hey cypher, awesome huge post of yours (https://bitcointalk.org/index.php?topic=81642.msg910908#msg910908
4. so with that background what is this that Bromberg is talking about with the deposit market, UST's, investment vehicles?
I'm not sure, he says this (http://www.youtube.com/watch?feature=player_detailpage&v=NULPfp0Zu5g#t=1666s
...very very useful for your fx risk. So it turns out that the cost for the currency forward is determined mathematically from the deposit rates. [...] there is a mathematical relationship between deposit rates and the cost of a forward like that. [...] so the deposit market is really really important for an international corporation, because that's really gonna speak to how much their future costs are gonna be and how easy it's gonna be for them to hedge. So there's this really tripartite relationship between those concepts: hedging, forwards, deposits.
as i said in my post, i think he's talking about money markets. i remember when these vehicles came into vogue in the 1980's as a tool from Wall St to lure money away from commercial banks. they offered higher yields for savers by investing in what used to be low risk securities, namely sovereign bonds. well, those are no longer considered safe now are they? esp. the ones in Europe. and we've seen a ton of money taken out of them beg. back in 2008 when they first broke the buck and more recently when it was discovered many were taking excessive risk reaching for yield by buying PIGS sovereigns.
yes they pay interest but they have risk and the currency forwards IMO are just a derivative to try and offset this risk. yes, of course the institutions like to play in this market but that's only b/c they believe the Fed and other CB's will be there to bail them out if their sovereign bond investments go sour. well, the bond vigilantes have awakened and are reeking havoc in Europe. the real question is does it come here and when?
this part hasn't left my mind since I watched the vid a while ago (last night? the night before), because I can't quite figure it out. First of all, I don't know what a deposit market is... (looks at TyGrrr-Bank, the pirate stuff,... where one can deposit bitcoins and receive interest payment (while accepting risk of loss)... is that a deposit market?).
Is he implying that bitcoin has no (sufficiently insured) deposit market and therefore big corps wont enter the bitcoin sphere because they just can't hedge (efficiently enough) the exchange risk?
while Bitcoin doesn't have a deposit market what it does have is the potential to have price appreciation. a significant
potential. which is all it needs for them to eventually come to papa. the reason big institutions haven't entered Bitcoin yet is they want to keep their bailout game going for as long as possible. if and when they sense that game is finished then they will come storming into a currency which has a fixed supply like Bitcoin. Bitcoin not only has the potential for some of that $4-7 T currency market to come storming in but also fiat from the gold/silver markets which i think have topped.
EDIT: a bit later on he says:
so, in order to have a deposit market, you need investment vehicles; you need someplace you can put your money, that will make more of that money. Unless you have investment vehicles, you don't have a deposit market, which means you can't have forwards, which means you can't have hedging, which means you don't have institutional investors getting involved in that currency...
again, i just view the currency markets along with their hedging vehicles and money markets as another gambling asset class along with stocks, commodities, junk bonds, gold, silver.
and directly after that:
which is not gonna happen, because there's no regulators on the thing.
now wtf. those are 2 different arguments. While the first one might be valid (I can neither judge the argument itself nor wether or not sufficient deposit markets exist for bitcoin), the second one doesn't seem to be well thought-out and he doesn't explain it further, only says "volatility is too high". It seems the possibility of hedging should be able to deal with that, using his own argument.
Quite frankly, I've come to think his argument that bitcoin is not a currency is crap.
no regulators? isn't that a positive?