Central Banks could EASILY destroy Bitcoin (if they want)

[michielnl]

** I am LONG on BTC, but want to understand if this scenario would work **

The current market capitalization of crypto currency is about 13 bln.
See at footer / bottom of page of: http://coinmarketcap.com/

WHAT IF they would create/print some dollars, slowly buy significant amount of crypto currency at current market prices and then dump it all at once. They would do this in cycles, each time creating a crash.

The FED has about 4000 bln outstanding.
If they would just create 4 bln USD, buy BTC and dump it, it would already probably work.
But ok, let's suppose they do this (in cycles!) with 40 bln (who cares anyway..it is money out of thin air).
This 40 bln would represent only 1% of their current balance.
And this is only the FED.

Here is size of printed money from the 4 big central banks right now...


Source: http://www.economicpopulist.org/content/bis-says-party-over-quantitative-easing

And here is projected increased size for the FED only...


Source: http://blogs.ft.com/gavyndavies/2012/12/16/a-major-change-in-bernankes-policy-reaction-function/

[1715019288]

1715019288

[LiteCoinGuy]

alot easyer just to ban it, not to buy it.

[Tomatocage]

How would this destroy Bitcoin? Bitcoin existed long before there was any analog-money numbers associated with it.

[michielnl]

-> "alot easyer just to ban it, not to buy it."
i think it is much, much easier to just change a number on a system somewhere to create 40 bln easily and get rid of the BTC in a few hours. no effort needed on politics, legal stuff, etc etc

-> "How would this destroy Bitcoin? Bitcoin existed long before there was any analog-money numbers associated with it."
they would buy it for 900 USD and then sell it for 0.000001 USD on large volumes at once, in cycles, creating crashes, this would effectively destroy it. all miners would stop, etc etc

[Mageant]

Are they going to buy up every single one of the 150+ altcoins?
What's to stop people just making more altcoins?
 

[michielnl]

Are they going to buy up every single one of the 150+ altcoins?
What's to stop people just making more altcoins?
 

In this scenario they would.
If I would give you 40 bln, you could :-)

It would not be worth to create more cryptocoins.
Every miner would stop.

[kisa2005]

If they would just create 4 bln USD, buy BTC and dump it, it would already probably work.
But ok, let's suppose they do this with 40 bln (who cares anyway..it is money out of thin air).
This 40 bln would represent only 1% of their current balance.
And this is only the FED.

good you pointed to  that possibility.
so i am not selling mine until price gets to 40000$, because who knows it might be FED buying...
so are you selling yours if FED pays 900? then whenever i have a sense FED is in market, I will pay +100 to you...

[SirWilliam]

No way would it destroy anything. I'm not sure if you are aware that an exchange works on supply and demand. The supply at these prices is a tiny percentage of the total supply. If someone started buying continuously the price would go insane, easily going into 10s of thousands very quickly. To buy up a third of all bitcoin would drive the price to crazy levels. Then when they sold it the price wold plummet of course but all that would happen is that the market would stabilize at some level and then start going up again when enough people saw it as a bargain. It would surely hurt bitcoin by creating a period of wild volatility (as well as a lot rich members of the public who sold to the Central Banks during the rally haha) but the fact that the manipulation was so obvious might have unintended consequences. In any case bitcoin would just continue at whatever price it settled at. Mining would reduce but not stop, trading would increase wildly. Hey I think it would be fun to watch   In fact if it starts I'll even put in a sell order at $200k per bitcoin and see if any central banks wants to dump some of their worthless fiat on me hahaaa

[cypherdoc]

The current market capitalization of crypto currency is about 13 bln.

Source: http://www.economicpopulist.org/content/bis-says-party-over-quantitative-easing

And here is projected increased size for the FED only...


Source: http://blogs.ft.com/gavyndavies/2012/12/16/a-major-change-in-bernankes-policy-reaction-function/

these graphs are exactly why we're doing this.

[michielnl]

"so i am not selling mine until price gets to 40000$, because who knows it might be FED buying..."
"If someone started buying continuously the price would go insane, easily going into 10s of thousands very quickly."
- not true, if they would slowly buy 100.000 bitcoin in a batch and then dump all of it for 0.0001 USD, bitcoin would crash ... if they then would do this in cycles.

"these graphs are exactly why we're doing this."
- i know and i agree

[SirWilliam]

If they would just create 4 bln USD, buy BTC and dump it, it would already probably work.
But ok, let's suppose they do this with 40 bln (who cares anyway..it is money out of thin air).
This 40 bln would represent only 1% of their current balance.
And this is only the FED.

good you pointed to  that possibility.
so i am not selling mine until price gets to 40000$, because who knows it might be FED buying...
so are you selling yours if FED pays 900? then whenever i have a sense FED is in market, I will pay +100 to you...

EXACTLY!

[SirWilliam]

"so i am not selling mine until price gets to 40000$, because who knows it might be FED buying..."
- they would buy and immediately dump it, causing bitcoin to crash :-(

"these graphs are exactly why we're doing this."
- i know and i agree

Hahaaa so they would just buy it all at $900 and immediately dump it eh? Hahahaaaaaa have you ever seen an exchange? This isn't like going to Walmart and buying up all the socks at 99 cents each. There is a limited supply and the price changes every time there is a transaction. If you bought 100k bitcoin for just $100mil the price would go on a "scalded monkey" run. Can you imagine someone trying to buy tens of billions of dollars of bitcoins at the same time? There's no saying how high it would go when apparently limitless buying appeared and was noticed by everyone. People would be pulling sell orders like they were going out of style and the price would go straight vertical until it got to levels at which people couldn't resist selling. Hell it might go up so much that by the time they sold it all back to the public the price might settle at $10k instead of $1k, given the lesson the previous holders just learned. They'd be dying to get back in and there'd be millions of new gamblers wanting a piece of that volatility.

[acoindr]

No, they couldn't easily destroy Bitcoin.

What they could attempt to do is manipulate the bitcoin to fiat price point. They have no bitcoins now so they first need to buy them. They would have to buy from bitcoins available for sale, and new ones being found by miners as scheduled in the inflation rate. They couldn't acquire any I have, for example, since they're not for sale.

So they could begin trying to acquire as many as possible which would drive up the price. Right now the price is about 1K each, and as I note above there are a limited number available, so their buying if they were seriously engaged could drive up the price quickly say to 10K each or beyond. At this point the multitudes of bitcoin owners would be greatly enriched (fiat wise).

The sharp uptick in price might slow down purchases as people hoarded bitcoins. At the same time the high price would create a larger news cycle, causing more people to learn about and probably be interested in Bitcoin. Now you have a lot of wealthy bitcoin holders who probably begin to sell a few, the central bank that now owns a number and looks to crash the market, and a lot of new people saying what the heck is going on.

So the price probably crashes from 10K back down to maybe as low as 1K, but I doubt it would get that far. Now people are taking bitcoin very seriously with such high prices, the new interest in it would fuel sales, and older holders still won't sell all their coins cheaply.

Now the central bank needs to buy coins again to try the cycle over. All they have successfully done is enrich a lot of bitcoiners, add in volatility which otherwise wouldn't have been there, and generate more interest and awareness for it. If you look at bitcoin's history you'll see tons of volatility, which hasn't killed it. Next.

[michielnl]

Actors with unlimited purchasing power can determine prices fully:
http://stocks.about.com/od/gettingstarted/a/041711-How-To-Legally-Manipulate-Stock-Prices.htm

[ouwe]

July 9, 2010: When someone tries to buy all the world’s supply of a scarce asset, the more they buy the higher the price goes. At some point, it gets too expensive for them to buy any more. It’s great for the people who owned it beforehand because they get to sell it to the corner at crazy high prices. As the price keeps going up and up, some people keep holding out for yet higher prices and refuse to sell. The Hunt brothers famously bankrupted themselves trying to corner the silver market in 1979.

Always interesting to see mr.Nakamotos opinion-.....

http://crypt.la/2014/01/06/satoshi-nakamoto-quotes/

[michielnl]

July 9, 2010: When someone tries to buy all the world’s supply of a scarce asset, the more they buy the higher the price goes. At some point, it gets too expensive for them to buy any more. It’s great for the people who owned it beforehand because they get to sell it to the corner at crazy high prices. As the price keeps going up and up, some people keep holding out for yet higher prices and refuse to sell. The Hunt brothers famously bankrupted themselves trying to corner the silver market in 1979.

Always interesting to see mr.Nakamotos opinion-.....

http://crypt.la/2014/01/06/satoshi-nakamoto-quotes/

It is not about buy it all, but to manipulate the price.
They buy on current prices and then dump it with large volume and take losses (since they can afford to).
This will scare most investors who will leave.

[Mageant]

The end result would be that the Central Banks would be giving a lot of money to people in the cryptocurrency community.

After the waves die down you could just start a new cryptocurrency.

[Holliday]

they would buy it for 900 USD and then sell it for 0.000001 USD on large volumes, this would effectively destroy it. all miners would stop, etc etc

If they are making huge losses like that, they would be tossing money (violently, blatantly throwing huge sums of money) at current Bitcoin owners.

This would be free advertising which would attract every investor in the world.

[ouwe]

¨This will scare most investors who will leave.¨

maybe few bigger investors will leave, but 100 of thousands of smaller btc users will think itś a good moment to step in?

[BTCisthefuture]

Would be a lot easier to just "ban" bitcoin. Create regulations so merchants arent allowed to accept it and exchanges are illegal. That would effectivly prevent bitcoin from ever becoming a mainstream thing.

Also I'm not sure how you would go about buying billions worth of bitcoin without people noticing and getting concerned.  I'm pretty sure no current exchange or payment processor would be able to accept a purchase that large , and even if they could it would obviously raise serious red flags and they would look into it pretty dang closely i would like to think.