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Author Topic: A Bitcoin Savings and Trust exit plan, incentivizing the destruction of Bitcoin  (Read 4684 times)
Spekulatius
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July 23, 2012, 04:44:29 PM
 #41

What happens in step 2 if the market doesn't fill your bid for 2.5M BTC @ USD$1, and bids at $5 start flooding the market? Finding people to sell you a huge number of BTC @ $1 might be difficult.

Well, you fail.

You need to finish selling the open orders of BTC down to your target price,
before the market react and successfully transfer the millions of dollars required to stop the fall into the exchange(s).

You can dump as much as you want in an instant, sell 500k BTC right now: MtGox freezes the orderbook, processes all trades till your sell is fully processed and then reopens order receival. Thats to say, no need to wait for anyone. Also, the depth you see in the orderbook is only the active funds, that want to be traded. There are much more sitting in the accounts already, waiting to be placed.

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Surprise and confusion would be an advantage.

If taken by surprise, much of the market will obviously, reasonably join in and sell what they can while the price is "still above 8$, still above $7, still above $6, still above 5$".

This gives an advantage to the instigator of the crash, as he will (plausibly) get a higher average price for his sold coins, than if he were to do it alone.

Sry, thats wrong. The opposite would happen.
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Spekulatius
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July 23, 2012, 05:07:33 PM
 #42

I think one important aspect has been missed in this thread:

Will he leave with BTC or USD in his pockets??

Option A:

He's running a legitimate business. In this case, when he decides to quit, the first thing he has to do (in order to stay within legal boundaries) is to make sure to have enough BTC funds to pay back his lenders. He may have to buy on the market large amounts to fill potential voids. He then has to announce the end of operations of BS&T (does anybody know what notice period he has to adhere to?). Once all debts are paid off, he can either keep all his remaining BTC, USD or convert one into the other and walk away. We may see a substancial purchase of BTC in advance to his notice, which would be an indicator of his true blue intentions.

Option B:

He's running a ponzi or legitimate business but decides to scam everybody. In that case he will not give prior notice, try to vanish as quickly as possible, preferably before the whole swindle surfaces so he can pocket all the funds without paying anything back. The question now arises: Will he leave with BTC or with USD in his pockets?

1. If he is indeed running a ponzi scheme, the mayor part of his funds will be held in BTC through the influx of BTC from his lenders. To leave the country (because his identity is know) with only a huge amount of bitcoin in his wallet, that still has to go through some bank account to convert into USD is a rather flawed option (lets put any of the BTC for USD in mail services aside, because none of those would have sufficent USD cash reserves to pay out 250k BTC in mail envelopes). He would probably try to convert a significant amount of his BTC denominated funds to USD and withdraw that prior to his exit. The current MtGox withdrawal limits are limited to a maximum of 500k USD/month for trusted customers. He would have to give it at least 2 month time to prepare his exit to withdraw 1M USD and maybe some extra from other exchanges to have a reasonable pocket money for his livelong vacation on tropical island. We could in that regard see some 1M USD worth in BTC be sold on the major exchanges (and withdrawn).

2. If he is instead selling large amounts of BTC to an anonymous investor that uses pirate as surrogate, he could decide to pocket the USD from his big brother and default on his BTC debts, duping all his lenders as he walks away with about 2M USD in his pocket. That way the community would have no prior warning and no chance to trace pirate after he vanishes, except for international warrants (likely?). The BTC lent, will be still there, but through various laundering services probably well cleaned off their tracks.

So in conclusion; depending on the scheme he is running, one can only hope, that he is a good pirate at heart, because in both cases he could just sail away with all the money and leave nothing behind. But honestly, what pirate has ever been known for his kindheartedness?

I reason that, given he is exiting through Option B, will sell rather slowly his vast amounts of BTC over the major exchanges. Maybe take 1 or 2 month, before he finally pulls the plug. This way his returns are much (4-6 times) higher as if he would just frantically crash the market by selling all his BTC at once and drawing all possible attention to him that way. I dont know how his mind works, but I pressume he is a rather clever fella and prefers a good result over a big BANG (but then again. he's a pirate after all, right?).

With Option A he would have to announce his closure within notice period, so we would at least see that indicator coming. A market crash thereafter makes no sense (except for the delightful panic to watch)

gadsdengraphics
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August 03, 2012, 03:23:01 PM
 #43

I think one important aspect has been missed in this thread:

Will he leave with BTC or USD in his pockets??

Option A:

He's running a legitimate business. In this case, when he decides to quit, the first thing he has to do (in order to stay within legal boundaries) is to make sure to have enough BTC funds to pay back his lenders. He may have to buy on the market large amounts to fill potential voids. He then has to announce the end of operations of BS&T (does anybody know what notice period he has to adhere to?). Once all debts are paid off, he can either keep all his remaining BTC, USD or convert one into the other and walk away. We may see a substancial purchase of BTC in advance to his notice, which would be an indicator of his true blue intentions.

Option B:

He's running a ponzi or legitimate business but decides to scam everybody. In that case he will not give prior notice, try to vanish as quickly as possible, preferably before the whole swindle surfaces so he can pocket all the funds without paying anything back. The question now arises: Will he leave with BTC or with USD in his pockets?

1. If he is indeed running a ponzi scheme, the mayor part of his funds will be held in BTC through the influx of BTC from his lenders. To leave the country (because his identity is know) with only a huge amount of bitcoin in his wallet, that still has to go through some bank account to convert into USD is a rather flawed option (lets put any of the BTC for USD in mail services aside, because none of those would have sufficent USD cash reserves to pay out 250k BTC in mail envelopes). He would probably try to convert a significant amount of his BTC denominated funds to USD and withdraw that prior to his exit. The current MtGox withdrawal limits are limited to a maximum of 500k USD/month for trusted customers. He would have to give it at least 2 month time to prepare his exit to withdraw 1M USD and maybe some extra from other exchanges to have a reasonable pocket money for his livelong vacation on tropical island. We could in that regard see some 1M USD worth in BTC be sold on the major exchanges (and withdrawn).

2. If he is instead selling large amounts of BTC to an anonymous investor that uses pirate as surrogate, he could decide to pocket the USD from his big brother and default on his BTC debts, duping all his lenders as he walks away with about 2M USD in his pocket. That way the community would have no prior warning and no chance to trace pirate after he vanishes, except for international warrants (likely?). The BTC lent, will be still there, but through various laundering services probably well cleaned off their tracks.

So in conclusion; depending on the scheme he is running, one can only hope, that he is a good pirate at heart, because in both cases he could just sail away with all the money and leave nothing behind. But honestly, what pirate has ever been known for his kindheartedness?

I reason that, given he is exiting through Option B, will sell rather slowly his vast amounts of BTC over the major exchanges. Maybe take 1 or 2 month, before he finally pulls the plug. This way his returns are much (4-6 times) higher as if he would just frantically crash the market by selling all his BTC at once and drawing all possible attention to him that way. I dont know how his mind works, but I pressume he is a rather clever fella and prefers a good result over a big BANG (but then again. he's a pirate after all, right?).

With Option A he would have to announce his closure within notice period, so we would at least see that indicator coming. A market crash thereafter makes no sense (except for the delightful panic to watch)


You seem to be assuming that the trades to liquidate BTC to USD would be on MtGox or another market. Why couldn't it be in #bitcoin-otc?

If I were wanting to cash out 250k BTC, I'd reach out to some of the high rollers in there. Arrange a meet in person, and walk away with FRNs or gold bullion.

Surely there are people out there that would be perfectly willing to accept "tainted" BTC at a discounted rate.

If I were Pirate, and I was running a Ponzi scheme (which I'm not saying is the case), I'd have my exit plan already in place. Build up the operating market until an agreed-upon point, then cash out through a contracted deal and walk away.

Why would he care if he gets $7.50 or even $4.00 for each BTC? They aren't his in the first place, and it would be wise to trade potential unrealized gains for a secure exit strategy.
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August 03, 2012, 04:17:25 PM
 #44

<tinfoilhat>Pirate has a bitcoin exploit that will devalue the coins to zero, never to return.</tinfoilhat>

BitBuster
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August 03, 2012, 06:39:35 PM
 #45

This is all bullshit. Yes he can crash the value and take it out of the system. But that won't stop people using bitcoin or its value increasing again. Remember the Mt.Gox hack?


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