCH in a week. If they thought that thousands of people selling BCH once they are able will lead to a drop in price, they would just buy at the lower price.
There are hundreds of rubes who see "Bitcoin Cash" and think that because it suddenly jumped to the 3rd largest cryptocurrency by market cap, lots of people are talking about it, and its cheaper than Bitcoin, this could be their chance to get the elusive short-term 3x+ crypto ROI. Many of these people have no concept of the locked supply.
I'd estimate that roughly 1/4 of buyers are informed BCH proponents, the other 3/4 are low-information get-rich-quick hopeful speculators.
Why do you think buyers even exist right now... with the tiny amounts available it's just as likely that it's a few people painting the ticker trading with themselves at more or less arbitrarily high prices.
Any one can fork a coin. Then attach a significant market value to the given fork by promoting it heavily. Or if required they can do it after the fact - They can be on the buy-side and creating an ever increasing bid to pump the fork.
As for the support, you will have human greed play a big role. Everyone holding x coin gets 1 x coin + 1 fork coin with significant value which means it will create some market as well as intice miners to mine a coin with much smaller difficulty.
You can't just make random forks and have them be worth something. This is the culmination of years worth of debate and has a significant community following.
The market value of a coin isn't limited to a strict mathematical function of mining power or exchanges backing it. That's the point Matt is making.
Yet, if we were to take BCH's $400/coin at face value, then splitting BTC into BCH just created $340 of value, per coin in existence.
If I gave everyone who currently had a US dollar a 'Vkou-dollar', would I have created even a penny of value? What if there was one exchange, where Vkou-dollars were trading at 20 cents (With no liquidity)? Would you accept that valuation uncritically?
If so, I'm looking for a co-founder.
The BCH you attempted to acquire for no cost would have come from other customers in the form of that smaller coefficient.
It might a question of point of view. Maybe you focus more on tulip frenzy financial opportunities while I focus more on people that have been burned by it...
And yeah if you want to trace it back to 1500 no problem with that, old does not always equal good. It like copyright laws written prior to widespread of computers. Is it right to let them unchanged because they are old while humankind could technically share knowledge and arts at a scale never envisioned just 10 years ago?
It's not, not was I making an argument in favour of derivatives. (I'm generally in favour of them; I just wasn't making that argument.)
Rather, I was responding to your argument, which I would paraphrase (I hope not unfairly) as "I hate these new inventions, we should go back to before they existed, when markets worked properly!" by which I suspect you meant the 1950s, but really it's the 1550s. :) (And given how different markets were back then, I'd even go further and say there has never been a time when markets worked the way you imagine. I'm not even sure they could.)
In short, if you don't understand the history of financial markets, your conclusions based on your flawed understanding of that history will have greatly diminished value.
> old does not always equal good
Quite right. But it's very different to say "the last 500 years have been a mistake" versus "the last 50 years" or (especially) "the last 5 years". For one thing, it's a lot harder to imagine the counterfactual.
I can guess what the world would be like if the Gramm–Leach–Bliley Act had never passed (probably very similar to the current day, but again, that's a separate argument); I can't imagine what the world would be like without derivatives, because they have been a part of the past 500 years of development of our economy, laws, and culture. A change of that magnitude requires extraordinary justification.
Observe that I can replicate the payoff of a call option by borrowing money to buy the stock [1] or replicate a put by shorting a stock and lending money.
[1] http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/optionb...
Thus people would be more careful which is an improvement in my point of view.
Re-establishing the uptick rule would be a middle ground between banning totally and current speculative frenzy.
Granted, this is only really feasible for large institutional investors, but you can do it.
As for the other part. The whole BTC/BCH thing is like a spinoff. And yes the short sellers are on the hook if Stock A tomorrow becomes Stock A + Stock B. Can they say no, well Stock B is more than I paid for A+B combined so I am not paying? Not really because if that was the case it leaves open the door for someone saying - well stock A has appreciated more than I expected so no payout.
Now in case of forks and whether people can be on the hook for the other fork? Well, depends on how famous the fork is really. If it is as famous as BTC cash, well then that is a risk you have to take as a speculator. If not, then why was someone betting on bitcoin going down the drain after the fork? Were they not clear of the implication of the fork taking off? If not, then that's a lesson learned.
To paraphrase Matt Levine - "The basic appeal of the cryptocurrency revolution, to people like me who are not making any money off of it, is that it is fun to watch people rediscover all of the lessons of financial economics, one at a time, in public. "
https://www.bloomberg.com/view/articles/2017-06-23/buffett-d...
I don't think refusing to require shorts to deliver BCH opens the door to any other complications. In fact, I think it's the simplest interpretation. You borrowed one BTC, or share, or pony, or whatever, and later you have to return one BTC. If someone else starts a new currency, fine, but that's nothing to do with your borrowing agreement. There's no mention of the price of anything; for all this simple agreement knows, BTC is the only asset in the world. (Though in practice I'm sure you'd have to post margin. Maybe some ponies?)
For shorting stock, the return of dividends and spinoffs is, I believe, a consensus agreed upon by the market as more closely reflecting what people would want - you can start a different stock-lending market that doesn't do this, but there doesn't seem to be much demand for it. To draw a clean analogy between BTC and an equity spinoff, you have to suppose this kind of agreement exists and the contracts signed. I'm not sure what it is that BTC shorts agreed upon, and it seems there isn't widespread agreement, but to me, the simplest and narrowest interpretation of a short, in case of any confusion, is "I borrow 1 BTC, I must return 1 BTC."
(Again, I have no BTC experience, just finance experience, so if someone out there really is short BTC and has wrangled with this stuff, I'd be happy to hear from them.)
So did Bitfinex create an agreement along those lines for their short sellers? This requires looking into their T&C. A wild guess is they did not and never included a condition about such situations. That means asking BTC shorts to cover BTC cash had no legal legs at all. The best they could do is to pay the long BTC holders and exempt shorts.
You can bet they must have learned their lesson after this fiasco and updated their terms accordingly.
With stocks, the question of what the borrower is expected to cover will be addressed in the loan agreement. For example, here is a relevant paragraph from the 2010 Global Master Securities Lending Agreement:
Where the term of a Loan extends over an Income Record Date in respect of any Loaned Securities, Borrower shall, on the date such Income is paid by the issuer, or on such other date as the Parties may from time to time agree, pay or deliver to Lender such sum of money or property as is agreed between the Parties or, failing such agreement, a sum of money or property equivalent to (and in the same currency as) the type and amount of such Income that would be received by Lender in respect of such Loaned Securities assuming such Securities were not loaned to Borrower and were retained by Lender on the Income Record Date.
Here are some relevant definitions of terms used in the paragraph above:
Income Record Date, with respect to any Securities or Collateral, means the date by reference to which holders of such Securities or Collateral are identified as being entitled to payment of Income;
Income means any interest, dividends or other distributions of any kind whatsoever with respect to any Securities or Collateral;
In reality it's not an issue with large companies because it happens rarely and there are so many shareholders that a market would appear quickly.
I'd say that you are assuming that optimizing for price is good, and presupposing how a market should be judged. Cheaper is good when it represents new innovation, less energy waste, and similar improvements. Cheaper can also mean cuts to wages and jobs, or a reduction in quality.
> There's absolutely nothing wrong with short selling
Leverage can be used for good, and sometimes it's used irresponsibly. As this thread's article demonstrates, short selling also creates systemic risk.
> trades used to cost way more due to wall street middle men taking a big cut of every trade
Eliminating middlemen and/or reducing transaction overhead costs do not require high frequency. You're seeing effects of technological improvements and better regulations. The same improvements also benefit "slow" trading.
> chart patterns
> getting rich with strategies as stupid simple as buy the 10 day high and sell the 10 day low
"Buy low, sell high." is the foundation of any successful trading strategy. HFT (when successful) is literally the same thing at much shorter time scales and improved heuristics. Machine learning can probably provide more detailed at a much finer-grain than a simple 10 day sliding window. Again, this does not require high speed.
> HFT is a sign of a healthy free market
It tells you little about the health of the market; HFT is a sign of a market uses short-term transaction ordering heavily when reconciling trades. It's entirely possible to have a healthy market batched trades that all execute at the same unified price.
No, capitalism assumes that. HFT traders offer a product to the free market, they sell liquidity and they do it cheaper than their old school competition, there are willing buyers, that is the only justification they require to exist.
> Leverage can be used for good, and sometimes it's used irresponsibly. As this thread's article demonstrates, short selling also creates systemic risk.
Leverage and short selling are different issues, that leverage can be dangerous is not a valid critique of short selling, you're trying to move the goalpost, this is a fallacious argument.
> Eliminating middlemen and/or reducing transaction overhead costs do not require high frequency.
No one said it did, however HFT does do that, which is what was claimed, so again, a fallacious and baseless critique.
> "Buy low, sell high." is the foundation of any successful trading strategy. HFT (when successful) is literally the same thing at much shorter time scales and improved heuristics. Machine learning can probably provide more detailed at a much finer-grain than a simple 10 day sliding window. Again, this does not require high speed.
Again, baseless critique, no one said it required HFT. HFT trading sells liquidity cheaper than those old school simple traders, the market chose HFT.
Do you have any actual critique of HFT, or do you simply presume it's bad and then employ fallacious arguments that X doesn't require HFT? You quite literally have added nothing to the conversation. That it's possible to have a healthy market without HFT is irrelevant, it asserts HFT is bad without evidence, HFT traders have the same right to trade that anyone else does, you don't just get to ban them because you don't like them without cause. That something still works without HFT is not evidence against HFT any more than the fact that I can still travel without a car is evidence against cars.
What critics of short selling are often unaware of is the role that short holdings play in dampening a market crash.
The act of unwinding your short position involves buying the stock which means that for every tick downward in stock price there is new upward pressure on the price as buyers step in to cover their short position.
Were these constant, ready buyers not extant, market downturns can turn into precipitous crashes very quickly.
There are no legitimate complaints against HFT trading that aren't simply misconceptions about what they do or how markets work.
Value is measured by profit, if what the HFT's were offering was of no value, there would be no profit in it as no one would buy their liquidity. HFT sell liquidity, that there are willing buyers proves their value. Quite simply, you do not know what you are talking about.
And low-frequency trading isn't?
Code fork: taking the source code from one project, modifying it, then offering the result as a new project. This is what the overwhelming majority of altcoins are. For example Litecoin is a five-year-old code fork of Bitcoin. Even though Litecoin's code is nearly identical to Bitcoin's, Litecoin from the beginning created its own blockchain, which shares no data with Bitcoin's blockchain.
Chain fork: taking the blockchain from one project, and adding new blocks to that chain that are not compatible with the chain's original style. Variations of this are soft forks (the block-adding rules are made more strict), and hard forks (the block-adding rules are made less strict). Both this week's BTC-BCH fork and last year's ETH-ETC fork were hard forks.
Complications: obviously, a chain fork requires changes to the relevant code to be able to work, so a chain fork usually comes with a code fork, but not necessarily. For example, theoretically, a completely new code base could be created from scratch in a clean-room kind of environment to add new kinds of blocks to an old blockchain.
No, this has been done a number of times. Clams, lumens, byteball, this thing: https://bitcointalk.org/index.php?topic=1883902.0 all come to mind.
It isn't done often because it's not seen as a useful technique mostly: you just gave a ton your asset to people who think it's worthless, and who may actively dislike it. Not a great way to maintain a market price.
Also isn't that splitting hairs about requiring the blockchain history? I don't think Matt said that.
Also if you do share history, it is much much harder to start, because you start off with the previous difficulty which is very hard to mine on. If you start a new altcoin with a clean history, the difficulty starts off very low.
Bitcoin Classic and Bitcoin XT have not actually forked the blockchain. So they are not separate coins yet.
(And before you say something about the bcash price not being zero: right now there are no functioning markets where you can deposit any to sell it.)
No part of this makes sense for a short to have to go and buy bch.
Anyone, anywhere, anytime can fork bitcoin and give away new worthless coins. Forcing shorts to go an buy all the worthless coins is simply unreasonable.
False. If there were no risk, it would be illegal, and your'e still tossing out that incorrect term without explanation as to what you mean by it since you clearly can't mean the illegal practice of front-running that we've already agreed they aren't doing.
> There is however an investment cost for having lower latency connections than others.
Not relevant.
> There are no guesses.
False.
> And not sure how what I'm claiming is wrong.
Because it's simply not true. Once again, you've ignored my question, you still cant' explain what HFT's are doing wrong, my guess is because you don't actually know what you're criticizing so you toss out flash boy hyperbole like front-running without actually being able to explain what you mean.
> This has been the entire reason why IEX exists.
The IEX exists as a reaction to traders who were displaced by HFT creating a desire for an exchange that doesn't allow it; it in no way proves HFT is doing anything wrong. It's nothing more than marketing capitalizing on fear to establish a new exchange, perfectly legal, but it doesn't make the irrational fear against HFT legitimate.
You need to fork the code (with your changed rules) anyways and you can adapt the difficulty then. Bitcoin Cash did exactly that. They lowered the difficulty to something like 10% of Bitcoin anticipating 10% of the hashing power. They only got 1% and there was a gap of 9 hours without any new block. They seem to be at ~1h per block now. [0]
That's completely counter intuitive to what you're saying about Matt's example not having a history.
I did not say HFT is good or bad. I pointed out that not everybody likes it or benefits.
Once again, you've ignored my question, you still cant' explain what HFT's are doing wrong. It doesn't matter that some people don't like them when those people can't even rationally explain why they don't like them. You still can't explain why you don't like them without falling back on false facts and I've asked many times.