Bears Bunker - Official thread

[drnick]

They're supposed to, but all they're really doing is exchanging ExchangeBTC for ExchangeUSD and then processing withdrawals, but only for those who request it. A significant amount of money is stored on exchanges because banks suck and it takes a long while to actually move fiat around. To that significant group of people, it makes sense to keep some money on exchanges long-term for short-term trading.

An exchange can have $10M in ExchangeUSD IOUs, but actually only have $5M in USD to pay out. This fractional reserve system (or in this example, probably insolvency) works so long as there isn't any kind of "bank run" on the exchange.

MtGox and BTC-e (maybe BTC-e still does - Idunno) used to have "code money." That is, you could withdraw fiat and BTC in the form of GoxUSD or GoxBTC - debt notes, represented by a hash, similar to Bitcoin. You could trade these notes around, and they offered excellent advantages, but also the very serious drawback that Gox may not honor the IOUs. These IOUs, it should be noted, are effectively the same as the balance you see in your account on an exchange -- they're not necessarily representing actual money. When Gox started issuing these IOUs as a withdrawal method, there was a very slight premium over face value due to the convenience they offered. However, when Gox's future started looking uncertain, GoxUSD and GoxBTC started trading at a discount under face value. This was because the debt notes (the same as account balances in exchange accounts) may not have been fully backed by Gox's reserves. Gox eventually discontinued issuing these debt notes due to regulations.

Thanks for this, didn't know how they officially do it.

[GigaCoin]

Rise of the Bear Threads

Today Bears might party 

[pera]

If I would cash out I wouldn't do it through any exchange, I would do it directly on OTC, though that would be less than 10k usd...
I mean, why wait 2 weeks when you can do it in one day?

[Nagle]

An exchange can have $10M in ExchangeUSD IOUs, but actually only have $5M in USD to pay out. This fractional reserve system (or in this example, probably insolvency) works so long as there isn't any kind of "bank run" on the exchange.

That is theft. Money transfer companies in the US or Japan are not allowed to do that. Funds on deposit belong to the customer, not the exchange. Not "are owed to", but "belong to". This the difference between going bankrupt and going to jail. For Japan, read the Payment Services Act. I don't know about Slovenia or Romania.

This is why fractional reserve banks are regulated, have capital requirements, and are backed up by deposit insurance.  For why, see Emergency Banking Act in Wikipedia.

[Kluge]

An exchange can have $10M in ExchangeUSD IOUs, but actually only have $5M in USD to pay out. This fractional reserve system (or in this example, probably insolvency) works so long as there isn't any kind of "bank run" on the exchange.

That is theft. Money transfer companies in the US or Japan are not allowed to do that. Funds on deposit belong to the customer, not the exchange. Not "are owed to", but "belong to". This the difference between going bankrupt and going to jail. For Japan, read the Payment Services Act. I don't know about Slovenia or Romania.

This is why fractional reserve banks are regulated, have capital requirements, and are backed up by deposit insurance.  For why, see Emergency Banking Act in Wikipedia.

Of course they're not allowed to, but laws don't define reality.

[Nagle]

An exchange can have $10M in ExchangeUSD IOUs, but actually only have $5M in USD to pay out. This fractional reserve system (or in this example, probably insolvency) works so long as there isn't any kind of "bank run" on the exchange.

That is theft. Money transfer companies in the US or Japan are not allowed to do that. Funds on deposit belong to the customer, not the exchange. Not "are owed to", but "belong to". This the difference between going bankrupt and going to jail.

Of course they're not allowed to, but laws don't define reality.

Reality check:

BERNARD L MADOFF    
Prisoner #61727-054
Location: Federal Correctional Institution, Butner, NC
Charges: Securities fraud, investment advisor fraud, mail fraud, wire fraud, money laundering...
Release date: 11-14-2139    

Bitcoin isn't exempt from fraud laws. Ask Trendon Shavers. "Unfortunately for him, the associated jail time for the crime isn’t virtual." - WSJ

[Kluge]

An exchange can have $10M in ExchangeUSD IOUs, but actually only have $5M in USD to pay out. This fractional reserve system (or in this example, probably insolvency) works so long as there isn't any kind of "bank run" on the exchange.

That is theft. Money transfer companies in the US or Japan are not allowed to do that. Funds on deposit belong to the customer, not the exchange. Not "are owed to", but "belong to". This the difference between going bankrupt and going to jail.

Of course they're not allowed to, but laws don't define reality.

Reality check:

BERNARD L MADOFF    
Prisoner #61727-054
Location: Federal Correctional Institution, Butner, NC
Charges: Securities fraud, investment advisor fraud, mail fraud, wire fraud, money laundering...
Release date: 11-14-2139    

Bitcoin isn't exempt from fraud laws. Ask Trendon Shavers. "Unfortunately for him, the associated jail time for the crime isn’t virtual." - WSJ

You'll notice they still committed the acts even though they were illegal. Someone else can still do it. Exchanges can still operate on a fractional reserve system because laws don't put up a reality protection field which automagically prevents crimes.

[wachtwoord]

An exchange can have $10M in ExchangeUSD IOUs, but actually only have $5M in USD to pay out. This fractional reserve system (or in this example, probably insolvency) works so long as there isn't any kind of "bank run" on the exchange.

That is theft. Money transfer companies in the US or Japan are not allowed to do that. Funds on deposit belong to the customer, not the exchange. Not "are owed to", but "belong to". This the difference between going bankrupt and going to jail.

Of course they're not allowed to, but laws don't define reality.

Reality check:

BERNARD L MADOFF    
Prisoner #61727-054
Location: Federal Correctional Institution, Butner, NC
Charges: Securities fraud, investment advisor fraud, mail fraud, wire fraud, money laundering...
Release date: 11-14-2139    

Bitcoin isn't exempt from fraud laws. Ask Trendon Shavers. "Unfortunately for him, the associated jail time for the crime isn’t virtual." - WSJ

You'll notice they still committed the acts even though they were illegal. Someone else can still do it. Exchanges can still operate on a fractional reserve system because laws don't put up a reality protection field which automagically prevents crimes.

Indeed, how does Trendon getting send to jail help me? Also, I'm curious whether he'll face jail time at all.

[sgbett]

We have an interesting event coming up - on the next downturn, many new speculators will cash out and will demand money from exchanges. Some of the exchanges aren't going to make it.

Why would the exchanges not have the required funds to pay out? If you sell your bitcoins on an exchange, there must be a buyer with fiat on the exchange ready to buy it.

They're supposed to, but all they're really doing is exchanging ExchangeBTC for ExchangeUSD and then processing withdrawals, but only for those who request it. A significant amount of money is stored on exchanges because banks suck and it takes a long while to actually move fiat around. To that significant group of people, it makes sense to keep some money on exchanges long-term for short-term trading.

An exchange can have $10M in ExchangeUSD IOUs, but actually only have $5M in USD to pay out. This fractional reserve system (or in this example, probably insolvency) works so long as there isn't any kind of "bank run" on the exchange.

MtGox and BTC-e (maybe BTC-e still does - Idunno) used to have "code money." That is, you could withdraw fiat and BTC in the form of GoxUSD or GoxBTC - debt notes, represented by a hash, similar to Bitcoin. You could trade these notes around, and they offered excellent advantages, but also the very serious drawback that Gox may not honor the IOUs. These IOUs, it should be noted, are effectively the same as the balance you see in your account on an exchange -- they're not necessarily representing actual money. When Gox started issuing these IOUs as a withdrawal method, there was a very slight premium over face value due to the convenience they offered. However, when Gox's future started looking uncertain, GoxUSD and GoxBTC started trading at a discount under face value. This was because the debt notes (the same as account balances in exchange accounts) may not have been fully backed by Gox's reserves. Gox eventually discontinued issuing these debt notes due to regulations.

Since when were Gox a fractional reserve bank? You have proof of this?

To have USD on Gox, you have to have deposited USD.

Even if you deposit BTC and sell then withdraw, there was a buyer that has USD on Gox. You can imagine any convoluted scenario you like, but it all boils down to the fact that the dollars in Gox, in peoples accounts, are dollars that were deposited by one person or another.

It's a closed loop, and over time as all the BTC moves back and forth Gox skims a percentage off the top. Daily volume gives you a good idea of the ballpark of how much they make.

Now, if they are doing anything untoward with that cash like speculating themselves then that is a serious problem (As well as being totally stupid, because why kill the golden goose!).

If the running costs are so high that they outweigh the commissions, then we have a serious problem.

The only decision a rational investor has to make, is whether you believe that Gox is trustworthy. The recent move towards 'regulation' in the USA and now China looks to be a good thing in this respect. Whilst Gox isn't under US jurisdiction, I think the precedent being set here means that Japan won't be too far behind.

Then we will all see whether Gox's Golden Goose is alive and well.

[Nagle]

Indeed, how does Trendon getting send to jail help me?

Pour encourager les autres.

[pera]

Wonderful

[accord01]

I'm not a bear, but I was laughing at all the bulls that said "crash/correction is over.. on to the moon" when the GOX pause/loop happened.

[Nagle]

Big run-up when it looked like Bitcoins were an easy, legal way to evade exchange controls in China.
Big run-down when People's Bank of China says not to do that.

This sharp downturn will stress the exchanges that can't deliver funds. Some more exchanges may go under.

[niothor]

You bears in the bunker , should not open any packages that come your way next days. 

[humanitee]

Big run-up when it looked like Bitcoins were an easy, legal way to evade exchange controls in China.
Big run-down when People's Bank of China says not to do that.

This sharp downturn will stress the exchanges that can't deliver funds. Some more exchanges may go under.

From my understanding this is completely wrong. They can still use it for remittance (yay!) and use it like a commodity (yay!!). FUDwagon rollin' through Nagletown.

[ElectricMucus]

Big run-up when it looked like Bitcoins were an easy, legal way to evade exchange controls in China.
Big run-down when People's Bank of China says not to do that.

This sharp downturn will stress the exchanges that can't deliver funds. Some more exchanges may go under.

From my understanding this is completely wrong. They can still use it for remittance (yay!) and use it like a commodity (yay!!). FUDwagon rollin' through Nagletown.

XRP/Yuan parity this year.

[pera]

I see a bottom somewhere between 250-400 this month if we don't start having a massive amount of real good news.

(btw the predicted price was 400 for Christmas on the long time exponential trend, but panic..)

[Mirsad]

You bears in the bunker , should not open any packages that come your way next days. 

Haha. Hope you lose a lot of money buying @ the top of a china bubble. 

[Tzupy]

Shouldn't bulls start a 'bull bunker' thread, now that it's going down hard?

As for where the market is, IMO it's in the middle of wave C. The first third was a weak drop, the second third happens now,
and the third and most powerful drop (itself divided into three) should happen in another 2 - 5 days, depending on volume.

[pbody]

Shouldn't bulls start a 'bull bunker' thread, now that it's going down hard?

As for where the market is, IMO it's in the middle of wave C. The first third was a weak drop, the second third happens now,
and the third and most powerful drop (itself divided into three) should happen in another 2 - 5 days, depending on volume.

good analysis. It was hard to see a week ago. Now its all seemingly coming together like clockwork.