High Potential for Another 2 Flash Crashes (soon) Explained & How China Won

[maursader]

Alright, I wanna throw these ideas out there for speculation.

First off, let's talk about the 2 potential flash market crashes (scenarios):

Scenario 1: The FBI/US Gov't sells off the Silk Road hot wallet funds they seized en masse. (Mass selling)

Right now they say that with the entire ordeal, 5% of the entire bitcoins in existence are missing. This means that the market has increased its prices to recoup the losses for the 5% of the market (volume).

Let's say that the FBI/US Gov't sells all their bitcoins, after all, it's free money to them right? Prices are expected to plummet sub-$100 (CAD) mark. This could happen literally any second. Be ultra ready. The chances of this happening could be everyone's dream/nightmare, depending on what side of the fence you're on. The potential for the market to recover is high though.

tl;dr: FBI seized lots of bitcoins, if they mass sell it, expect BTC price to drop below $100 CAD (massive drop in all currencies, essentially.) but will recover through its regular market corrections.

Scenario 2: DPR (operator of Silk Road) goes to have his bail hearing this Friday, and succeeds.

Ok, so this has quickly become a high profile case/trial. Dread Pirate Roberts is estimated to have around $80 million USD worth of bitcoin. Enough to hire the finest legal team money can buy. He knows it, his lawyers know it, and the FBI knows they have no access to it. In doing so, you can expect that to cover legal fees, he could utilize his private stash of bitcoins. He could very well like the FBI, sell a ton of bitcoins (similar to a pump and dump) big enough to cause panic sales, and the market would go down yet again. This can happen literally any time on or after this Friday. Be prepared for market changes.

Do expect that it will go back up. More news about that bail hearing is available here.

tl;dr: Former operator of silk road gets granted bail. Uses his private stash of bitcoins to hire super lawyers to reduce sentences.. bribe people.. etc. Flash crash due to excessive amounts of bitcoins sold from his private stash.

How China Won (or is winning)

In recent times, bitcoin has become something rapidly adopted in china. In fact, not only do most of the asic products come from there from companies that innovate it there.. but they are buying up bitcoin like crazy. Why? Because the chinese government could care less about bitcoin, and hiding their assets in bitcoin is a great way to protect their interests.

China has quickly become the second largest international bitcoin market (bitcoin charts) in terms of volume in a single exchange. They do not rely on sites like Silk Road, because if you're caught with drugs in china, you are subject a maximum of the death penalty. China has a very strict policy against drugs, and sites like Silk Road couldn't thrive very well there.

Whenever the markets in the west crash (thanks to SR, or other economic factors) people in china waste no time, and buy up our "yucky, stupid, cheap, low priced" bitcoins, and wait to sell it BACK to us at a much higher rate.

They are an economy that proves that  silk road is unnecessary for bitcoin to thrive. In the grand scheme of things, they were unaffected by the crash as a result of the non-dependancy.

tl;dr: China never had a real use for Silk Road as a mainstream backbone for their bitcoin economy. Therefore they had no reason to panic sell.

I'd love to have some ideas thrown around about this, but if you agree/disagree, either way, I'd like to know and if you could tell what your thoughts are too, that'd be great.

Thanks!

Ps.

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[notme]

So, how would he explain his money?  Laundering isn't just about breaking a link.  It is also about constructing a legitimate means of acquiring your funds.

[lucas.sev]

Scenario 1 sounds as plausible as FBI siezing stolen WoW accounts and selling rare items and gold for real money

[maursader]

So, how would he explain his money?  Laundering isn't just about breaking a link.  It is also about constructing a legitimate means of acquiring your funds.

Well, he would have to be good at washing that money, but the fact remains, those bitcoins could be sent to friends who could wash it for him, especially by ways of selling it locally, at a favourible rate, to people interested in garnering a profit on the main exchanges.

Scenario 1 sounds as plausible as FBI siezing stolen WoW accounts and selling rare items and gold for real money

Didn't know about the WoW money, but I think we're all agree that any way the US can make money, they'll seize that opportunity. haha.

[lucas.sev]

Why? Because the chinese government could care less about bitcoin, and hiding their assets in bitcoin is a great way to protect their interests.

The government could care less? So they actually care a lot?

[casascius]

Why would the FBI dump their coins on an online exchange?  Seems pretty dumb for a known trustworthy seller (from the perspective of large wealthy/institutional buyers who would never touch MtGox with a 10 foot pole).  Such buyers already exist and have an interest in owning a chunk of BTC, especially when they can document their above-board acquisition of it from a legal perspective (as would be possible when buying from an asset sale from the FBI).  I have no doubt the FBI could easily and reliably conduct their own sale without having to even look the way of any of the exchanges.

Whoever buys them almost certainly is going to hold them and not dump them (unless they want a guaranteed loss).

[NamelessOne]

Scenario 1 fortunately can't happen till the trial is over and they are legally allowed to liquidate the funds. The FBI has already openly stated this which is a great. So those coins will be sitting around in storage for quite some time. No flash sell of crash anytime soon. At current prices if they were stupid enough to waste potential profit by market selling it would only take the price to about 115, though fear would sink it more after.

Scenario 2 can't really happen at all. Lawyers are ultra careful not to take money earned illegally such as the drug money were DPR's funds would be coming from. Lawyers will hire other lawyers just to vet potential big name criminals funds to to ensure whatever money they are getting paid with was legally earned. DPR doesn't have any riches, just a pile of Bitcoin he now can't use. He is under a microscope and wasn't a rich man before he started SR. He might be able to convince some rich person to take his coins and donate to his legal fees, but again the microscope on him might make it hard. We will see.

Sure he could sell them all at once, but I highly doubt his goal is to screw with the bitcoin market that he clearly cherishes. Sell in a big dump doesn't give him anything.

In terms of China you make some great points.  

[maursader]

Why would the FBI dump their coins on an online exchange?  Seems pretty dumb for a known trustworthy seller (from the perspective of large wealthy/institutional buyers who would never touch MtGox with a 10 foot pole).  Such buyers already exist and have an interest in owning a chunk of BTC, especially when they can document their above-board acquisition of it from a legal perspective (as would be possible when buying from an asset sale from the FBI).  I have no doubt the FBI could easily and reliably conduct their own sale without having to even look the way of any of the exchanges.

Whoever buys them almost certainly is going to hold them and not dump them (unless they want a guaranteed loss).

Fair enough, but mind you there are numerous exchanges, foreign currencies too. The FBI/US Gov't has many ways to liquidate that BTC, and the point is, if that BTC hits the market in any way shape or form, that's where/when the flash crash is expected to happen.

Scenario 1 fortunately can't happen till the trial is over and they are legally allowed to liquidate the funds. The FBI has already openly stated this which is a great. So those coins will be sitting around in storage for quite some time. No flash sell of crash anytime soon. At current prices if they were stupid enough to waste potential profit by market selling it would only take the price to about 115, though fear would sink it more after.

Scenario 2 can't really happen at all. Lawyers are ultra careful not to take money earned illegally such as the drug money were DPR's funds would be coming from. Lawyers will hire other lawyers just to vet potential big name criminals funds to to ensure whatever money they are getting paid with was legally earned. DPR doesn't have any riches, just a pile of Bitcoin he now can't use. He is under a microscope and wasn't a rich man before he started SR. He might be able to convince some rich person to take his coins and donate to his legal fees, but again the microscope on him might make it hard. We will see.

Sure he could sell them all at once, but I highly doubt his goal is to screw with the bitcoin market that he clearly cherishes. Sell in a big dump doesn't give him anything.

In terms of China you make some great points. 

Good points about scenario one and two, which is why I think it's safe to say that if people are thinking about "preparing" money to trade with, now's a good time to get ready, because let's just say, if one of those two circumstances were to occur, we've now got a potential like what we just went through.

As for my points on China, thanks!! =)

I still feel as if Scenario 1 could happen any time. Just because the FBI says something, usually always means the opposite. They're a private company no different from the NSA am I right? (Canadian here).

And for scenario 2 happening.. it could happen in almost any instance where a pass phrase could be passed to another person during visiting hours mid-conversation without the authorities knowing.. plus im sure there are tons of situations where law makers, and authorities are able to turn a blind eye to $UCH things. You know?

- Maursader

[maursader]

Any feedback good or bad is welcome, I'm interested in knowing what you all think.

Cheers

[Zaih]

Doubt scenario two could work. I read some where here that lawyers can't accept illegally gained funds in return for their services?

And if the FBI did sell off those coins, that's not really ground to cause a proper crash. People will realise there's a special circumstance around this, and it's not actually to do with Bitcoins position, and we will readjust ourselves very quickly.

[tutkarz]

it was already mentioned here why flash crash wont happen but i will add another reason: it wont happen because you are expecting it

[maursader]

it was already mentioned here why flash crash wont happen but i will add another reason: it wont happen because you are expecting it

I suppose I can see why you'd say that, but that's not certainly the case. I think most people would agree that to be "ready" for any instance of a flash crash one must:

1. Have a decent balance in CAD, USD, EUR, etc to start with already into the exchange of your choice (not being verified, or waiting to be cleared)
2. Play the waiting game.

So yeah, I can see how you'd think that I am expecting it therefore it won't happen, but I think the moral of my original post was outlining two possibilities that could trigger it as this is the "Speculation" sub-forum. Nobody can predict a flash crash, but nothing stops you from taking possible scenarios into account, thus preparing for it in advance, you know?

Just my $0.02

[Carlton Banks]

FBI won't sell, as it legitimizes the value of Bitcoins to do so. They will spend a long time pretending they don't exist, or sell them without publicising the fact.

The idea that Ulbrecht can sell from the fabled 600,000 BTC is laughable, he needs to be in a jurisdiction that isn't going to hand him and his money over to the US.

So, no.