Circle acquiring Poloniex changed the game. The rumored assurances from regulators that Poloniex's prior KYC/AML transgressions would be ignored as long as Circle fixed them going forward was all it really took. Now we are seeing a huge wave of M&A deals while Coinbase uses its very strong financial position to buy up the the less compliant but cashflow-rich overseas exchanges. In particular I wouldn't be surprised to see a huge deal such as Coinbase acquiring BitFinex/Tether at a greatly reduced price w/ some negotiated deal with US regulators to phase out Tether as long as holders can prove their Tether balances were acquired legitimately.
That said, if trading is the killer app for Bitcoin/Crypto [0] in general - what is the point of this whole business? For example most of the genuinely innovative things I've seen on the ETH blockchain like 0x (the backbone of Paradex), dydx (decentralized derivatives) and related technologies or higher level platforms like relayers and decentralized exchanges involve trading. Which begs the question - what tokens are actually worth trading in the first place? Is all this value really justified by CryptoKitties?
Just making HFT bots to trade around a bunch of monopoly money that is useless other than hype-driven speculation? I'm sure this could continue for way longer than I and other skeptics expect, as it already has before, but the whole cryptocurrency sector seems fairly irrational to me. And I say that as someone who was VERY interested/knowledgable about bitcoin during the 2013 bubble, to the point where I was hanging out on IRC channels like #bitcoin-wizards, discussing BIPs etc.
There is absolutely no chance that bitfinex and/or Tether will be acquired by any legitimate institution, much less Coinbase. They are far to steeped in fraudulent behaviour to ever go legitimate without regulatory punishment.
Bitfinex isn’t a company that ignored some AML requirements and they’re not a company just using Tether. They’re the company responsible for tether, they are the creators of Tether. Tether is hugely fraudulent, it’s foundation is fraudulent, they haven’t just avoided some regulations. There’s no way that Coinbase or any other legitimate institution would open themselves up to being responsible for that.
Who has Tether defrauded? I agree Tether may have just issued without backing, but they don't promise being able to withdraw. So who is actually being harmed? And why is it unfixable? What if Coinbase promised to completely cover any usdt shortfall?
I think the criticism from the regulators has to do with the fact that you cannot create something representing a dollar without approval from regulators and without requiring anyone to do KYC - effectively circumventing all KYC/AML systems in place in the traditional financial system.
> the whole cryptocurrency sector seems fairly irrational to me. And I say that as someone who was VERY interested/knowledgable about bitcoin during the 2013 bubble
I'm not disagreeing with what you said, but I would add that if you were very interested before the 2013 bubble and then lost interest, you were/are irrational as well. Like everyone else you're taking views on the price based on the price.
I have no way to rationalize a target at $100k, especially sharing the pie with other currencies... not saying it won’t go there, I just don’t know the math for that.
Given that there’s not a great reason to buy at $8k. Maybe for diversity among other investments.
> Just making HFT bots to trade around a bunch of monopoly money that is useless other than hype-driven speculation?
How is that different from the rest of the financial market? The huge chunk of all HFT trading is siphoning the money from real investors, it has no real value for the economy. HFT traders hold no positions in the market.
The assets that are being traded represent some other economic activity.
For equities trading, for example the shares actually are a piece of a revenue earning company. The trading activity benefits society by allowing the company to sell additional shares to the public when needed, to raise further capital, for example.
For futures the contracts represent a guarantee to buy or sell a commodity at a known amount and price at a set date in the future. The trading activity benefits society by allowing commodity producers to lock in a known price and offload the market risk of their harvest/herd/etc to speculators.
So the HFT participants in these markets are actually helping society in some way by making these markets more liquid and efficient given that the trading actually serves some benefit. For bitcoin/crypto the trading itself is currently the whole point of the endeavor - people are only buying coins because they think they will go up in price, which makes the trading itself pointless.
What you write applies to regular investors, funds, investment banks, portfolio managers, etc. Speculators in general.
But you should really read up on what HFT is. I recommend the book Flash Boys by Michael Lewis. HFT traders do not "trade" in the market in the usual sense. They don't optimize markets, they don't bet on anything, they don't take any risk. Every other investor takes risks (calculated), and that's their contribution to the market. They hedge risks and discover prices for those underlying assets you are talking about. HFTs are exploiting the markets, take no risks and siphon the money out of those investors that actually provide a service for the market.
Before HFT existed those risk free trades were taken by NYSE floor brokers. If anything the amount taken is smaller since spreads are so thin now - they used to be much wider in those days. There is always going to be some way to profit by doing a really obvious thing the fastest. Like trading on news or company earnings, etc.
And as the sibling commenter said I suggest reading other sources besides Flash Boys, which I have read before. There is a lot of misinformation in that book. And by the way, IEX has been a public exchange now for some time and still has a tiny share of the volume.
They are not real spreads. They are fake spreads made by HFT bots using small orders. Once a real investor will try to execute on such an order, the HFT bot will either withdraw it (or it will simply get filled because it's a minimum order for the minimum allowed amount), and then the bot will immedately put in another order which will make more money for the HFT and less money for the investor. HFTs will use their fast connections to other markets to make sure that the new order is such that the investor will have no choice but to pay the price, because by the time the investor will try to go to another market to execute the trade cheaper, HFTs will already have been on that other market have front-runned the investor's order.
This is not "providing liquidity". This is parasitic behavior. Not all HFT strategies do this, but many do.
You have a skewed perspective of what HFT is - Flash Boys probably contributed to this. That is a sensationalist novel and widely derided within the actual market making community. For example, fiber optic cables were outdated by microwave feeds several years before the book came out.
In fact, the most common form of HFT is low-latency market making, which directly increases liquidity and lowers spreads for market participants.
> For example, fiber optic cables were outdated by microwave feeds several years before the book came out.
That's the issue you have with it? Of all the possible issues, that's the one you think underlines the bad quality of the book?
The fiber lines or microwave feeds or any other technology used is only a minor detail. The meat of the issue is that there are many HFT strategies that don't provide any real tangible service to the market. HFTs race clients to different exchanges, buy assets cheaper and sell them the next millisecond to the same client at higher price, because they can (because the client is slower). They put in fake small orders in order to read market information before anyone else so they can front-run legitimate investors. How is that providing service to the market?
There seems to be a lot of disinformation in the market, and a lot of things that are meant to sound much more complicated than they are. But the bottomline is that if there is a certain strategy X, that complies with the following conditions:
1) It doesn't take positions in the market, doesn't take risk, so it doesn't evaluate underlying assets and does not help price discovery.
2) It gets in the way between two other participants, simplifyingly a buyer and a seller (where the buyer will end up holding an actual invested position for a longer time)
3) Both the buyer and the seller will end up paying more for their trade when the HFTs are executing the strategy X, compared to a case where noone would be executing the strategy X.
Then yes, it's objective to say that the strategy X is a parasite on the market, and does not provide any real value to the society. The value of markets is providing liquidity, distribution of investment value, risk hedging and price discovery. These HFTs (which is a bulk of all HFT strategies) don't do any of that. No real investor will notice a difference of 50 microseconds when executing their trades. No investor is interested in that.
> Which begs the question - what tokens are actually worth trading in the first place?
I think we're getting closer to tokenizing actual securities. Similar to how TrueUSD is tokenizing U.S. Dollars, I think we're fairly close ( 5 years out) from NASDAQ officially tokenizing their stocks ( as an erc20 on the ethereum blockchain)
Not a week goes by on Global Custodian[0] headlines for technology that mentions at least a couple well established firms using blockchain for securities of all sorts.
Whether I agree with these developments or not is completely irrelevant. I'll personally stick to pursing a market neutral strategy and exploiting intraday ETF discrepancies for now.
Harbor and Polymath are working on tokens which can accomplish all those things. The claim is that tokenized securities can reduce the number of middlemen needed to issue new securities, so shares could be traded on individual apartment buildings, etc. Nobody thinks moving Apple stock to a blockchain would change much.
I’m not advocating this argument, just relaying it since you asked.
People can access a security today, anywhere. By using their broker over the internet.
Can you give specific, real-world examples about how the "friction" is lower? And what precisely do you mean by "friction" - lower cost? ease of use? something else?
Only if you are using a very narrow definition of "people", "anywhere" and "security".
I am in Argentina. I can make a VC-style investment on a company being founded in Europe tomorrow and resell my shares 3 months from now to another investor in Australia with no middlemen, brokers, filings, etc.
That just didn't work before. It would have been impossible for me to do that. Its also more risky in terms of regulatory protection, of course. But in any scenario ICOs are huge disruption for the VC industry, and if the crypto market matures, I expect that to expand into other spaces.
Specific instances of friction: transferring funds, assigning shares, lack of liquidity of both shares and secondary markets (or, quite simply, lack of markets).
People already can't naked short sell except in very limited circumstances for market making purposes. It's not as widespread as you think it is. I would suggest reading about Regulation SHO.
To eliminate single points of failure, siloing and centralized control. Right now a small group of massive incumbent institutions collect quite significant rents in exchange for providing market access and maintaining custody of funds. This involves tons of transaction costs, slowness, brittleness, mistakes, and of course, severely restricts who by and how these markets can be accessed.
Tokenizing securities can open that up, make it more transparent, safer, and less friendly to incumbent interests.
What specific transaction costs/rent collecting are you referring to? As a retail investor I can trade stocks for free on Robinhood. My orders get filled instantaneously at the current market price. On other platforms the per-trade fee is a couple bucks, regardless of transaction size.
With Coinbase I pay a MUCH larger fee, that is a percentage of the transaction size rather than zero (with Robinhood) or a low fixed cost. With Coinbase I would pay a ~15 dollar fee to buy or sell $1000 dollars of BTC or ETH.
As far as moving money in/out of Fiat, Robinhood/Etrade/etc also win with near instant transfers if your account is already funded. Coinbase buys and sells take days to clear.
Can you provide specific real-world examples of how tokenized securities can help with "transaction costs, slowness, brittleness, mistakes" ?
All securities exchanges incur fees, varying based on wherher you’re eating or supplying liquidity. I forget what these are called, but companies like Interactive brokers pass those fees on. Robinhood eats the fees for you.
With coinbase, you pay a 0% fee as long as you use GDAX, which is a no brainer, and place limit orders that are not immediately executable e.g. sell $.01 above the current price or buy $.01 below.
I’m not the parent so I’m not gonna address the tokenization question, but my opinion is that tokenization helps the users (stockholders), but takes power away from centralized exchanges thus the NASDAQ would be kinda crazy to switch to decentralized assets
Re: Robinhood fees. Who cares about the fees that the wholesalers pay -- It's about the end-user experience. And for that matter, you don't seem to understand the full picture on how routing/fees work with retail orders for US equities. Robinhood orders typically get routed to wholesalers like Virtu, Two Sigma or Citadel that actually execute the orders at the prevailing market price on public exchanges. Robinhood gets PAID for that, not the other way around.
Do you really expect the typical person to set a bunch of passive limit orders on GDAX until they get filled? What kind of user experience is that? I would be willing to wager that 95%+ of Coinbase users are just buying and selling directly on Coinbase (and paying the extremely high fees) and have no idea what GDAX is.
>Do you really expect the typical person to set a bunch of passive limit orders on GDAX until they get filled? What kind of user experience is that? I would be willing to wager that 95%+ of Coinbase users are just buying and selling directly on Coinbase (and paying the extremely high fees) and have no idea what GDAX is.
Of course that's the case. I never said everyone does that. I said it's a no-brainer to do it.
Back when investors held paper stock certificates, including bearer securities, which de-centralised ownership recording, shares were frequently lost, stolen, damaged and fought over after someone's death, intestacy, bankruptcy et cetera. Returning to tokenized holding would heap costs currently well managed by the system onto end users. (One would also have the problem of irreversible transactions being incompatible with modern law and securities practices.) "Stocks but on blockchain" is a regression for everyone except the hucksters.
SEC can "fix" HFT instantly by allowing more decimals. There's no good reason to only have 0.01/0.001 increments. Making it so granular forces speed over accurate pricing. Make it 8 decimals and the speed advantage goes away.
No, it just moves the race from getting the first order at the +0.01/-0.01 band placed to getting the first order priced .00000001 better than the top placed before a liquidity-taking order comes in.
There is no really easy way to "get rid of HFT", and it's unclear whether we actually want to do that. Equity trading is very cheap & efficient w/ tiny spreads on everything remotely liquid. Pretty much the only people who get hurt by HFT are big institutional investors (hedge funds, etc) that used to be able to move big blocks of stock without affecting the price as much as they now do. If anything - the pricing is better now. If you own a truckload of oranges and you hear that someone is going around frantically buying up all the oranges at every store, do you not feel like you should consider raising the price of your oranges?
I'm unsure how it doesn't fix the speed advantage. Anyone can get in front by bidding a millionth cent more. You can keep doing that until the price starts mattering, right?
I'm not against HFT at all. But having such granular pricing doesn't do anyone favours. More decimals would reduce spreads as well as silencing HFT critics and maybe make trading a bit more accessible without as much high end systems. But the spread reduction is valuable alone.
In 5 years both sharding and Plasma would be implemented on Ethereum. NASDAQ would probably run its own Plasma chain or sidechain and wouldn’t be beholden to the main chain’s throughput.
I'm hoping DAG-based cryptocurrencies will be able to provide the transaction speed necessary for consumer transactions to be practical and we'll see stores actually take cryptocurrencies directly. If so, we'd just need someone ambitious enough to make the payment terminals and hopefully stores will see tiny/zero transaction fees as enough of an incentive to switch.
To add to your list of points, I'd argue privacy is another thing crypto as a whole hasn't really taken seriously apart from a small set of cryptocurrencies. How many people want to dish out their address to stores when this implies they can see their history and with it way too much metadata like where you spend/earn, how much you spend/earn, and so forth.
It does not need to be a DAG, there are newcomers like Cardano, Algorand, DFinity which are no DAGs. Also the last Avalanche work is going in another direction.
Paradex is a decentralized exchange that's built on top of the 0x protocol.
DEXs are great because you can trade cryptocurrency pairs without trusting an intermediary (think Mt. Gox for why this is needed).
This move shows that Coinbase is serious about building a decentralized trading platform (unless this is just an acquihire which would be very disappointing).
There is an intermediary in 0x called a relayer (receiving relayer fees) that brings together both buyer and seller through e.g. an exchange UI. Just the transaction itself does not require an intermediary and is therefore not prone to counter party risk (of course if buyer and seller knew each other before they could just skip the relayer).
Seeing as how Paradex isn't the most popular DEX and Coinbase's ties to 0x, I don't think this is an acquihire. This looks like they are actually going to use Paradex as a relayer.
I had to lookup what exactly Paradex was and it seems the platform is based on 0x. Given that decentralized exchanges have issues like front running, open arbitrage etc[0], I think this might not be a wise move.
> The financial terms of the deal were not disclosed.
Acquihire? It would be weird for Coinbase to take full advantage of a descentralized exchange because many of the tokens clash with regulations and even being decentralized makes Coinbase the owner and target for SEC.
> What's the point of a decentralized exchange if the frontend code can be shutdown at will?
You can have decentralization with respect to some components of the exchange and not others. In the case of Paradex it seems the point of decentralization is that you don't have to trust the exchange for custody. That's quite good by itself, even if they can shut down the frontend at will.
Your funds are safe! You can trade directly from your hardware wallet. Your money is never on the exchange. If a decentralized exchange shutdowns you can simply use another.
> That said, if trading is the killer app for Bitcoin/Crypto [0] in general
I've had this thought myself. I think we can agree that most solid evidence points to Yes, trading is the killer app. Trading on something that has no intrinsic value. I.e. gambling.
And hey, gambling is a legitimate killer app. The gambling industry is enormous.
That said, if trading is the killer app for Bitcoin/Crypto [0] in general - what is the point of this whole business? For example most of the genuinely innovative things I've seen on the ETH blockchain like 0x (the backbone of Paradex), dydx (decentralized derivatives) and related technologies or higher level platforms like relayers and decentralized exchanges involve trading. Which begs the question - what tokens are actually worth trading in the first place? Is all this value really justified by CryptoKitties?
Just making HFT bots to trade around a bunch of monopoly money that is useless other than hype-driven speculation? I'm sure this could continue for way longer than I and other skeptics expect, as it already has before, but the whole cryptocurrency sector seems fairly irrational to me. And I say that as someone who was VERY interested/knowledgable about bitcoin during the 2013 bubble, to the point where I was hanging out on IRC channels like #bitcoin-wizards, discussing BIPs etc.
[0] - https://tradingplacesnewsletter.com/move-over-crypto-enthusi...