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I have struggled over what to write here.

Bitcoin almost fell below $60K USD today, almost down 50% from October of last year.

I've been publicly of the opinion that the correct prices is approximately zero dollars - I'm still bitter TMF deleted the old discussion boards. Bitcoin's value is mostly a function of utility of some people's desire to be independent and anonymous, and that is real, nontrivial value. But it is a terrible system, and was designed for failure from the start.

I would not be surprised if the action today were related to precious metal prices last week. I wonder if any stablecoins were exposed, and I wonder what would happen if a stablecoin collapsed. I also wonder if this has any relation to the recent PYPL developments.

This community skews older so I am afraid not enough members are versed on things like DeFi (decentralized finance) platforms, DeFi Exchanges (DEXs), CeFi (centralized finance) platforms, and such. A lot of money there has been created from nothing with little to no regulation, with very fast and hard to predict agentic participants.

Consider a large bitcoin-like cryptocurrency backed by real world assets - purchased through brokerage like sites - in an effort to maintain a nationless-less currency that is pegged to real currency. Instead of cumbersome taxes or laws, these are programmed into the underlying blockchain as smart contracts. It would look a bit like a money market fund. That is reasonably close to a stablecoin. Right now, there are companies offering very high yields (10% and higher) on these stablecoins/currencies. It would be smart to ask how they are paying those yields, and how those stablecoins can safely handle the rapid inflow or outflow of "fiat" currency. Now imagine many of these systems operating mostly independent of each other.

There are some very smart people here, and I would be interested if anyone has dug into the dynamics of defi platforms. Nothing is free and I haven't quite figured out how these large APR yields are being generated and how long they are sustainable.

Nothing is free and I haven't quite figured out how these large APR yields are being generated and how long they are sustainable.

Generally? They take the deposits and make very risky loans with them.

I mean, that's how these things have generally been set up. You give them your money/stablecoins, and they lend that money/stablecoin out to folks. Often in the form of providing leverage to their other customers making bets on margin on other crypto. There might be a DeFi platform that's doing something different. But that's usually what's going on.

You get a super-high yield because they're making risky loans with your money, and you might not always get it back. These aren't banks, they're not insured, they (often) have relatively aggressive approaches to risk management. You get great returns if everything goes well, but you might not be able to get your money out if things don't go well.

For more detail, I cannot recommend enough Matt Levine's now-older tome of an article (but still good) on all things Crypto and Defi:

https://archive.ph/jFaGB

It is a great article. I am familiar with it and Levine has consistently understood this area and how it fits into broader society better than anyone.

I am trying to say, indirectly, that the rates are high for even worse reasons than risky loans. What if you can create new currencies that engage in circular finance? How do you prop that up? To Levine's point, this is all based on trust. Do you trust the entities controlling these pools of liquidity? What happens when money flow out of these these systems.

I'm not asking questions to waste electrons.

This is a cascade of falling knives that is at risk of tipping over. I just wanted to call attention to the drop and hopefully make people think about what a systemic failure would look like before it happens.

From Google:

1. Immediate Impact on Investors and Wealth
Widespread Retail Losses: Millions of investors, particularly millennials and Gen Z, who have high exposure to crypto, would see significant wealth evaporated.
Loss of Confidence: A crash could cause younger generations to lose faith in financial markets, potentially leading them to withdraw from investing entirely.
Retirement Security Risk: Retirement accounts that have invested in crypto-backed products would face severe losses.
2. Contagion to Traditional Finance
Corporate Treasury Losses: Companies that have added Bitcoin to their balance sheets, such as MicroStrategy, would face extreme margin pressure and potential insolvency.
Systemic Risk to Institutions: While large banks have mostly stayed on the sidelines, massive asset managers, pension funds, and ETFs now hold Bitcoin. A crash could cause liquidity issues for these entities.
"Death Spiral" Effect: A rapid decline could trigger a cascade of forced selling, liquidating leveraged positions, and forcing miners to shut down.
Stock Market Correlation: Because Bitcoin currently trades highly correlated with tech stocks, a crash would likely drag down broader equity markets.
3. Economic and Regulatory Consequences
Severe Regulatory Crackdown: Massive investor losses would trigger immense pressure on lawmakers to impose strict regulations on crypto exchanges, brokerages, and issuers like BlackRock.
Unwinding of "Crypto-Collateralized" Lending: With billions in crypto-collateralized loans, a crash would cause a massive, rapid deleveraging, forcing borrowers to dump other assets to cover losses.
Crypto Winter: The broader crypto market (altcoins) would likely follow Bitcoin down, resulting in a prolonged period of extremely low prices and reduced liquidity.
4. Limited Impact on Overall Financial Stability
Banking Sector Exposure: Although crypto is embedded in the system, most traditional banks have limited direct exposure, reducing the likelihood of a 2008-style systemic banking collapse.
Tech Sector Contagion: The most severe damage would likely be confined to tech-heavy, high-growth portfolios rather than systemic banking, though this would still impact the real economy through lower consumer spending.

Bitcoin almost fell below $60K USD today, almost down 50% from October of last year.
I've been publicly of the opinion that the correct prices is approximately zero dollars ...

On one hand, yes, it has always been plain that bitcoin has zero intrinsic value as a financial security.

But that doesn't mean its market value will go to zero. Lots of worthless things have noticeable market value, though for most such items a very high value doesn't last forever. For every Rembrandt there are tons of things like Beanie Babies come then go, whose price charts resemble simulations of heat death.

It was ever thus.
Have a glance at the price of South Sea Company shares in 1720. https://finaeon.com/wp-content/uploads/2024/08/dow...
..and the five year chart of the NFT price index. https://www.worldcoinindex.com/coin/nft-index
plus ça change, plus c'est la même chose

My personal line of reasoning for my own view of the future price---squiggly up, then squiggly flat, then squiggly down, then "who cares"---comes from the following observations:
* No matter what they profess, essentially everyone holding bitcoin is doing so because they think the price will go up. (Plus a few folks in the business of serving or fleecing that dominant bunch)
* There is a finite population of such people and organizations.
* Having no intrinsic value, like any other capital good the price can go up only so long as there is rising marginal demand to own it. Constant demand won't do it: even a slight upwards trend requires ever more buyers.
* ...so, beyond squiggles, the long term price rise trend WILL halt. It has to.

What are the likely implications of those pretty solid observations?
* Some time after the price stops rising on trend, people will notice that this is the case. They will no longer believe it will go up further, will no longer be part of the population in #1 above, and some will start selling.
* This will have a positive feedback effect because it will drive down the price, and more and more people will give up and sell. It will take a long time, and there will be squiggles and cycles and bull traps on the way down, but the divestment will be underway.
* After the large scale participation fully unwinds, I imagine the last few remaining holdouts will continue trading among themselves at low prices forever. The rest of the world will move on.

Jim

...so, beyond squiggles, the long term price rise trend WILL halt. It has to.

I've generally believed this as well, but there's one scenario that makes me pause.

What if the bitcoin supply, along with its use as a substitute for money for transactions, became so prolific that it started to rival a true currency?

Is there a point where the supply becomes large enough, and the number of people using it broad enough, that speculative activity (i.e., buying it with the expectation of making money) no longer strongly impacts the price, and it starts to have the stability of an actual currency?

And if so, I wonder how far away from that point we are today.

What if the bitcoin supply, along with its use as a substitute for money for transactions, became so prolific that it started to rival a true currency?

Not gonna happen. According to the FED SHED survey, the percentage of respondents claiming to use bitcoin for any payments has declined from 3% to 2% over the past four years. That’s not a percentage of all payments but rather a percentage of respondents reporting they have used crypto as a payment at sometime. The actual volume of crypto payments would be much smaller.

I conclude that this suggests the original enthusiasm for crypto as money among even the early adaptors is fading, and that it’s only functional is as an imaginary store of value. Once this shared hallucination shatters, crypto will fail catastrophically. Without functioning as a means of exchange, and without having the benefit of being a tangible physical commodity that can be hoarded, bitcoin cannot even function as a store of value in a time of crisis. The recent inverse movement of bitcoin relative to gold reflects this decoupling of bitcoin from gold as a value safe haven.

The one thing that could save bitcoin is a political shift to the left in which a progressive government targets the billionaire class for a wealth tax. Crypto offers the wealthy a way to “offshore” their wealth and avoid expropriation.

What if the bitcoin supply, along with its use as a substitute for money for transactions, became so prolific that it started to rival a true currency? Is there a point where the supply becomes large enough, and the number of people using it broad enough, that speculative activity (i.e., buying it with the expectation of making money) no longer strongly impacts the price, and it starts to have the stability of an actual currency?

I tend to agree that this ain't going to happen. Great for money laundering and scams, but no other viable use cases can be seen on the horizon.

But even if it did, my previous observations still hold: the true price (measured in a broad basket of goods and services) can't continue to go up without an ongoing incremental demand, and almost nobody holds it except because they think the price will go up.

So even a real world broad use case wouldn't make the price rise over time, any more than the purchasing power of any (non metallic) currency has gone up over the long run.

New holders come from the expectation of price rises, and price rises come only from the arrival of new holders. That process works beautifully, till it ends, as it must. I assume that some day not too long thereafter, the process goes into reverse.

Jim

i would add there is no sign that crypto transaction for C2C (inter-criminal) organizations, including those overseen by russia, china, etc.. has not shown any sign in slowing regardless of volatility.

neither has interest in 'traditional' institutions AND national politicians generating fees on transaction volume.

it is yet another boost to the global underground economy as america wrecks and polarizes global trade.
in this sense, trump can be seen as being the greatest supporter of criminals in financial history.

I am trying to say, indirectly, that the rates are high for even worse reasons than risky loans. What if you can create new currencies that engage in circular finance? How do you prop that up? To Levine's point, this is all based on trust. Do you trust the entities controlling these pools of liquidity? What happens when money flow out of these these systems.

I mean, I certainly don't. I doubt any regular TMF folks would, either.

I agree about the "worse reasons." Many of the institutions like Celsius that Levine wrote about back in 2022 didn't just fail; their officers ended up in jail for fraud. Sometimes it's just risk loans, and sometimes they were able to offer super-normal rates because they're essentially Ponzi schemes.

For goodness sake, tulips, at least, had some real nominal value. Bitcoins don't even exist.

Not that I'm a believer, but saying Bitcoin doesn't exist is like saying software doesn't exist.

For goodness sake, tulips, at least, had some real nominal value. Bitcoins don't even exist.

I'm no fan, but that might be a bit harsh. Not being physical isn't so bad.

Think of paying for a software license key, which is similarly just a string of bits. Of course in the bitcoin case the software doesn't do anything, but that's not 100% different from some software I've purchased over the years...

It has no value, for sure. But many things with no objective value have a market price. I don't think that the very long term price is going to be very high, but that may depend on the number of criminals who stick with it, since that's the only actual use case anyone has found.

Jim

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