Wait, so basically I could create a buy order for $2, leave it sitting there, and wait until there is another crash [1]? If there is no crash, then nothing happens. For good measure, do it for every currency on the exchange.
Is there any risk or downside to this? Seems like buying a lottery ticket for free.
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[1] ... or someboy fat-fingers an order - although I think in that case I think still the higher bidders would win, wouldn't they?
A number of people with USD on deposit at Mt. Gox, who correctly understood Bitcoin's price to be unsustainably high and were waiting for the correction, are now 3+ years into waiting for a Japanese bankruptcy court to pay out their claims. They are, in the Bitcoin economy, the lucky ones -- the more common thing which happens when exchanges fail (which happens in 20%+ of exchange-years) is for all money (and things of more dubious value) to be lost.
This is different than in more traditional markets, where custody of assets is distinct from being an exchange (you don't wire money to the NYSE to trade there), custodians/brokers are regulated, individual accountholders are insured, and you generally don't have to have $2000 cash on deposit and locked up to keep an order for 1000 of Google at $2 on the books.
I feel like I have to say that professionals very much do have orders far outside the usual trading ranges for various things in the expectation that a fill against that order usually represents a quickly profitable mistake by a counterparty. A major portion of the reason that this is something professionals do and amateurs largely don't is because there do exist cases where orders get filled far away from the market and one's counterparty praises all the spirits of capitalism that someone else was being inattentive to the fundamentals at a time where being inattentive to the fundamentals is a poor decision.
They call this "catching a falling knife", or more charitably "buying the dip". The conventional wisdom was that you shouldn't do this, because if it crashes to below $2 that's more likely to be because it's worth $0 than because of a glitch, and you're more likely to lose your money. But it's absolutely something you can try, and I wish someone with serious backing would try - I suspect the conventional wisdom isn't true any more.
> The conventional wisdom was for stocks, which are much higher volume, liquidity, etc, and aren't a newfangled math experiment.
If anything that means the conventional wisdom should apply even more, no? It seems more likely that Ethereum would go all the way to zero than whichever company it was that traded at $.01 during the flash crash (Proctor & Gamble?)
The downside is that when you put in a limit buy the exchange puts your money into escrow until the order is cancelled or filled. Since a crash like that is unlikely to happen (first time on that exchange I believe) it just means you have money tied up when it could be put to better use
And they could reverse the trades and null them out on both sides. Just because the order gets filled doesn't means it'll complete. Until you get the asset, sell it, and get your cash out of there, you're still at risk.
Lots of contexts where this kind of bidding is a good idea. E.g. after a really bad year you can expect big price swings around tax loss selling season (nov-dec), where people take out their frustration on their worst performers. Doesn't always work but if you've already identified a couple of trainwreck stocks that you think deserve a second chance, getting a stink bid filled for one or more of those stocks can make a very big difference later on.
Of course, the Ethereum flash crash is on a different level :-)
Thats putting it lightly, you're describing some form of survivorship bias. If it were that reliable and simple the major active fund managers could score reliable index-beating returns just off of Nov-Dec.
As it turns out, rules like that don't work, which is why passive index funds inevitably win out over attempts to time the market.
In the specific example I gave, I talked about putting in stink bids for burned down companies you already wanted anyway, during the 1 or 2 month window when its stock has a big chance of getting another kick in the teeth for simple fiscal reasons.
The cost for trying this is pretty much zero. The worst that can happen is that the price never hits the bid and then you have to be content with the regular price. If it does work, you may get an additional 30% or whatever discount on the company.
If the rest of the story doesn't work out, it won't be caused by the extra discount. So stink bids literally do help performance and active investors do put them in and a lot of them do suck for a lot of reasons and these tax loss selling waves do happen despite everyone knowing about it because they are caused by regulations.
"passive index funds inevitably win out over attempts to time the market" This is a totally different discussion, not about the chance and impact of getting a low bid filled, but about efficiency of markets and whether people who beat some chosen benchmark are lucky or skilled.
But maybe there is a relationship. Let me ask you this: do you think Wall Street has ever had a good idea (like ETFs) and didn't take it way too far? Like 3x inverse Venezuelan Beaver Cheese ETFs? If there is a demand for passive index funds, Wall Street will indulge. But to make a passive index fund you need an index. And so they have been puking up a whole circus of indexes. With some of these indexes, especially ones that involve small companies, I wonder what will happen during the next serious drawdown. And so we can get back to the subject of stink bids.
One of them already been pointed out - the counter-party risk. Not only can there be situation like Mt.GOX disappearing with people's money. The exchange can refuse to honor the order specially if they are the market makers.
Some brokers put a time limit on the trades. These are called Good till Cancelled (GTC) limit orders. Like Schwab has a 60 days limit for the GTC orders. I am not sure how the crypto currency exchanges work.
Yup. I did this once. I had $20 sitting on MtGox in a $1 buy order. Had a crash happened I would have picked up 20 bitcoins (which would now be worth around $50,000).
Instead MtGox disappeared, taking my money with them.
Over a long enough time period, the risk of any given crypto exchange being hacked approaches 1.
If you bought 1000 ether at $2, you'd be out $2000. If it is a glitch and the price does recover, you've made about $340,000. (Sounds like a scenario out of a post from the sub-reddit /r/LateStageCapitalism, doesn't it!)
Of course if you do this on every exchange, you multiply your risk by the number of exchanges, and your reward probably only comes out of a single one of those exchanges, unless it is the real deal "flash-crash" coin-wide permanent glitch-out end-of-the-world everything's hosed and the price is never coming back, in which case you lost $2000·N which sounds a little worse.
exactly the same thing happened to me with Litecoin on GDAX.
They sold off my entire holdings for $0.01 - $0 after fees. At the time LTC was trading for something like $25/LTC.
It took about 3 weeks to get anything but an automated response from their support team.
This was the response:
"After further review, this sell was due to a margin call of your margin position on the LTC/BTC order book. A series of large sell orders were placed on the LTC/BTC order book on May 21, 2017 around 1am UTC causing a large price decline which triggered a margin call of your position when your maintenance margin ratio was exceeded.
The trading engine and margin call functioned as designed. The large price decline was due to the relatively low liquidity on the order book at that time."
They eventually refunded the coins.... but a couple of days later removed half of the refund with no explanation. I'm out of pocket by about $1200. I'm still waiting for a response from them on that one.
I don't see a reason why you should be refunded anything. As I understand it, you were margin long and you got margin called after someone dumped into a relatively low-liquidity market.
Waiting for a response? You were margin called, why did they refund you anything at all? The margin call did exactly what it's supposed to: mitigate the broker's exposure to your downside risk as it increases beyond your account size.
> They sold off my entire holdings for $0.01 - $0 after fees.
Why did you have such an order? I can understand a stop loss order at some small percentage of the original purchase price, because you still get something, but one that says "if this currency suddenly becomes worthless, give it away for $0.01" doesn't make any sense.
Was LTC trading for $25 on that exchange, at that moment? If some big dump wiped out the available buyers and it became illiquid then that may have been all they could do to meet the margin: sell at huge discounts over a huge number of trades such that fees become significant.
AIUI, the way margin buying works is, the first, second, and third priorities are repaying the broker, and the moment your collateral looks like it might not be enough they will dump everything without caution to get the money back, which can result in making stupid (in hindsight) trades.
With that said, I do have a hard time believing there were no buyers at a price closer to $25, so that definitely seems shady. But margin buying is playing with fire and I'd say it could have been a lot worse ...
There are no ASICS for ethereum and probably you will not benefit from them a lot more than from GPU becasue they use scrypt with 2GB+ tables instead of sha256 (like in bitcoin).
There are no ASICs for Ethereum. It's currently impossible to get latest gen GPUs from any retailer, or for anything close to retail price on eBay, because there's a mad rush to get into Ether mining.
That's incredible, I remember when it was impossible to get ASIC miners from ButterflyLabs and we were all up in arms because of their inappropriate behavior. That was a niche vendor producing items that had basically no other uses.
GPU makers didn't sign up to build machines that print money. But it turns out when you do make machines that can print money, people tend to buy them at a rate faster than you can make them! Right away, whether or not you did it on purpose.
(I did get my ASIC Jalapeño miners from BFL before they were busted up, I did order more when they came around and offered to let everyone order more, and I still did manage to earn a pittance over and above my initial investment on both batches, regardless of the absolutely ridiculous production and shipping delays.)
Hah, I remember the BFL fiasco. When my Jalapeno arrived five months after ordering, I looked at the hashrate, etc, and turned right around and sold it for twice what I'd paid.
My recollection of how Bitcoin turned out indicates that most of those people will not make money. That, in fact, the simple rules of how markets work mean that most cannot make money, on several counts:
* Those with resources will have an edge, and will buy an optimal number of GPUs to get return before the price is driven down
* Anyone without resources will not be able to mine quickly enough to get a return before the price is driven down
* If the market were still lucrative, the GPU makers would not be selling all of their stock, which means it is a near certainty that either the GPU makers or someone with connections has already snapped up a healthy share
* Worse, the more lucrative it is, the more quickly ASIC makers will release ASICs which make those GPU investments all but worthless for mining.
All of this means that anyone contemplating whether they should get into mining already has their answer: "no".
> All of this means that anyone contemplating whether they should get into mining already has their answer: "no".
That certainly seems to be the consensus on the mining forums I'm following. /r/EtherMining is now inundated with people who lack the very basic skills needed to assemble a computer and run mining software, but are attracted to the prospect of free money. Many of those people also lack the ability to do basic arithmetic and the sense to realize that the only way they will turn a profit is if the USD value of ETH rises sharply -- and that if that happens they'd be better off in any case just buying ETH now instead of blowing $2000 - 3000 on equipment.
I'm not sure AMD has a corporate policy that makes it easy for them to just stop sales and start mining.
Your other points are fair, but they take time to catch up. Depending on how much you're buying the GPU for and your electricity price, it may make sense still. Also, another coin may become popular.
Well no, actually. Good Nvidia cards are also nearly extinct, because they are actually still profitable for Ethereum mining. So when people couldn't find AMD cards, they settled for bying Nvidia.
Unlike the situation with Bitcoin a few years ago, Nvidia cards are ok for mining Ethereum (something like 40-50% lower hash rate than AMD, but still very much profitable).
Margin trading is inherently risky and even more so in the cryptocurrency market.
Remember the whale that hunted shorts and longs hours before the ETF rejection? If you do margin trading, you will get rekt sooner or later in this space.
There's the interesting technical side to cryptocurrencies but most people underestimate the entertainment factor.
You can accuse the exchange of corruption that's a well worn technique!
Or it could be that this is immergent behavior that exists in all modern exchanges and it hit a population that wasn't prepared for it because of lack of sophistication.
3- Decided to cash out having no prior experience of how stock/ForEx/crypto exchanges work, i.e. they were ignorant of the consequences of dumping that much ETH on one exchange in one go
4- Which then triggered a cascade of stop losses and margin calls.
Somebody placed a huge sell-order which crashed the price. This caused stop-loss and margin calls to be triggered, adding a huge amount of market order sells, which crashed the price to effectively zero (more sell orders than buy orders on the exchange).
Some lucky people (or the people who orchestrated the crash) snuck in some super low buy orders that got matched.
The price had recovered within a few minutes (once all the margin calls had executed). It just goes to show the risk of trading on margin
It seems likely that this was sharks taking advantage of some naive speculators. It wasn't even a lot of money for the finance world, and I bet they will made a tidy profit selling off all of that Ethereum they just bought.
One exchange had a big market sell order large enough to trigger enough margin calls and stop loss orders to create a cascade effect. It flashed to 10 cents for a few seconds. So the combination of volatility and careless traders created this situation as far as we know.
Even market orders on highly liquid, perfectly well-understood things like forex can bite you in the ass; see all the levered people who got wiped out when Switzerland dropped their peg to the Euro. Stop orders on cryptocurrency are just pure idiocy.
You'd want to buy low and sell high; stop orders will force you to sell low in case of a random large fluctuation; cryptocurrencies are much more prone to random large fluctuation than most other types of assets. Ergo, agreeing to stop orders on cryptocurrencies is more dangerous than for other assets and is likely to cause you to lose money.
GP probably means stop -> market orders. When the stop price is reached, the order converts to market.
Various brokers and exchanges offer more types of stop orders, such as stop -> limit, where you set a limit price, and your order becomes a limit order after the stop price is reached.
Of course crypto exchanges take forever to implement new order types, and I'm not sure any of them have stop -> limit.
Also, stop orders don't work in general in a slipping market because liquidity vanishes from the book.
It's not "related to", it's "illustrative of" the pitfalls of market orders. The point was that even in highly liquid markets (i.e. Swiss franc), you can have sudden gap moves and liquidity fluctuations and a market order will just match against whatever momentary, ridiculous price happens to be there.
I would note however that after the SNB event many exchanges and brokers busted the trades that were done at extremely off prices.
A post-gap market sell on a gap up can end up filling pre-gap buy orders. And pre-gap market buys can end up being filled by post-gap sells. So people end up selling for much less or buying for much more than expected.
Meh. Flash crashes happen with big namebrand stocks too. The nice thing about flash crashes due to dumping is that they are self-punishing: whoever was dumb enough to dump that much ETH in a few seconds cost themselves a ton of money. A fool and his money are soon parted.
It was actually a cascade - the market sell brought it down to 224, but then there was a crush of margin calls and market stop loss orders, which triggered all the way down to 10 cents. Wish I was there to scoop some!
Please stop spreading this misinformation. If you look at the transaction, the only thing that happened was using the safe split contract which essentially gives the owner equivalent ETC.
On reddit someone commented that this whale must have know what he was doing... So, in theory could dumping large amount of ETH could affect pricing of even larger amount enabling the whale to profit from this procedure?
it's called stop-loss hunting; this just happened on a grand scale.
Theoretically because literally everyone doing it got liquidated it probably won't happen again - people wont set up stop losses and gdax will probably introduce a circuit breaker.
Sure, most experienced people use limit orders. However, an event like this will likely not happen again for a few years, since people are adjusting their behavior now.
In the normal stock market, this is an action called Taking out the Stops. Market makers can know where stops are placed so they may sell some to get it to hit those prices and have stops automatically trigger
I want nothing more than for Ethereum market to crash and then the people who bought 10+ cards have to sell them and lose money. Then people will be able to get the card for a reasonable price.
this is only "possible" because etherium has even less real value than btc.
btc still have intrinsic value as it is traded for chinese expating money, scared Venezuelans, American weekend drug users, etc.
etherium exists for the sole purpose of playing investing with btc. everyone I know who owns etherium bought after they decided to buy btc and got a price hike on their investment so they flip btc and etherium instead of btc and usd. because they see it as two things that ever goes up. ha.
this is the most perfect scenario for a pump and dump. intentional or not.
Today, yes, more people accept BTC for real-world goods than ETH. I, and most ETH holders, are betting that tomorrow that may not be the case. The strength of a cryptocurrency is the strength of it's platform, and Ethereum is basically Google to Bitcoins Yahoo, or Facebook to Myspace, take your pick.
The reason? It's an applications platform, not just a currency. It brings fundamental innovations in decentralized computing that means it can reach places Bitcoin never could. And when that happens, the utility (and price :) of ETH will match.
market cap is useful in that it shows the total value of the coin. Comparing the price of 1BTC to 1ETH doesn't make sense, but comparing their market cap does
The alternatives to fiat money are commodity money, e.g. gold, or representative money, e.g. pieces of paper exchangeable for gold at a fixed rate. Cryptocurrencies are more similar to fiat money in terms of their value being a function of social agreement versus utility.
gcb0 isn't proposing that value should be measured in ETH per BTC. Sounds like they think the value of currency is in people using it for a medium of exchange--e.g., Oversatock.com accepting bitcoin makes bitcoin valuable.
"Useful" might be a better term, but it makes some sense to equate those two.
Well gold also has little intrinsic value. Of course, it has uses like in the manufacture of technology, but most gold is used for making useless shit into shiny useless shit. Crypto has uses, too though. Such as facilitating payments, DLT, etc.
All value is assigned. So, what then, besides traditional consensus, makes gold 'intrinsically valuable' without also making cryptocurrencies intrinsically valuable?
A lot of people lost a lof money because they got margin called at ~$2 for a commodity that is worth ~$300.
https://twitter.com/elnygren/status/877660177406865408
On the other hand, a lot of people made a lot money since there are buy orders that wen through at less than 1% of the real price.