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Author Topic: Too much speculation  (Read 7789 times)
QuantumMechanic
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November 10, 2010, 05:50:16 AM
 #61

Macho, I didn't read all your posts, but from what I did read, it seemed you were describing a classic pump and dump market manipulation, and then claiming that this is the strategy that all speculators employ.  This is definitely not the case.

Pump and dumps require the following: 1) the means to take on dominant long positions via coordination amongst several 'insiders' or access to large amounts of cheap enough credit, 2) manufactured hype around the financial instrument to be pumped, and 3) a large enough pool of 'suckers' to fall for the hype.

The inverse of this scenario works as well, where market manipulators coordinate dominant short positions, triggering other traders' stop losses.  This creates further fear, snowballing the wave of selling.  Bad 'news' can simultaneously be released to compound this.  The silver market has recently been exposed as being manipulated in this fashion, and the same is pretty clearly true for the gold market.

It may be said that these sharks act to rid the market of speculators who don't know what they're doing, and thus increase the likelihood that speculators in the aggregate will move prices in the right direction.  I doubt this is true, however, since the sharks probably aren't any better at trading based on fundamentals than the speculators they devour.  So I probably agree with you that these guys aren't providing any value to society.

But at the same time honest speculators move market prices based on real economic information, such as expected shortages and gluts.  It is in these cases where what the people in this forum were saying holds true - i.e. what you were denouncing as free market propaganda.

That being said, most speculators do not employ these nefarious strategies, since most speculators haven't got access to the means to gain dominant market positions in deeply traded global markets like food and other commodities.

One of these means is cheap credit, produced by central bank manipulations, so one obvious way of lessening the damage these people can do is to undermine the ability of central banks to manipulate interest rates by creating successful competing currencies.  So I'm glad you're interested in Bitcoin then!

But there is a problem when it comes to small markets like Bitcoin, since these pump and dump schemes can easily be employed by a much greater number of people, since it's much easier then to gain a dominant market position.  (This is why you see pump and dumps happen so often in penny stocks.)  I hope Bitcoin's reputation can weather these pump and dumps, and I hope the people here will discuss possible ways of preventing/mitigating such damage.
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jgarzik
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November 10, 2010, 06:20:57 AM
 #62

The problem is not the lack of food, but the lack of cheap, healthy food in our society.

The market is providing what choices people want; apparently, large volumes of people want cheap packaged junk food or drive-thru junk food.  Even with "free" food vouchers, via food stamps, the nutritional choices made by the purchaser trend towards unhealthy junk.

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grondilu
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November 10, 2010, 06:28:28 AM
 #63

The problem is not the lack of food, but the lack of cheap, healthy food in our society.

The market is providing what choices people want; apparently, large volumes of people want cheap packaged junk food or drive-thru junk food.  Even with "free" food vouchers, via food stamps, the nutritional choices made by the purchaser trend towards unhealthy junk.


I indeed underestimated the problem of food, especially in US.

People who use food stamps do get some food.  So there is no shortage of food, and the demand is here.  The problem is therefore the fact that prices do not adapt to this demand.  I personnaly think this is only due to excessive market regulation and terrible monetary policies.  Maybe a good micro-payment system could solve that.
Macho
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November 10, 2010, 06:29:19 AM
 #64

Great post, thank you.

You're absolutely right that you need dominant position, concerted action or cheap credit to be successful at manipulation. In the case of bitcoin, cheap credit is eliminated which is a major factor in real world economy as you can not create bitcoins from thin air like banks are doing with dollars and other currencies.

As far as dominant position goes I do not think this is that easy to achieve without the cheap credit. Even when some people probably do have significant holdings of bitcoins I do not think they could manipulate the market to such a degree even if they wanted to (but they may contribute a great deal).

So what seems to be happening is spontaneous concerted action of multiple independent people triggered by the same impulse and that is desire to make some profit from the apparent  rising value of bitcoin. The problem is that the rising value may be just a reflection of higher demand caused by these people wanting to speculate. That means that the real value of bitcoins without the speculative factor is unknown. What introduces a problem is that this speculative portion of value is only virtual, it goes away the moment there is a dip in a value and people start selling like crazy all at once crashing the value to significantly lower one. In this process a lot of people are going to loose their money to the ones who had better information and sold first (most often just few insiders).

That's why I'm saying that this kind of speculation is extremely bad for the market, it makes it unstable and distorts it causing all kinds of great problems (even serious ones like starvation). It is always going to be happening on some level but as long as it is overwhelmed by real markets it's not a big problem as its effects are very small.

BUT if people accept it as legitimate way to make money (as seems to be happening on this forum) and a good portion of the economy participants start to "make money from money" it can snowball to such an extent that is destroys the economy as we can see on our real one.

The only way to stop that is to realize that you produce nothing by doing it, you can never produce value and if you make money you take it from someone else who got screwed - this may be another speculator or regular producing trader ... therefore it is bad thing to do and we should make honest profit from producing goods and services that people actually desire and which help them in their life. The solution in my view is to make sure that the real economy is dominant over the speculative one, always striving to make the speculative one as small as possible. It can not be eliminated, but it can be made insignificant by educating ourselves and others that it is harmful and stay away from it.

So next time you see someone offering you good "investment fund" kick him in the nuts for trying to destroy the economy Smiley
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November 10, 2010, 06:31:04 AM
 #65

Great post, thank you.

...

Please use paragraphs.
ShadowOfHarbringer
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November 10, 2010, 08:18:35 AM
 #66

Great post, thank you.

You're absolutely right that you need either dominant position or cheap credit. Cheap credit is eliminated in the case of bitcoin as there is no way to just print up more (or load from some authority which can print it) - this the preferred way our banks manipulate markets. Oh yeah and also concerted action. Some people do have dominant position I believe in the bitcoin economy, but I do not think these are the people manipulating its value, I think that it is simply aggregate effect of multiple people acting in concert of buying bitcoin as an "investment", or hoping to sell it at higher price with profit. This creates a spontaneous "ponzi scheme" that I've already described. When people are buying bitcoin just because of the belief that they can sell it for more later this does not create real value, in fact the belief itself represents the value (the value is in the belief that is it going to rise in price) therefore this virtual value is going to go puff the moment that belief is gone which is going to be suddenly and all at once - the bubble bursts and all that virtual value disappears in a matter of minutes reverting to its base value (real) which is much much lower. And because it's a zero sum game a lot of people are going to loose money benefiting those who got out early or just before the crash - who most of the time happen to be very few insiders. That's why I'm saying that this kind of speculation is extremely bad for the market, it makes it unstable and distorts it causing all kinds of great problems (even serious ones like starvation). It is always going to be happening on some level but as long as it is overwhelmed by real markets its not a big problem as its effects are very small. BUT if people accept it as legitimate way to make money (as seems to be happening on this forum) and a good portion of the economy participants start to "make money from money" it can snowball to such an extent that is destroys it as we can see on our real one. The only way to stop that is to realize that you produce nothing by doing it, you can never produce value and if you make money you take it from someone else who got screwed - this may be another speculator or regular producing trader ... therefore it is bad thing to do and we should make honest profit from producing goods and services that people actually desire and which help them in their life. So next time you see someone offering you good "investment fund" kick him in the nuts for trying to destroy the economy Smiley interest on deposit is the same exact thing ... it can never work when you take big picture into account, it's going to implode economy sooner or later and should be opposed for that reason.

This is jibberish, i can't read it.
And You are probably a troll.

Macho
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November 10, 2010, 08:55:57 AM
 #67

Please use paragraphs.

Done, sorry ... I was in a hurry and I've written gibberish Smiley It should be better now ...
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