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Bitcoin Exchange Had Too Many Bitcoins

620 points by dsri 9y ago

jandrese 9y ago
I really don't see how this fork is going to go down as anything other than a boondoggle. Right now the value of BCC is being propped up by having almost no way to actually sell it, but once an actual market opens I fully expect its price to crash hard.
- thefalcon 9y ago
  This line of argument makes little sense. In the markets that do offer a way to buy and sell it, there's still a market setting the price. This idea that there will be totally different market forces at work once more people have access to the market is silly. I would not buy a $400 BCH today if I wasn't also willing to buy a $400 BCH when transaction volume is 1000x what it is now. If anything the fact that there's not an insane selling frenzy from those "lucky enough" to have access to their BCH on an exchange shows that there's a real demand for BCH as a currency. 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.
  - BinaryIdiot 9y ago
    So I'm not a bitcoin nor market expert but jandrese laid down his opinion, which sounded like it made sense to me. I was hoping for a well informed response but your comment just reads like you wanted to call names versus explain your reasoning why you think jandrese's argument doesn't make sense. 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.
    - thefalcon 9y ago
      My point is that there is no driver for the price to crash. There will not suddenly be a surprise supply of BCH found that will flood the market. Everyone knows that there is 1 BCH for every BTC out there, and that almost none of that is currently able to be exchanged on a market. That includes every single person who is driving up the price of BCH by purchasing it in the limited markets where it is available.
      - mhluongo 9y ago
        Multiple large holders have publicly said they'll dump their BCH. Grayscale, plenty of others have made their trading preference public. Of course that's not the same as hearing the market and putting your money where you mouth is- but right now the market is being restricted due to deposit issues.
        elif 9y ago
        Grayscale also seems to have chosen Ethereum Classic. Interesting tastes.
      - BinaryIdiot 9y ago
        Interesting. I don't understand how all of the BCH and BTC stuff works so I guess I should read up on it but thanks for further explaining your position :)
      - vkou 9y ago
        People trading BTC for USD seem to think otherwise. The BCH fork had no serious impact on the value of BTC. Holders of BTC are not confident that BCH will be successful. 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.
        thefalcon 9y ago
  - makomk 9y ago
    People who want to buy BCH have relatively unrestricted access to the market since most of the exchanges have reopened BTC deposits. (Of course, whether they can withdraw that BCH is another story entirely.) Most people who want to sell do not have access since BCH deposits are either not available or require multiple days worth of confirmations. Can you see the problem here?
    - thefalcon 9y ago
      You're saying that people buying BCH right now aren't aware that there's a huge glut of supply waiting to flood the market, and aren't taking this into account in their buying decisions? 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.
      - mhluongo 9y ago
        The "it's priced in" argument doesn't hold for in my experience. The halving was supposedly "priced in" as well. This is still a small market with inexperienced players.
      - cwkoss 9y ago
        I think the average cryptocurrency trader is much lower-information than you are estimating. 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.
        thefalcon 9y ago
        Fair enough, we'll all find out in due course. The constant flow of comments where people are trying to equate this particular hard fork (the end result of a very long and messy civil war) with any old Joe creating his own BTC fork is clearly just grinding my gears a little too much. There's a reason to expect BCH to end up as more than just a boondoggle (to the extent that any cryptocurrency can be said to be more than just a boondoggle): Bitcoin with larger blocks has been desired by many people for a very long time.
  - mhluongo 9y ago
    We've seen the same thing play out time and again when deposits or withdrawals are prevented on an exchange- the order book gets eaten through. 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.
- taysic 9y ago
  You can say the value of BTC was propped yesterday by that logic too since many exchanges froze transactions. 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.
- polemic 9y ago
  This also explains where the "missing" (negative) value actually exists: in non-tradable BCC. 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.
colinbartlett 9y ago
I always really enjoy Matt Levine's columns in Bloomberg. Very detailed and technical but always very carefully explained and readable.
- curiousgal 9y ago
  You're probably subscribed to his newsletter then, it's the only newsletter in my inbox.
  - thefalcon 9y ago
    Good call. I've only ever read this and, interestingly, the semi-related Dole article, but they were both superb. Subscribed.
    - tanderson92 9y ago
      Don't miss out on the incredible "Arbitrage Discovered", one of the best things he has ever written: https://www.bloomberg.com/view/articles/2015-02-27/arbitrage-discovered https://www.bloomberg.com/view/articles/2015-02-27/arbitrage...
      - rspeer 9y ago
        I want to hear the epilogue to that story, but disappointingly the story seems to have gone quiet since it was reported. 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?
jstanley 9y ago
Great writeup. Almost anything written by Matt Levine is worth reading. 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.
- panarky 9y ago
  Matt sums it up well in a footnote: 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.
  - cletus 9y ago
    I hate to be That Guy [tm] but can you please not indent quotes like that? It's a PITA to read on mobile.
    - contingencies 9y ago
      Asterisks are superior. Quotations with style.
    - alttab 9y ago
      Thank you!!!
tobyhinloopen 9y ago
So I had some bitcoins at time of the fork. Do I have the other new coins as well? How can I spend, sell or buy them? Is there a multibit for bitcoin cash?
- sputknick 9y ago
  IT depends. If you own your keys, then yes, you have an equal number of BCH now. If you don't it's up to your exchange to decide if they will support the fork, and therefore, weather or not you now have an equal number of BCH.
- gressquel 9y ago
  did you have it on a wallet online or in a wallet you created with a software locally? if its locally created, then good news. you should download Electron Cash and import the existing wallet and you shall see your BCCs.
  - vinhboy 9y ago
    Should I sell my BCC so I can collect the cash in case it fails? And then assume I will still have my BTC..
    - vkou 9y ago
      If you don't want to own BCC, and you don't expect it to rise in price, you should sell it. The same can be said for everything you own.
    - asciimo 9y ago
      That's a common question right now. So is, "should I sell my BTC in case it fails, and assume I will still have BCH?" The market might help you make that decision when the exchanges open BCH withdrawals and deposits.
- curiousgal 9y ago
  If you had those coins on Bitfinex or Kraken then yes your account will have an equal amount of BCC. As they are on your exchange account, you can trade them for BTC and go about spending those the usual way. You can also withdraw BCC but it'd take days.
cwkoss 9y ago
Bit tangential, but I read an interesting theory this morning: 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_are_segshitting_their_pants_over/dkj9mex/ https://www.reddit.com/r/btc/comments/6ooorn/small_blockers_...
- alanfalcon 9y ago
  In the end, we're all pawns in the game of making the super-rich even more wealthy, aren't we? insert defeated sigh of resignation here
  - kleer001 9y ago
    Pawns? More like cattle.
  - Cthulhu_ 9y ago
    And yet, with things like bitcoin and ethereum and the like, some of "us" became rich very quickly. A common trope, and I'll just repeat it, is "I wish I had bought / mined bitcoin / eth in <year>". For ETH that would've been last year.
- tpallarino 9y ago
  Yes. Price and market cap mean nothing when there is not sufficient liquidity. There was literally a 60% price spread between exchanges yesterday because arbitraging is incredibly difficult/impossible.
  - runeks 9y ago
    If arbitraging is impossible, can we really call it a single market? If I can’t seek exchange A’s BCH on exchange B, and vice versa, aren’t we actually dealing with two instruments, rather than one? Looks to me like multiple different BCH IOU markets currently exist: one for each exchange. 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?
pishpash 9y ago
So what's the explanation for the combined coins shooting up in value (if only for a little bit)?
- taysic 9y ago
  It's a mixture of things - it was very difficult yesterday to trade either. There could also been an influx of fiat into BCC. Also the supply of BCC is constrained by the exchanges which don't want to "interact" with it. There could be more to it.
- tpallarino 9y ago
  BCH has no liquidity. It's price is largely irrelevant now. You can't just look at market caps.
  - elif 9y ago
    That is only true if the market is unable to recognize it and price coins accordingly. Maybe the market is purely irrational, but it's certainly not a given. 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.
- deleted 9y ago
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- homero 9y ago
  There's thousands of people like me checking every minute if we can deposit bch to sell. There's millions waiting and I'm hoping to be the first...
  - Sholmesy 9y ago
    You've commented this on like 4 other replies. I'm largely uninvolved in cryptocurrency-politics, but do you have an agenda? It seems absurd that you want your voice to be heard so much that you would literally copy paste your reply into a myriad of comment trees...
smaili 9y ago
Here's what people tried to pull off: 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.
- thefalcon 9y ago
  This is the most clear and concise explanation I've seen. Bravo Mr Levine[1]. It's worth noting that some people tried to pull this off because Bitfinex's official communications seemed to clearly state that this is how Things Would Work, at least until after the fact when they realized what a mistake that would be. [1] Ninja edit to specify to whom credit is due.
  - tanderson92 9y ago
    You might consider reading the article, it's actually Matt Levine's words copy+pasted.
- tpallarino 9y ago
  Disclosure: Bitfinex robbed me of BCH according to the terms of the agreement, which was not amended until after the fact. 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. [1] https://www.bitfinex.com/posts/212 https://www.bitfinex.com/posts/212
  - harryh 9y ago
deleted 9y ago
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notlikethis1994 9y ago
Yeah if you were paying attention to the short vs long interest for BTC on Bitfinex right before the hard fork, BTC shorts went up like crazy and everyone thought ppl were hyper bearish on BCH. It was actually because ppl were pulling this funny business to get free BCH from Bitfinex.
- tpallarino 9y ago
  Hedging against a clearly inflated asset is "funny business"?
  - zwily 9y ago
    The funny business is that people were creating a position guaranteed to pay out free money, assuming bitfinex actually followed their own policy.
    - tpallarino 9y ago
      That's not true, I performed calculations beforehand to decide whether it was more profitable to hold BTC in the margin wallet as opposed to other assets (which I knew would rise after the fork). The core question is whether altcoins would rise more than the price ratio of BCH/BTC. Alts went up 20% while BCH/BTC is ~0.15, meaning you were better off skipping the BCH altogether and just holding alts. The tradeoff is the increased risk.
NelsonMinar 9y ago
It is hilarious watching people try to reinvent financial institutions without any knowledge of or respect for history.
- mikeschmatz 9y ago
  If nothing else blockchain creates tons of entertainment value. Something completely crazy seems to go down every day. It is like a reality show on a criminal channel
- deleted 9y ago
  [deleted]
- devrandomguy 9y ago
  They are just exploring the solution space, with minimal baggage to hold them back. The real problem, is that people are trying to make a living off of something that is still experimental / alpha level maturity. 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.
  - NelsonMinar 9y ago
    Sure, but their youthful experiments are involving billions of dollars worth of money. Or at least they claim it does.
    - devrandomguy 9y ago
      And why is so much money getting dumped into these constructs? AFAIK, it is speculators that are inflating that economy, not the coin devs hyping it as an investment. 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.
      - supermdguy 9y ago
mannykannot 9y ago
There are shades of the 'what happens to my self if I could be teleported without the destruction of the original me?' philosophical conundrum.
tpallarino 9y ago
From the BCH Token Distribution Announcement: 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. https://www.bitfinex.com/posts/212 https://www.bitfinex.com/posts/212
numbsafari 9y ago
This would have been so much more fun if the contracts were all smart contracts using Ethereum.
- zodiac 9y ago
  How would you set up a btc lending (for shorts) contact with eth?
  - jeeceebees 9y ago
    If you created a 2-way pegged bitcoin ERC20 token, you could use something like EthLend.
ohiovr 9y ago
The article seemed to indicate a short squeeze condition without actually naming it that way, strangely enough. If so, it could get vicious for the short sellers. I am not invested in it, just thought to add my 2 cents
stordoff 9y ago
This is veering off-topic, but is anyone else finding the Bloomberg menu nearly impossible to use/borderline broken? It activates on hover, but to actually click on a story you have to get past a secondary list of categories that also acts on hover (hiding the story you intended to click on). If you move the mouse diagonally instead, chances are you'll activate a different top-level menu. I felt like I had to dodge around menu elements just to be able to click on anything.
matt_wulfeck 9y ago
> But BTC hasn't really lost any value since the spinoff, still trading at about $2,700. So just before the spinoff, if you had a bitcoin, you had a bitcoin worth about $2,700. Now, you have a BTC worth about $2,700, and also a BCH worth as much as $700. It's weird free money, if you owned bitcoins yesterday. Doesn't this throw up any red-flags to the btc/crypto apologist? This type of behavior is not how healthy markets work.
- lqdc13 9y ago
  Could be that people are more confident in BTC after they decided to do something about the slow confirmations. As in the value of the original Bitcoin jumped at the time of the split but was offset by the split. Also possible that the split generated free publicity that made some people invest in it.
- spectrum1234 9y ago
  The market expected BTC to fall by about as much as BCH increased. It did not. The market was wrong by about ~25%. At least in that moment.
  - Fej 9y ago
    That is a massive jump in a very short period of time.
  - deleted 9y ago
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  - icebraining 9y ago
    The market expected BTC to fall by about as much as BCH increased. How can that be measured?
- sowbug 9y ago
  If you're thinking of this event as a split, dividend, or spinoff, then it doesn't make sense. But it's more like a company cloning itself but adopting a different vision/mission, and awarding shares to all existing shareholders. 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.
gregschlom 9y ago
"There is no single obviously correct solution to these issues. Instead, each decision was sort of weird and contingent and reversible: not the immutable code of the blockchain, but just humans sitting around and trying to figure out which approach would cause the fewest complaints. In that, it's a bit like the Dole settlement process -- only instead of a neutral judge making decisions based on written contracts and established precedent, it's the people running each exchange making their own judgment calls." 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.
- brownbat 9y ago
  I like that rule, but I would extend ever so slightly: 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.
- goodplay 9y ago
  >they're very valuable if and only if you cannot use the protection [..] 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?
  - closeparen 9y ago
    Ridiculous fees, bureaucratic friction, and mandatory middlemen are exactly how I would describe converting the BTC someone transferred to you to a usable form (by exchanging to your local fiat currency).
chaoticmass 9y ago
Seems to me the problem is with the exchanges, not the bitcoin.
runeks 9y ago
> To use an imperfect analogy from corporate finance, you could think of the fork as a spinoff. For most of PayPal’s life, it was owned by eBay. Holders of the EBAY ticker owned the parent company eBay, which encompassed eBay proper as well as PayPal. On the day of the spinoff, eBay stockholders received, for each EBAY share they owned, one PYPL share. At the same time, they got to keep their existing EBAY shares. 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.
perfunctory 9y ago
> The way short selling works is that X borrows a share from Y and sells it to Z. So Y owns one share, and Z owns one share, and X owes one share, and everything balances out and there's only one share outstanding. 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.
- kgwgk 9y ago
  Why wouldn't it make sense? If you buy a stock don't you expect to get dividends? You may have bought it from a short seller. Or you may have loaned it to a short seller (brokers often do that without your knowledge, but with your permission). Everything balances out because the company will pay to Z and X will pay to Y. What doesn't make sense is for both Y and Z to vote, for example.
- perfunctory 9y ago
  @kgwgk well, the company obviously doesn't want to pay the dividend twice. So indeed they will only pay to Z. If X pays Y I presume that's just the terms of the lending agreement. > 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.
  - deleted 9y ago
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- xerophyte12932 9y ago
  Apparently, X will have to supply Y with all dividends thus making Y's position exactly the same as owning a share. I think the only difference is that Y can't sell the share? Then again, it can sell the IOU of the share to someone, and it probably costs the same as the share...
Legogris 9y ago
Excuse my ignorance, but this seems like the obvious solution to me: Distribute 1 BCH to each (actual) BTC holder on the exchange, completely ignore margin orders. So shorts don't owe and also longs aren't credited BCH. Fair and no way to game. Why aren't exchanges doing this?
- stefek99 9y ago
  It makes sense to me, I might be wrong. 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!
- eterm 9y ago
  What in your mind is the difference between "Holders" and "longs"? They're the same thing. Holding an asset is being long on that asset, just as being short on an asset is owing that asset.
- tomerv 9y ago
  There's no such thing as "actual" BTC holder. All the BTCs in the exchange are fungible. A holder of BTC doesn't know if that BTC was loaned to someone else or not. 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.
skywhopper 9y ago
Good article. A blockchain can only protect systems that it encodes directly. And for the simple cash transactions that's easy enough. But humans can, have, and will devise all sorts of derivative financial instruments to amplify the utility of assets, and no mathematical system can encode all the arbitrary possibilities that implies into their structure beforehand. 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.
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Coffee_lover 9y ago
I find it stupid. People were warned two weeks in advance that they will be given less than 1 BCH per BTC. People had two weeks to withdraw their BTC in order to get 1:1 during the fork.
philanthropist 9y ago
Finex may have played this badly, but it was clearly stated in their statement on how they were handling the fork. If you didn't like their approach, all you had to do was move your coins off the exchange and split them yourself. It wasn't (too) difficult to do, and I say that as someone who isn't really technical, but can follow simple instructions.
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620 points by dsri 9y ago

I really don't see how this fork is going to go down as anything other than a boondoggle. Right now the value of BCC is being propped up by having almost no way to actually sell it, but once an actual market opens I fully expect its price to crash hard.

thefalcon 9y ago
This line of argument makes little sense. In the markets that do offer a way to buy and sell it, there's still a market setting the price. This idea that there will be totally different market forces at work once more people have access to the market is silly. I would not buy a $400 BCH today if I wasn't also willing to buy a $400 BCH when transaction volume is 1000x what it is now. If anything the fact that there's not an insane selling frenzy from those "lucky enough" to have access to their BCH on an exchange shows that there's a real demand for BCH as a currency. 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.
- BinaryIdiot 9y ago
  So I'm not a bitcoin nor market expert but jandrese laid down his opinion, which sounded like it made sense to me. I was hoping for a well informed response but your comment just reads like you wanted to call names versus explain your reasoning why you think jandrese's argument doesn't make sense. 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.
  - thefalcon 9y ago
    My point is that there is no driver for the price to crash. There will not suddenly be a surprise supply of BCH found that will flood the market. Everyone knows that there is 1 BCH for every BTC out there, and that almost none of that is currently able to be exchanged on a market. That includes every single person who is driving up the price of BCH by purchasing it in the limited markets where it is available.
    - mhluongo 9y ago
      Multiple large holders have publicly said they'll dump their BCH. Grayscale, plenty of others have made their trading preference public. Of course that's not the same as hearing the market and putting your money where you mouth is- but right now the market is being restricted due to deposit issues.
      - elif 9y ago
        Grayscale also seems to have chosen Ethereum Classic. Interesting tastes.
    - BinaryIdiot 9y ago
      Interesting. I don't understand how all of the BCH and BTC stuff works so I guess I should read up on it but thanks for further explaining your position :)
    - vkou 9y ago
      People trading BTC for USD seem to think otherwise. The BCH fork had no serious impact on the value of BTC. Holders of BTC are not confident that BCH will be successful. 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.
      - thefalcon 9y ago
- makomk 9y ago
  People who want to buy BCH have relatively unrestricted access to the market since most of the exchanges have reopened BTC deposits. (Of course, whether they can withdraw that BCH is another story entirely.) Most people who want to sell do not have access since BCH deposits are either not available or require multiple days worth of confirmations. Can you see the problem here?
  - thefalcon 9y ago
    You're saying that people buying BCH right now aren't aware that there's a huge glut of supply waiting to flood the market, and aren't taking this into account in their buying decisions? 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.
    - mhluongo 9y ago
      The "it's priced in" argument doesn't hold for in my experience. The halving was supposedly "priced in" as well. This is still a small market with inexperienced players.
    - cwkoss 9y ago
      I think the average cryptocurrency trader is much lower-information than you are estimating. 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.
      - thefalcon 9y ago
        Fair enough, we'll all find out in due course. The constant flow of comments where people are trying to equate this particular hard fork (the end result of a very long and messy civil war) with any old Joe creating his own BTC fork is clearly just grinding my gears a little too much. There's a reason to expect BCH to end up as more than just a boondoggle (to the extent that any cryptocurrency can be said to be more than just a boondoggle): Bitcoin with larger blocks has been desired by many people for a very long time.
- mhluongo 9y ago
  We've seen the same thing play out time and again when deposits or withdrawals are prevented on an exchange- the order book gets eaten through. 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.
taysic 9y ago
You can say the value of BTC was propped yesterday by that logic too since many exchanges froze transactions. 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.
polemic 9y ago
This also explains where the "missing" (negative) value actually exists: in non-tradable BCC. 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.

colinbartlett 9y ago

I always really enjoy Matt Levine's columns in Bloomberg. Very detailed and technical but always very carefully explained and readable.

curiousgal 9y ago
You're probably subscribed to his newsletter then, it's the only newsletter in my inbox.
- thefalcon 9y ago
  Good call. I've only ever read this and, interestingly, the semi-related Dole article, but they were both superb. Subscribed.
  - tanderson92 9y ago
    Don't miss out on the incredible "Arbitrage Discovered", one of the best things he has ever written: https://www.bloomberg.com/view/articles/2015-02-27/arbitrage-discovered https://www.bloomberg.com/view/articles/2015-02-27/arbitrage...
    - rspeer 9y ago
      I want to hear the epilogue to that story, but disappointingly the story seems to have gone quiet since it was reported. 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?

jstanley 9y ago

Great writeup. Almost anything written by Matt Levine is worth reading. 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.

panarky 9y ago
Matt sums it up well in a footnote: 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.
- cletus 9y ago
  I hate to be That Guy [tm] but can you please not indent quotes like that? It's a PITA to read on mobile.
  - contingencies 9y ago
    Asterisks are superior. Quotations with style.
  - alttab 9y ago
    Thank you!!!

tobyhinloopen 9y ago

So I had some bitcoins at time of the fork. Do I have the other new coins as well? How can I spend, sell or buy them? Is there a multibit for bitcoin cash?

sputknick 9y ago
IT depends. If you own your keys, then yes, you have an equal number of BCH now. If you don't it's up to your exchange to decide if they will support the fork, and therefore, weather or not you now have an equal number of BCH.
gressquel 9y ago
did you have it on a wallet online or in a wallet you created with a software locally? if its locally created, then good news. you should download Electron Cash and import the existing wallet and you shall see your BCCs.
- vinhboy 9y ago
  Should I sell my BCC so I can collect the cash in case it fails? And then assume I will still have my BTC..
  - vkou 9y ago
    If you don't want to own BCC, and you don't expect it to rise in price, you should sell it. The same can be said for everything you own.
  - asciimo 9y ago
    That's a common question right now. So is, "should I sell my BTC in case it fails, and assume I will still have BCH?" The market might help you make that decision when the exchanges open BCH withdrawals and deposits.
curiousgal 9y ago
If you had those coins on Bitfinex or Kraken then yes your account will have an equal amount of BCC. As they are on your exchange account, you can trade them for BTC and go about spending those the usual way. You can also withdraw BCC but it'd take days.

cwkoss 9y ago

Bit tangential, but I read an interesting theory this morning: 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_are_segshitting_their_pants_over/dkj9mex/ https://www.reddit.com/r/btc/comments/6ooorn/small_blockers_...

alanfalcon 9y ago
In the end, we're all pawns in the game of making the super-rich even more wealthy, aren't we? insert defeated sigh of resignation here
- kleer001 9y ago
  Pawns? More like cattle.
- Cthulhu_ 9y ago
  And yet, with things like bitcoin and ethereum and the like, some of "us" became rich very quickly. A common trope, and I'll just repeat it, is "I wish I had bought / mined bitcoin / eth in <year>". For ETH that would've been last year.
tpallarino 9y ago
Yes. Price and market cap mean nothing when there is not sufficient liquidity. There was literally a 60% price spread between exchanges yesterday because arbitraging is incredibly difficult/impossible.
- runeks 9y ago
  If arbitraging is impossible, can we really call it a single market? If I can’t seek exchange A’s BCH on exchange B, and vice versa, aren’t we actually dealing with two instruments, rather than one? Looks to me like multiple different BCH IOU markets currently exist: one for each exchange. 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?

pishpash 9y ago

So what's the explanation for the combined coins shooting up in value (if only for a little bit)?

taysic 9y ago
It's a mixture of things - it was very difficult yesterday to trade either. There could also been an influx of fiat into BCC. Also the supply of BCC is constrained by the exchanges which don't want to "interact" with it. There could be more to it.
tpallarino 9y ago
BCH has no liquidity. It's price is largely irrelevant now. You can't just look at market caps.
- elif 9y ago
  That is only true if the market is unable to recognize it and price coins accordingly. Maybe the market is purely irrational, but it's certainly not a given. 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.
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homero 9y ago
There's thousands of people like me checking every minute if we can deposit bch to sell. There's millions waiting and I'm hoping to be the first...
- Sholmesy 9y ago
  You've commented this on like 4 other replies. I'm largely uninvolved in cryptocurrency-politics, but do you have an agenda? It seems absurd that you want your voice to be heard so much that you would literally copy paste your reply into a myriad of comment trees...

smaili 9y ago

Here's what people tried to pull off: 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.

thefalcon 9y ago
This is the most clear and concise explanation I've seen. Bravo Mr Levine[1]. It's worth noting that some people tried to pull this off because Bitfinex's official communications seemed to clearly state that this is how Things Would Work, at least until after the fact when they realized what a mistake that would be. [1] Ninja edit to specify to whom credit is due.
- tanderson92 9y ago
  You might consider reading the article, it's actually Matt Levine's words copy+pasted.
tpallarino 9y ago
Disclosure: Bitfinex robbed me of BCH according to the terms of the agreement, which was not amended until after the fact. 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. [1] https://www.bitfinex.com/posts/212 https://www.bitfinex.com/posts/212
- harryh 9y ago

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notlikethis1994 9y ago

Yeah if you were paying attention to the short vs long interest for BTC on Bitfinex right before the hard fork, BTC shorts went up like crazy and everyone thought ppl were hyper bearish on BCH. It was actually because ppl were pulling this funny business to get free BCH from Bitfinex.

tpallarino 9y ago
Hedging against a clearly inflated asset is "funny business"?
- zwily 9y ago
  The funny business is that people were creating a position guaranteed to pay out free money, assuming bitfinex actually followed their own policy.
  - tpallarino 9y ago
    That's not true, I performed calculations beforehand to decide whether it was more profitable to hold BTC in the margin wallet as opposed to other assets (which I knew would rise after the fork). The core question is whether altcoins would rise more than the price ratio of BCH/BTC. Alts went up 20% while BCH/BTC is ~0.15, meaning you were better off skipping the BCH altogether and just holding alts. The tradeoff is the increased risk.

NelsonMinar 9y ago

It is hilarious watching people try to reinvent financial institutions without any knowledge of or respect for history.

mikeschmatz 9y ago
If nothing else blockchain creates tons of entertainment value. Something completely crazy seems to go down every day. It is like a reality show on a criminal channel
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devrandomguy 9y ago
They are just exploring the solution space, with minimal baggage to hold them back. The real problem, is that people are trying to make a living off of something that is still experimental / alpha level maturity. 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.
- NelsonMinar 9y ago
  Sure, but their youthful experiments are involving billions of dollars worth of money. Or at least they claim it does.
  - devrandomguy 9y ago
    And why is so much money getting dumped into these constructs? AFAIK, it is speculators that are inflating that economy, not the coin devs hyping it as an investment. 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.
    - supermdguy 9y ago

mannykannot 9y ago

There are shades of the 'what happens to my self if I could be teleported without the destruction of the original me?' philosophical conundrum.

tpallarino 9y ago

From the BCH Token Distribution Announcement: 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. https://www.bitfinex.com/posts/212 https://www.bitfinex.com/posts/212

numbsafari 9y ago

This would have been so much more fun if the contracts were all smart contracts using Ethereum.

zodiac 9y ago
How would you set up a btc lending (for shorts) contact with eth?
- jeeceebees 9y ago
  If you created a 2-way pegged bitcoin ERC20 token, you could use something like EthLend.

ohiovr 9y ago

The article seemed to indicate a short squeeze condition without actually naming it that way, strangely enough. If so, it could get vicious for the short sellers. I am not invested in it, just thought to add my 2 cents

stordoff 9y ago

This is veering off-topic, but is anyone else finding the Bloomberg menu nearly impossible to use/borderline broken? It activates on hover, but to actually click on a story you have to get past a secondary list of categories that also acts on hover (hiding the story you intended to click on). If you move the mouse diagonally instead, chances are you'll activate a different top-level menu. I felt like I had to dodge around menu elements just to be able to click on anything.

matt_wulfeck 9y ago

> But BTC hasn't really lost any value since the spinoff, still trading at about $2,700. So just before the spinoff, if you had a bitcoin, you had a bitcoin worth about $2,700. Now, you have a BTC worth about $2,700, and also a BCH worth as much as $700. It's weird free money, if you owned bitcoins yesterday. Doesn't this throw up any red-flags to the btc/crypto apologist? This type of behavior is not how healthy markets work.

lqdc13 9y ago
Could be that people are more confident in BTC after they decided to do something about the slow confirmations. As in the value of the original Bitcoin jumped at the time of the split but was offset by the split. Also possible that the split generated free publicity that made some people invest in it.
spectrum1234 9y ago
The market expected BTC to fall by about as much as BCH increased. It did not. The market was wrong by about ~25%. At least in that moment.
- Fej 9y ago
  That is a massive jump in a very short period of time.
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- icebraining 9y ago
  The market expected BTC to fall by about as much as BCH increased. How can that be measured?
sowbug 9y ago
If you're thinking of this event as a split, dividend, or spinoff, then it doesn't make sense. But it's more like a company cloning itself but adopting a different vision/mission, and awarding shares to all existing shareholders. 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.

gregschlom 9y ago

"There is no single obviously correct solution to these issues. Instead, each decision was sort of weird and contingent and reversible: not the immutable code of the blockchain, but just humans sitting around and trying to figure out which approach would cause the fewest complaints. In that, it's a bit like the Dole settlement process -- only instead of a neutral judge making decisions based on written contracts and established precedent, it's the people running each exchange making their own judgment calls." 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.

brownbat 9y ago
I like that rule, but I would extend ever so slightly: 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.
goodplay 9y ago
>they're very valuable if and only if you cannot use the protection [..] 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?
- closeparen 9y ago
  Ridiculous fees, bureaucratic friction, and mandatory middlemen are exactly how I would describe converting the BTC someone transferred to you to a usable form (by exchanging to your local fiat currency).

chaoticmass 9y ago

Seems to me the problem is with the exchanges, not the bitcoin.

runeks 9y ago

> To use an imperfect analogy from corporate finance, you could think of the fork as a spinoff. For most of PayPal’s life, it was owned by eBay. Holders of the EBAY ticker owned the parent company eBay, which encompassed eBay proper as well as PayPal. On the day of the spinoff, eBay stockholders received, for each EBAY share they owned, one PYPL share. At the same time, they got to keep their existing EBAY shares. 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.

perfunctory 9y ago

> The way short selling works is that X borrows a share from Y and sells it to Z. So Y owns one share, and Z owns one share, and X owes one share, and everything balances out and there's only one share outstanding. 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.

kgwgk 9y ago
Why wouldn't it make sense? If you buy a stock don't you expect to get dividends? You may have bought it from a short seller. Or you may have loaned it to a short seller (brokers often do that without your knowledge, but with your permission). Everything balances out because the company will pay to Z and X will pay to Y. What doesn't make sense is for both Y and Z to vote, for example.
perfunctory 9y ago
@kgwgk well, the company obviously doesn't want to pay the dividend twice. So indeed they will only pay to Z. If X pays Y I presume that's just the terms of the lending agreement. > 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.
- deleted 9y ago
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xerophyte12932 9y ago
Apparently, X will have to supply Y with all dividends thus making Y's position exactly the same as owning a share. I think the only difference is that Y can't sell the share? Then again, it can sell the IOU of the share to someone, and it probably costs the same as the share...

Legogris 9y ago

Excuse my ignorance, but this seems like the obvious solution to me: Distribute 1 BCH to each (actual) BTC holder on the exchange, completely ignore margin orders. So shorts don't owe and also longs aren't credited BCH. Fair and no way to game. Why aren't exchanges doing this?

stefek99 9y ago
It makes sense to me, I might be wrong. 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!
eterm 9y ago
What in your mind is the difference between "Holders" and "longs"? They're the same thing. Holding an asset is being long on that asset, just as being short on an asset is owing that asset.
tomerv 9y ago
There's no such thing as "actual" BTC holder. All the BTCs in the exchange are fungible. A holder of BTC doesn't know if that BTC was loaned to someone else or not. 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.

skywhopper 9y ago

Good article. A blockchain can only protect systems that it encodes directly. And for the simple cash transactions that's easy enough. But humans can, have, and will devise all sorts of derivative financial instruments to amplify the utility of assets, and no mathematical system can encode all the arbitrary possibilities that implies into their structure beforehand. 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.

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Coffee_lover 9y ago

I find it stupid. People were warned two weeks in advance that they will be given less than 1 BCH per BTC. People had two weeks to withdraw their BTC in order to get 1:1 during the fork.

philanthropist 9y ago

Finex may have played this badly, but it was clearly stated in their statement on how they were handling the fork. If you didn't like their approach, all you had to do was move your coins off the exchange and split them yourself. It wasn't (too) difficult to do, and I say that as someone who isn't really technical, but can follow simple instructions.

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