How this works:
You have 1 billion coins.
You sell 100 coins to someone for $100.
Now you have nearly a billion dollars (market cap). But, do you really? Actually, you don't. Not if nobody is willing to pay you for the rest of the coins. The market cap is a bad estimate when the actual liquidity is small ($100). When you try and sell the rest of the coins, the market cap bubble will normalize.
This has been replicated in the NFT market, with a slightly different structure: sell NFTs to yourself to "paint the tape" and create the impression that a hot resale market exists, then sell to random suckers looking for appreciating assets.
Someone minted 1 million Neeraj Agrawal (cryptocurrency advocate* who's big on Twitter) NFTs, sent him 999,999 without his consent, and kept the other to sell. Which leads to the interesting question, should Neeraj report the 999,999 as a gift receipt if they have some value, and is he in a bad position that the tax value of the gift is large due to the price being determined by the 1 that was sold?
(I don't understand NFTs so I may be incorrect on details).
If the 999,999 were worthless at the time they were initially transferred, then there is no taxable event.
Now if they become worth $1 each and he sells them at that price then it is a taxable event. The threshold may have changed with respect to gifts but if the coins were worth $1 at the time they were initially transferred there may be a taxable event, I think it used to be $50k was tax free.
People aren’t in control of who sends their wallets coins and unless there is a notification system setup it seems like the tax responsibility would arise when they attempt to use the coin. Also if everyone were responsible for every trade that occurs within their wallets, and have say with one trade they make a large profit and owe the government taxes, then in the next trade they lose the profit, are they responsible for loss of government property? Also what about an auto trading bot that is run by a neural network that makes trading decisions based off key words in the news, if it is responsible for losing the would be taxes, who is to blame? It’s creator? The philosophical questions from this stuff pick apart out we normally think about this.
Economics Explained is somewhat of a hack when it comes to topics outside of basic supply and demand. On the internet, every struggling business and every collectible hobby is a front for money laundering. While there is certainly a lot of money laundering and tax evasion in the high art world, that's only because they can hide their transactions behind the majority of legitimate transactions. In the case of the Salvator Mundi painting, the valuation of the painting skyrocketed because allegedly the last two bidders were both Arab princes who thought the other bidder was from their mutual rival, the Qatari royal family. $450 million was the legitimate market value if the painting to the Saudi royal family.
If I question the legitimacy of Economics Explained, then I'll be forced to asses the value of the honorary PhD in economics that I gave myself from my prestigious, non-accredited university, and I don't want to do that.
Matt Levine wrote about something similar today in his column "Money Stuff" (the third story, "Tax Law"):
> You have zero-basis stock that is “really” worth $100, but that happens to be trading at $300 right now because the market doesn't know the bad news that you know. If you sell it, you get $300, pay 20% tax, keep $240, and go to prison for insider trading. Or you can wait until the news is public, sell it for $100, pay 20% tax, keep $80 and avoid prison.
> But if you donate it while it’s still trading at $300, you get a $300 tax deduction, which is worth $120, which is more than $80. And you don’t go to prison because you never traded the stock while you had inside information.
Nope. You don't sell it. You donate it. It's considered a charitable contribution, not a sale, and that makes it 100% tax deductible. [1]
I guess you'd have to spend $20 million on the painting, but you're buying it from yourself, so in reality you're only on the hook for the 2% fee from the auction house.
Before that though, when you bought your own painting for $20M. I'd imagine it would be pretty difficult to write off that purchase as a business expense or something. The IRS is going to notice a $20M write-off for a business with no additional income pretty quick. But you will have to pay taxes on the $20M income, even if it is coming from yourself.
In the above example you pay capital gains on the one (1) $20m initial painting that allows you to then donate N "equal value" paintings. So you can dilute the capital gains % indefinitely (1/N).
But your tax basis in the other paintings is still $1M. If you donate them claiming they're worth $1M, you don't get a $20M deduction. If you claim they're worth $20M then transferring them is a realization event and you owe capital gains on $19M. Then you get a $20M deduction which cancels out the capital gains and leaves you with just the original $1M deduction for what you actually paid, right?
What people really do this for is insurance fraud. Buy some paintings for $1M each, get them appraised and insured for $20M each, then somebody "steals" them or you have a convenient structure fire and make the N*$20M insurance claim.
As another poster said, assuming paintings are treated like stock, as long as you've held it for more than one year, donating an aprechiated asset is magic.
In this example, you get a $20M deduction and you don't have to realize the $19M gain.
Depending on how the shill purchase in the hypothetical is arranged, you might have realized a gain there... but then again, maybe you just pay the auction fees.
If you don't hold it for the year you still don't realize the capital gains, but you only get to deduct the cost basis. After a year you get to deduct the current value.
Unless paintings are different than other assets commonly donated (e.g. stocks), this doesn’t sound right. If I donate a stock that has appreciated in value, I pay no capital gains tax and am still able to deduct the full market value of the stock (up to certain limits).
> If you claim they're worth $20M then transferring them is a realization event and you owe capital gains on $19M. Then you get a $20M deduction which cancels out the capital gains and leaves you with just the original $1M deduction for what you actually paid, right?
Nope. Think of it this way:
- you lobby government to make charitable donations tax deductible, meaning you can reduce your income by the stated value of the donation
- you use the auction house hack to inflate the value of the painting from $1_000_000 USD to $20_000_000 USD buy buying it from yourself
- No one will buy your painting for $20_000_000 USD, so it's not really worth that in the open market, but the art museum (in your backyard & founded by you) will give you a receipt stating the art is worth $20_000_000 USD
- Unless you reduce your income, your tax rate is 50%, so you donate the inflated art piece (to your art museum in your backyard), give yourself a receipt for the donation
- You attach that receipt to your tax return, lowering your taxable income from $A_LOT to $A_LOT minus $20_000_000, which at a 50% tax rate saves you $10_000_000 in taxes
"The federal tax code allows you to contribute long-term appreciated securities—such as stocks, bonds, and mutual fund shares—directly to a charity without paying capital gains tax on the appreciated value, as you would if you sold it first and then contributed cash to the charity." [1]
You can of course donate $20 mil to a charity that you can influence (a foundation of a relative or a friend’s family, say) and get that charity to buy the first painting at auction.
This way you pay cap gains on 19 million but can offset 20 million of charity donations against the gain.
You don't pay (an income or capital gains) tax when you buy something. Only when you sell it. Maybe there's some other tax, like VAT or luxury or sales that are all based on the purchase price.
Donating assets to charity is not a realization event under US tax law. This is why donor-advised funds are a thing - this rule applies to publicly traded securities, which means you can donate appreciated stock to a DAF and have the fund distribute cash to charity on your behalf, avoiding the capital gains you would incur if you normally sold appreciated stock and donated the proceeds.
So I think I'm wrong. I'm doing the math for selling the asset and donating the money. In theory just donating the asset shouldn't make any difference -- either it's a realization and that cancels with the donation, or you're donating at the original tax basis, and either way the net deduction is the original tax basis. Because otherwise it's double counting and you get all kinds of bizarre incentives and rich people not paying any taxes.
For example, if you bought $1 of a stock that appreciated to $1000 and they increased the capital gains rate to 60%, you wouldn't pay any taxes. The IRS would take in less money from the higher rate. Because even if you don't care about charity at all, you'd donate half the stock to a charity when you go to sell the other half and keep 50% of the money instead of 40%. The IRS would get nothing instead of whatever they got at the lower rate.
But the tax code is full of bizarre incentives and rich people not paying any taxes, so apparently this is one of them. (Which at least has the benefit of encouraging charitable donations.)
Yeah I agree that it's weird, unintuitive, and not how the ideal tax code should work. It shouldn't matter whether you or the charity sells the stock. Similarly, it shouldn't matter whether you or your heirs sell your stock, but it does, and that's a whole other can of tax optimization worms.
This is because the cost basis of assets "steps up" on the owner's death to the fair market value at that date - without any capital gains owed. So if you own $10m of non-dividend paying stock, you can comfortably borrow and spend $200k/yr against it, pay no income or capital gains taxes, and when you die your heirs don't owe any capital gains either and can sell off a portion to repay the loan.
Any charitable giving of over a low threshold would be audited for value to prevent this type of grift. You'd likely end up in serious tax trouble.
For example: "Donating non-cash items to a charity will raise an audit flag if the value exceeds the $500 threshold for Form 8283, which the IRS always puts under close scrutiny. If you fail to value the donated item correctly, the IRS may deny your entire deduction, even if you underestimate the value."
Yes if you're poor, that would stick out on your tax returns. If you're rich and other parts of the tax returns are even more complex, I think this would fly without any problem.
From rich friends' experience, that's not how it works. The bigger the fish, the more resources get thrown at it. A friend got audited and they came up with the most absurdly tiny mistakes in really complex things. It turned out they couldn't find anything they thought was more than a mistake, but their thoroughness was pretty incredible.
The difference is that the rich have the lawyers to deal with that. You shouldn't worry about them. An audit for a rich person is just another annoyance that they pay to go away, it is not gonna change their behavior.
This is why you hire someone to appraise the value of the item and document the third-party appraisal. If someone else says your painting was worth $20m on the day you donated it, and they're wrong in the view of the IRS, well, it's an honest mistake on your part and at worst you just have to pay some money for getting caught.
Once it's valued correctly by a proper appraiser you will not get the tax scam to work. They are not as dumb as this chain of posts assumes. Neither is the IRS.
There is a hole in this logic. It’s perfectly legal in the US to create your own religion proclaiming you as a deity whose boredom will destroy the universe and thus you need lots of expensive toys to keep your boredom from collapsing the universe. Any religion can have a nonprofit organization formed around it, making it acceptable and even expected that any donations made to that religious nonprofit are used to carry out the observance of that religions doctrine, that being the purchase of more expensive toys to prevent your boredom from ending the universe. Any donations to the religion would be not taxable.
> You still have to take a capital gain on $1 million -> $20 million when selling it, right?
Sure, the idea is that you only realize the gain on one work by the artist, and then can donate multiple. But even at one work “sold” and one donated its a win if you hold the piece for a year and a day before selling, since you (assuming you are at the top marginal rate for income and cap gains for simplicity) pay cap gains on $19 million @ 20% ($3.8 million) and then get a deduction of $20 million against income that would be taxed @ 37% (saving $7.4 million) for a net savings (even after the $2 million cost of purchasing the paintings) of $1.6 million.
Couldn’t it be said that by holding onto the coin instead of selling it /avoiding the taxable event you are inherently depriving the government of the interest they would have made from the taxes on that amount?
“The late Chairman Lee’s collection of antiques, Western paintings and works by Korean artists — approximately 23,000 pieces in total — will be donated to national organizations,” they said, in recognition of his passion for art collection and “his belief in the importance of passing on our cultural heritage to new generations.”
I’ve had a similar scam explained to me by someone who said they do it for their own tax obligations (on a much smaller scale).
I have no clue why non-liquid donations are allowed. Stock with a clear market value (publicly traded) seems fine, but everything else should require an arm’s length transaction to liquidate the asset.
(And maybe you would be able to 1) book the donation in the year you initiate the sale to account for assets that take a long time to sell, and 2) still have gains exempt provided all proceeds are going towards a donation.)
The $10M figure is incorrect because donating a $20M painting doesn't save you $20M in taxes, it only allows you to deduct $20M from your income, and even that amount is capped. The actual amount of taxes you save is roughly $20M * your marginal rate. There's also the $10M you spent to acquire the painting, which eats into the savings.
That said the general premise is valid. The loophole comes from the fact that when you donate something, you don't have to pay capital gains on it, yet you can deduct the full value from your returns[1].
[1] "If you donate long-term appreciated assets like bonds, stocks or real estate to charity, you generally don’t have to pay capital gains, and you can take an income tax deduction for the full fair-market value." https://www.fidelitycharitable.org/guidance/charitable-tax-s...
I'm not sure if I see your point. The SALT deduction is completely separate from the deduction for charitable contributions.
Maybe before the cap, you could argue that the true combined marginal rate was lower than 50% since the deduction for the state income tax would offset some of the federal tax, but a $10k deduction doesn't matter much to someone who's making enough to be in the top income brackets.
Because your taxable income is $20 million less after the donation, and the top marginal tax rate (if you're rich enough to be playing this kind of game) is 37%.
The waters get a bit muddier with the capital gains tax you might be paying on the original sale, but presumably with the right accountant you're still saving some millions, whether 3 or 8 or 10.
One person buys the painting at the auction, but then hundreds of others can deduct the tax if they already had a painting they purchased at a much lower value.
That only works if the IRS considers the price of the art to be $20m. If it were that easy then you could just donate anything at whatever price you want.
High art is valuable because high art is expensive. I'm not losing $450 million when I buy a $450 million painting any more than I lose money when I buy a house.
This whole thing is a conspiracy theory created by judgemental people with null knowledge of art to complain about the latest modern art pieces and it spiraled out of control to an urban myth in the level of "the Facebook app is secretly using your microphone" or "vaccines give you tracking microchips".
Everything is made up and the example cited above is very close to the story of “For The Love of God” by Damien Hirst [0]
The sculpture is more of a pointer, or some direct object upon which could be acted the work of art which was the financing valuation and theoretical sale of the work
In most experiences, it starts with how anything is priced. How long did it take to make it and how much money did it take to do so. Plus some. And then what will someone pay for it.
But that’s just “most” and that never makes headlines or anecdotes
Exactly. The whole concept of "market cap" for commodities and currencies is ridiculous.
As a refresher for folks, the term comes from stocks. For example, the Nuance stock was trading at $43.58 on April 9. Multiply that times the number of shares and you get about $13 billion. That's the market capitalization. This is a meaningful number because if another company wants to buy it, they'll have to pay at least that much. And indeed, when Microsoft bought it, they paid $19.7 billion. [1]
But commodities and currencies don't work that way. If you want to buy a little gold, you pay $57k/kilo. But if you want to buy all the gold? There's not enough money in the world. If you discover a mountain of gold, can you sell at that price? No way. In both cases, the price is a balance point between supply and demand at the moment. If you change supply or demand, you get big price swings. You can calculate "market cap" for USD or gold, but it's not a meaningful number.
That's even more true for cryptocurrencies. Dollars and gold at least flow freely. But supply of cryptocurrencies are, as this article shows, totally arbitrary. And demand, both actual and apparent, is heavily manipulated. Using the term "market cap" is just another way to make raw speculation look like investment.
All the cryptocurrency shenanigans suddenly made sense when I read someone’s HN comment last year who said something like ‘ e-coin is stock you can buy to invest in a company that has no assets and produces nothing.’ In that sense, it makes complete sense why some people intentionally use the term “market cap”, so you’re absolutely right.
The main claim is it's almost as bad a fiat currencies; in which case you're buying stock in a company that produces nothing, has no assets, is being constantly inflated, and has a bunch of rules about who you can give it to and how.
Whether or not the token explicitly defines governance, the owner of a token does have some authority over any governance action involving a hard fork, because the success of the fork depends on the buy in from the economic actors.
You do get meaningful voting rights, but the governance process is quite a bit different from a traditional company.
Just because you can't hoard the entire market cap doesn't mean it is ridiculous or not a useful measure. If you have a very liquid currency or commodity then it is very useful.
But "very liquid" is relative to the amount of the entire commodity you could theoretically sell.
Stocks are "very liquid" because, outside of some share classes, you could theoretically buy nearly all the stocks. Even more importantly, you could almost always sell your entire portfolio in a single day if you wanted to, for the vast majority of stocks.
BitCoin, is that "very liquid?" There are thousands of trades every day, but what would actually happen if someone tried to unload "all" of the coins? If Satoshi popped up and tried to sell their coins, which are nominally worth over $8 billion, could they do it? Almost certainly not.
I agree with your point, also worth remembering that much of crypto trading is wash trading, but the point stands that if you bought crypto in the past 10 years you almost certainly can sell it all today at the market price.
> because you can't hoard the entire market cap doesn't mean it is ridiculous or not a useful measure
It sort of does. We can talk about the monetary base, but it's not a great way to understand the value of an individual dollar because the whole isn't really meaningful in a precise way. A whole company can be purchased and still have value. That gives market cap, as a metric, grounding.
Ok. I'll bite, just to see where this goes. Please name 3 productive uses for the number. Then apply the same methods to show how they're useful with both USD and gold. Thanks!
I can make the same statement you made about stock price about commodities and coins, in that I have to pay at least shares_outstanding * current_price to acquire all of a commodity or a coin.
The metric works, it's just that people keep making false claims from it.
> I can make the same statement you made about stock price about commodities and coins, in that I have to pay at least shares_outstanding * current_price to acquire all of a commodity or a coin.
You don't, though. The price would change if you attempted to do so. You can buy a company because you offer the company a value for all their shares; if enough of their shareholders approve the deal, it's done.
You can't do the same with Bitcoin, or copper. Each requires reaching out to individual owners/producers, and the sales affect the price for the next purchase. If you tried to buy all BTC in existence, the price would go up. If you tried to offload a bunch, it'd crash.
It's highly unlikely you could sell $1T worth of BTC without driving the price massively downwards.
Exactly. You can't buy all the gold in the world at the imaginary "market cap". Or all of a currency. And if you did buy all of a currency, it would be worthless, because the whole point of a currency is as a medium for exchange. Indeed, that's how they take a currency out of service, as they did when they launched the Euro.
No. They decreed that the respective currencies stopped being legal tender (against the will of the people in many cases, btw) and so the people had no choice but to swap their money for Euros. The exchange rate was fixed and the currency was never bought on a free market. They couldn't have because many people would not have sold and then you'd have ended up with multiple competing currencies. The government has a monopoly on national currency, it's very different from gold and cryptocurrencies that are properly decentralized and freely traded.
The name cryptocurrency is a misnomer for many of the new generation blockchains. They are not just currencies and they're also not a commodity like gold. You can think of a currency like Ethereum more like a decentralized company offering infrastructure services. It also has aspects of a currency and of a commodity. It's a bit of everything.
People could and did hold onto them. I should know; I have a small collection of defunct notes. But they were in negligible amounts, because a currency isn't intrinsically valuable. What's the market cap of the Italian Lira? It was a meaningless question both before and after the Euro cutover.
If I choose to buy a company the price will adjust upwards as well. The centralization of shares in a system does not change the fact that coins and commodities underlie the same market principles.
> It's highly unlikely you could sell $1T worth of BTC without driving the price massively downwards.
Indeed. If you start a religion, and get a single person to join it, you can (truthfully!) claim you've doubled the size of your congregation!
The reason this scammy verbiage works is because it violates "linguistic norms". Congregations are "large" things in peoples minds, so when you claim to double it, the image that comes to mind is adding a substantial number. By violating these norms, you can lie without lying. It's a neat trick, the use of which has been mastered by the legal profession. But the technique clearly has wider applications, sadly.
There is a reason why virtually 100% of Congress are lawyers. (Not sure where to look up the stats on that, though.)
Edit: I was wrong. It's "only" ~50% of Congress, assuming the numbers are roughly the same since 2016. source: https://www.vox.com/polyarchy/2016/6/30/12068490/too-many-la... That's still a huge number, compared to the % of general population who are lawyers. In the US there are 1.4M lawyers; if the pop is 350M then they are 0.4% of the population - and a much smaller fraction of the adult working population (roughly .02%).
I was with you til the last sentence. The adult working population is about half of the total population, so approx 0.8% are lawyers, not 0.2%, and certainly not 0.02%.
The deli had been running this playbook (low volumes giving an inflated cap). But since it got famous? Volumes are actually decent, and the price is still ridiculous. People are apparently deliberately buying into a market failure/scam/whatever-it-is.
It's the same with cryptocurrency, Tesla stock, Gamestop. The market-cap bubbles become a self-justifying cycle. Theoretically everything comes back down to earth, but only when it runs out of fuel. But the fuel is human insanity, which may be unlimited.
This is called speculative investing(gambling) and happens in frothy markets. Such speculation occurs in bubbles, and they pop eventually. Its like a game of musical chairs: someone will be left out and hurt by it.
Market cap is still useful to compare projects but you do have to look at it in combination with liquidity.
E.g. I work on a Cross-chain bridge project (currently for BSC-Polygon) [0] and technically we have a market cap of 1.4m right now but practically the liquidity in exchanges is still just in the thousands so that's all you can cash out if you try to.
On the other hand, comparing e.g. ETH and BTC's market cap is a lot more useful since they have a lot of and comparable enough liquidity.
That’s true sometimes, but Doge was incredibly liquid so its market cap was more indicative of reality. You can look at volume to see if this effect is happening for any specific coin, but I’m not seeing SCAM listed anywhere to check.
This doesn't work in the US. The IRS guidance states that the moment you received the tokens, you've incurred a tax burden. Refusing to sell the tokens protects you from capital gains taxes, but capital gains taxes only applies to tokens you purchased in the first place. Tokens you were gifted counts as income.
1 is important because people can't sell it into liquidity if they never bought it first. How did they acquire it? Just minting it doesn't mean they have it, and without a liquidity pool they can't get it unless the token was sent to them by the issuer.
2 this is important because Automated Market Making systems (AMMs) allow for anyone to create a robust cross-routing and smart-routing exchange system for any asset with the click of a button. And when you create one of these, many bots look for them to immediately trade and distort the price. So the very first thing I did in response to this headline was look at the this asset on the AMM. The leading AMM on the BSC Blockchain is PancakeSwap. And you can see that many of the recent transactions on the block explorer are to a PancakeSwap SCAM liquidity pool. Who posted liquidity? The TikTok video suggests the guy doesn't own any or know how to sell any, so was he using a service that sets this up? What service is that because it seems pretty powerful and I want to know about it.
3 bots. Across all AMMs many bots have cropped up that immediately look for any 5-figure liquidity pool and immediately bid them up. Its gotten so predictable that people create copy-cat liquidity pools just to capture funds in the more liquid token and pull liquidity as they have now collected more of the liquid asset than they started with and have less of the illiquid asset they were trying to sell. This is considered to be an actual scam and called a 'rug pull'.
In this case, it is more likely that he posted liquidity in this asset, bots immediately bid it up, which immediately got validation attention from other people and people kept bidding it up on low liquidity. Only a fraction of the tokens in existence are in the pool, and this price discovery is being extrapolated to the total value of the asset. If something less likely occurred, I would like to know what that is because the ramifications are even more enticing.
Yes and this is a good thing. It will become impossible to say how much money someone has; everything will become decentralized and competitive as it should be.
Currency was created because barter sucked, Cryptocurrency was created because some people didn't like some aspects of prevailing currencies, now the technology supporting cryptocurrencies has made barter not suck, so we're back to barter with just gigantic liquidity pools that can accurately route an order between two arbitrary assets and keep their prices in sync.
So if you're keeping up, barter doesn't suck any more and the market has accepted that, which is a game changer.
I second that recommendation, but I liked all of David Graeber's books and essays; his untimely death was a real loss.
I was searching for a decent/academic review of Debt in order to post it here, but found one on Github [1] giving an itemised list of the book's main points, as seen from the reviewer's perspective, and containing a link at the top of the review to a .pdf of the book itself (on libcom.org and it seems to be complete).
If you like Graeber then you will also like Alfred Mitchell-Innes, a British diplomat, who in 1913-14 wrote two papers about money as credit. The first called "what is money?" [1] and the second called "the credit theory of money" [2]
Here are the opening paras from "what is money":
> The fundamental theories on which the modern science of political economy is based are these:
> That under primitive conditions men lived and live by barter;
> That as life becomes more complex barter no longer suffices as a method of exchanging commodities, and by common consent one particular commodity is fixed on which is generally acceptable, and which therefore, everyone will take in exchange for the things he produces or the services he renders and which each in turn can equally pass on to others in exchange for whatever he may want;
> That this commodity thus becomes a "medium of exchange and measure of value."
> That a sale is the exchange of a commodity for this intermediate commodity which is called "money;"
> That many different commodities have at various times and places served as this medium of exchange,—cattle, iron, salt, shells, dried cod, tobacco, sugar, nails, etc.;
> That gradually the metals, gold, silver, copper, and more especially the first two, came to be regarded as being by their inherent qualities more suitable for this purpose than any other commodities and these metals early became by common consent the only medium of exchange;
> That a certain fixed weight of one of these metals of a known fineness became a standard of value, and to guarantee this weight and quality it became incumbent on governments to issue pieces of metal stamped with their peculiar sign, the forging of which was punishable with severe penalties;
> That Emperors, Kings, Princes and their advisers vied with each other in the middle ages in swindling the people by debasing their coins, so that those who thought that they were obtaining a certain weight of gold or silver for their produce were, in reality, getting less, and that this situation produced serious evils among which were a depreciation of the value of money and a consequent rise of prices in proportion as the coinage became more and more debased in quality or light in weight;
> That to economize the use of the metals and to prevent their constant transport a machinery called "credit" has grown up in modern days, by means of which, instead of handing over a certain weight of metal at each transaction, a promise to do so is given, which under favorable circumstances has the same value as the metal itself. Credit is called a substitute for gold.
> So universal is the belief in these theories among economists that they have grown to be considered almost as axioms which hardly require proof, and nothing is more noticeable in economic works than the scant historical evidence on which they rest, and the absence of critical examination of their worth.
Yes I would say that is weird, although none of the above would be considered creative anymore. Maybe 10 months ago during the first two months of the first AMM releasing its updated version, Uniswap 2.0. It is very easy to have a node or python bot set up to look for liquidity pool deployment transactions and immediately create a transaction to buy the asset in the second argument field.
Uniswap 3.0 is coming out next week, so if it is as monumental as 2.0 last year, this summer should have just as much creativity as last summer, so you'll have plenty of things to criticize there. All the other AMMs came out after Uniswap 2.0 and have slight differences just using Uniswap 2.0 code. It is unlikely they will update exactly to Uniswap 3.0 but they'll follow the market.
This space moves extremely fast with lots of competitors if you know how to code and haven't been spending the last half a decade doing something meaningful like working for an ad-retargeting conglomerate while complaining about cryptocurrencies.
> haven't been spending the last half a decade doing something meaningful like working for an ad-retargeting conglomerate while complaining about cryptocurrencies
Except the barrier to entry in the crypto to space is nill.
Kids are learning order books and depth charts because they _can_ Not because traditional finance gave a fuck about them or even tried to educate them.
AMM's are a category of decentralized, non-custodial exchanges that are also autonomous. Basically this means there is no incorporated or any financial intermediary needed to set them up, and no gatekeeper needed to set them up, and no custodian of funds that are used to trade on them.
In this type of exchange system, order books and market makers are replaced by liquidity pools, where individuals put up two assets (for example a liquid asset like Ethereum and a less liquid asset that they wish to have liquidity in). This process automatically spawns a smart contract from a smart contract factory, which has all the functions for maintaining that liquidity pool in perpetuity. The smart contract has no administrator and it allows other market participants to trade in that asset. The additional beauty is that the other market participants do not even need "Ethereum" the liquid side of the trading pair in order to buy the asset, as the smart contract factory will route whichever asset the trader owners between liquidity pools. For example, if they had Tether, the smart contract factory will find the Tether/Ethereum liquidity pool, and the Ethereum/NewToken liquidity pool and exchange it at the best price.
Also anybody else can add extra liquidity to the liquidity pool.
All liquidity pool providers earn trading fees from people that buy and sell. Turning them all into market makers.
The final point is that the market decided that these trading fees are not a good enough incentive to add liquidity to liquidity pools, so it is important to know that all liquidity pool providers actually receive a bearer token representing their share of the liquidity pool. Third parties have created additional financial products that allow depositing this bearer share and earning other assets for doing so. So people that want to passively earn have to provide liquidity and lock up that liquidity for some time, and it is working extremely well.
> But it's a joke that makes some people millionaires.
Where does that money come from? There isn’t a Doge Corporation backing this up that sells actual products and collects actual revenue.
The only way to become a millionaire through DogeCoin would be to invest $10,000 at the low and sell at the high. Who are you selling to? New entrants, hoping to get another 10X or 100X run-up, funded by even newer entrants, also hoping for their 10X and so on.
Everyone’s hoping to become a millionaire, but in reality they’re mostly just pumping money into a system to make the previous entrants millionaires.
With Doge specifically, a lot of people have lost money when they bought in at previous highs. Who did they buy from? Previous owners looking to exit before the music stops.
It’s not so much a joke as a game: Put money in, see how many other people you can trick into putting money in after you, and then sell them your coins before it all collapses.
Just my opinion, but I think one key difference here is that while yes there are tons of people thinking and hoping they're going to get rich by "investing" in Dogecoin, with the type of limit Doge has, it's able to be used as real currency. We don't actually want the value of Doge to skyrocket too much because then it just becomes another store of value like Bitcoin. One of the slogans you'll hear a lot in the Doge community is 1 DOGE = 1 DOGE. And the point is to convert your fiat into Doge and use that as currency instead. Not pump and dump. Out of all cryptos, Doge is one of the best options for that. But we'll see what happens.
I see this in the Bitcoin community too. Lots of people say "I'll never sell my Bitcoin for dollars. I'll use it once it becomes the world's reserve currency."
But selling, and trading for goods, are equivalent. If you win big on a coin, it doesn't make a difference whether you sell your holdings for $200,000 USD to buy a Lamborghini or directly trade your holdings for the same car. Either way there are only so many Lambos to go around and lots of paper millionaires thinking they can buy one.
It has value to me, because it makes me happy to hold some. I also find it useful as a low-fee way to transfer assets between exchanges, because it's one of the most widely supported coins across exchanges. Both of these things make people want (value) it.
A joke that makes some people PAPER millionaires. People are ignorant about liquidity risk and just assume there will be buyers when they want to cash out.
This is a valid point in general, but for top tier currencies such as Doge, there are literally hundreds of exchanges with such orderbooks so it's not a concern.
Further, most large trades don't take place on exchanges public orderbooks, but on private OTC desks with separate books, for this reason.
Generally, large buyers are matched OTC to large sellers at prices a little different to the on-market, but better than relying on on-market liquidity.
The same happens in traditional finance, or anywhere. For example, if a taxi company wants to buy 1000 cars, they won't attempt to get them from the local yard.
The order books are not "real" its mostly bots who place and remove orders on the fly and they react to the price and to the price on other exchanges. There is no way to know how much the price would drop if someone sells for $1MM. also selling all at once, selling it over a few minutes or selling it over an few hours will drastically change the effect. No one who wants to maximize profit would sell fast if liquidity is low because obviously your average at lower then.
Making money on these things is like playing the lottery. You buy a small ticket hopping that it is your turn to become millionaire. And it happens with the same frequency of the lottery. One in every few million will become very rich, like the ones who bought bitcoin initially, and the others will be spending money chasing their next lottery ticket.
I went and looked at some old files I had, turned out I downloaded dogecoin-qt back in 2014 but never did anything with it and just had an empty wallet, it was considered a joke at the time but became "real" when it sponsored a NASCAR car and was on a livery.
Well, I think the question really is, how much real money its creator got for selling his shares. If the number approaches anything near 1 million, I still think the situation is completely ridiculous.
You ask as if this isn't already happening. See Facebook, Signal, some banks, power and electricty companies (telcoin, electroneum) Also many of the blockchain/crypto projects are themselves companies of various sizes, building real-world business involved with the crypto they're producing.
What happens is that people use tokens with varying degrees of de/centralization, and occasionally prefer them over the currencies of their own countries.
What happens to these people, and speculators, varies, and depends on the level of centralization, whether the central control is used in a manipulative way, and finally whether the crypto in question has economics grounded in real-world use cases which will drive demand independent of speculation.
What happens is eventually the law of trade-offs comes in to play, and so much money is being moved around crypto that other aspects of the economy are being ignored. Whether the demand for these other aspects will be strong enough to shift everything back to normal, I don't know.
When all we see are stock prices next to crypto prices, it’s easy to forget that stock represents actual ownership of a company.
When you buy a stock, you own part of that company, including all of the cash on their balance sheet, their inventory sitting on shelves, income from their business activities, any buildings they own, their IP, their brand, and so on. These are real, valuable things that are divided into ownership shares and sold to people.
Crypto removes all of the actual ownership of things and just skips straight to shares that don’t represent anything. Take stocks and subtract all of the actual underlying assets and value, and you basically have crypto as traded on the exchanges.
Remember that cryptocurrency has no notion of market price or exchange rate to USD. The exchange rate that everyone focuses on is not a function of the blockchain or cryptography. It’s purely a function of the exchanges
That's because there is no state which protects a legal system which would enforce the ownership rights of cryptos currently. Stocks on their own are also a just piece of paper
To be like crypto, it would have to be a no dividend, no asset, no income, no identifiable market company.
In fact, it wouldn't be a "realworld" company at all.
It would just be electrons floating on the internet ether. It's only real purpose would be to entertain those who speculate that others can be convinced to make the same mistake they have made.
But to finally answer your question, the real difference between this sort of company and crypto is that sane investors would never buy stock in it.
> To be like crypto, it would have to be a no dividend, no asset, no income, no identifiable market company.
In other words, you’d have to subtract everything of value and leave only the shares themselves. That’s essentially what crypto is: Shares of a finite number that can be moved around between accounts, but don’t represent anything other than themselves.
Speculative bubbles dont last for over a decade and deflate and then reinflate over and over - thats called a cyclical trend. If you dont think cryptocurrency is a thing that will be here to stay then you can have a word with almost every single asset manager, brokerage, and payment medium thats adopting it. The idea that its a bubble thats going away is frankly absurd at this point.
loceng (im out of replies so typing response here): You mean like stocks? Every asset in existence has turnover with new buyers that take out the old. Early adopters get rewarded for taking the risk, this is nothing new.
We refer to the first Internet boom as a bubble. The term bubble, as it is commonly used, does not mean it is going away. I think you are just making a semantic argument.
You mean the early adopters who aren't currently left holding the bag - and for the later adopters to make an awful lot of money, they need the rest of society to buy into he MLM-Ponzi structure - so then they're the latest holding the bag, and where the largest unnecessary and unreasonable wealth transfer in history occurred - shifting double digit percentage of buying power of all society redistributed weighted towards the earlier adopters; that buying power then as an agreed promise to allow earlier adopters to extract more from all of society than the later/final adopters for doing basically nothing except pumping the MLM-Ponzi scheme with shallow hype-propaganda.
Helps that it's a great tool for money laundering. "Love" this dystopia where the interests of organized crime, tax evaders, and easy money techno-fetishists combine.
Western Roman empire fell apart in part because of its inability to raise revenues. When states can't raise taxes to provide services, justice, and protection, private lords and strongmen fill the void.
Very good points. Reminds me of Noam Chomsky when he spent 10 minutes explaining how the Republican party was first taken over by corporate interest groups/industrial complexes: https://boingboing.net/2019/04/20/useful-idiots-r-us.html
I wonder if NFTs are instead facilitating wealth concealment, money laundering, or rich people are throwing money at it for sport rather than deliberate speculation. Or, is there so much irrational speculation occurring as a foreshadowing harbinger of another full Great Depression (rather than the under-recognized pandemic economic pause).
>foreshadowing harbinger of another full Great Depression
I genuinely can't get it out of my head right now. It seems like anything and everything collectable is worth more, because people are desperate for safe stores of value. I used to buy, restore, and flip old woodworking tools, and as a hobby, I collect nes, snes, and n64 games/systems. The prices are getting outrageous, genuinely just outrageous. An older lathe that would've been <$100 two years ago just sold for ~$500 at a local auction. Games, game accessories, and other nintendo collectibles have almost doubled in price near me. It's ridiculous.
I can't shake the feeling that we're headed for a doom and gloom situation with massive unemployment, hunger, and human suffering in the near future.
I doubt people are treating an old $500 lathe as a store of value. We are still in a pandemic and people are still cooped up in homes. Which means hobbies have exploded over the last year. Many of my usual purchases at Michaels and Joann have been difficult to find over the last several months. There are just more people collecting and more people doing flipping like you
I wouldn't worry too much about those exact markets, that's cyclical.
I remember in the early 2000s when the internet really made finding collectibles easier, the old computer market got insane, like $1200 for a standard C64 on ebay, because more people were able to bid on it. Those prices eventually came back down to earth, $250-$300 for a nice one now.
NFTs are mostly manipulated markets. No that picture of a bitcoin symbol did not sell copies to 300 people for $1000 each, netting them $300,000. It sold to the same person who made the picture 299 times and 1 person who got scammed into thinking there is a market for $1000 images on the internet, netting the owner $1000.
Having excess savings go into cryptocurrencies would be a stabilizing mechanism. It keeps it away from consumption, staving off inflation. And it keeps it away from financial assets, avoiding a generalized speculative boom. As long as cryptocurrencies remain decently segregated from the main financial system, the whole mechanism becomes a heat sink.
I'm not knowledgeable enough in monetary economics, but isn't this only half true? The money people are buying crypto with is going to whomever they purchased it from.
I really enjoyed what you've said here and I agree that the traditional finance and the wild west crypto finance world _can_ absolutely work in concert with each other.
Just liquidated BTC to cover a down payment at my local bank where I've paid off mortgages already. The VP of the loan department completely understood why I wouldn't keep my money in their bank anymore.
I have no problem with this. Why are people so negative in the comments here? What's the alternative? To stop someone from creating their own currency? Why? I don't need a regulation to protect me. Neither does anyone else.
Yea, just people being silly. They can do what they want with their money. And it doesn't look like anyone actually invested $70M worth of human effort there; it's just illusions of the market cap metric.
