The economics of BitCoin

John-K_3

GreatApe wrote: »

These coins will have a use for a very long time as simple gambling tokens

In the same way stocks act as gambling tokens for retail day traders. Apparently 90% of retail day traders lose and 'professional' traders eg investment banks win 90 out of 100 days.

Not even close on the second part. Traders probably have positive P+L on 55-60% of days. It’s a decent amount of random walk overlaid with a decent amount of drift.

This is why we have Loss Action Triggers, cutting back risk allowances of people and desks who drift too far the wrong way, forcing them to close out their positions and imposing lower risk limits.

John-K_3

chucknorris wrote: »

Yes it would be over 100/1 that it rises 20 fold in 3 years. I somehow doubt you have much of an insight into probability. You said bitcoin had a 50% to fall to zero and a 50% chance to rise to 2,000, can't you see how ridiculous that is? It isn't heads or tails (one or the other). It means that you think that there is no chance at all of Bitcoin being somewhere between falling 99% and rising less than 2,000%.

A lot of years ago, when I used to trade options, we’d take lots of money of people like him, people with a strong view and absolutely no feeling for numbers at all.

They would have probability distributions that added up to zero, or that implied outcomes with negative probabilities. They let you put on bets with them that only had positive outcomes yet cost nothing to put on.

economic

John-K wrote: »

Not even close on the second part. Traders probably have positive P+L on 55-60% of days. It’s a decent amount of random walk overlaid with a decent amount of drift.

This is why we have Loss Action Triggers, cutting back risk allowances of people and desks who drift too far the wrong way, forcing them to close out their positions and imposing lower risk limits.

Across all desks in a bank this is true, but desks dealing with the hedging of the spread betting firms (who themselves face the retail trades who lose 90% of the time) would be more like 90% success rate - within risk limits of course they would take on the risk as they know 90% of retail traders lose and so are willing to run that risk on these desks.

John-K_3

economic wrote: »

Across all desks in a bank this is true, but desks dealing with the hedging of the spread betting firms (who themselves face the retail trades who lose 90% of the time) would be more like 90% success rate - within risk limits of course they would take on the risk as they know 90% of retail traders lose and so are willing to run that risk on these desks.

To be honest, I’m not even sure what you are trying to say here. Are you saying that there are traders in spread betting firms who just take the opposite side of whatever position someone wants to put on, and because you think the punters call it wrong 90% of the time that the traders must therefore be right 99% of the time?

Punters do not lose 90% of the time. The stat quoted ( which may or may not be right) is that 90% of them end up losing. That is not the same thing.

Or are you saying that there are desks in investment banks that just hedge spread betting firms positions? If so, that’s not right either. If City Index wanted to hedge an oil exposure (and I’ve never seen a spread betting firm do this sort of thing), they’d call (via a sales desk) the oil trading desk, not a specialist desk that deals only with spread betting firms.

Trading desks are organised by product, not by customer type.

Malthusian

Perhaps GreatApe has the idea that there are two types of investors in the day-trading market, retail punters and professionals, and if 90% of punters lose money then the professionals must make money 90% of the time. Because someone has to take the other side of the punters' losing bets and in this model the only other side is the professional traders.

Of course this model doesn't work in reality because punters' wins and losses fluctuate constantly and 90% is only an average. For "90% of punters lose money" to translate into "professionals win on 90% of days", the punters would have to lose from Monday to the following Thursday and then win on Friday.

And we're ignoring algorithmic trading bots, and most importantly of all, the people the market exists to serve in the first place: investors who have money they want to invest for the long term and businesses who want to raise capital. The latter are, of course, not present in cryptocurrency markets.

In reality both sides' wins and losses are random from one day to the next, but as John-K says, professional traders generally manage to maintain a winning average (and if you don't you get sacked and have to become a priest or an MP or write books or set up a boiler room scam or the other things that unlucky City traders always seem to end up doing).

GreatApe

Malthusian wrote: »

Perhaps GreatApe has the idea that there are two types of investors in the day-trading market, retail punters and professionals, and if 90% of punters lose money then the professionals must make money 90% of the time. Because someone has to take the other side of the punters' losing bets and in this model the only other side is the professional traders.

Of course this model doesn't work in reality because punters' wins and losses fluctuate constantly and 90% is only an average. For "90% of punters lose money" to translate into "professionals win on 90% of days", the punters would have to lose from Monday to the following Thursday and then win on Friday.

And we're ignoring algorithmic trading bots, and most importantly of all, the people the market exists to serve in the first place: investors who have money they want to invest for the long term and businesses who want to raise capital. The latter are, of course, not present in cryptocurrency markets.

In reality both sides' wins and losses are random from one day to the next, but as John-K says, professional traders generally manage to maintain a winning average (and if you don't you get sacked and have to become a priest or an MP or write books or set up a boiler room scam or the other things that unlucky City traders always seem to end up doing).

Most retail traders have no idea what they are doing. They often use crazy leverage and have far too short a time frame (even for traders). The wiser of the stupid learn there lessons after a few thousand lost. The dumber might lose all their savings.

Professional trading houses win about 90% of the days.
This is five years old but here are the winning and loss days for Goldman
https://www.google.co.uk/amp/s/qz.com/58535/goldman-sachs-had-236-profitable-days-of-trading-last-year-and-just-15-days-of-losses/amp/

Anyway my point is there is demand for gambling be it fruit machines or dice or retail stock traders. Cyrpto fulfills this demand and that is the value it provides. This is why crypto won't go to zero and will have a life of decades.

In one ways they are better then stocks
Stocks can and do go to zero and an argument can be made that all companies will eventually die and take their stocks to zero with them. I'd bet bitcoin and most the clones will be around longer than the majority of the S&P 500. They won't create any net wealth just like fruit machines don't create any net wealth but just like fruit machines there is a demand for them and they will live on.

John-K_3

Ah, I can believe if you sum all the individuals across a bank that there are 90% up days, yes. That seems entirely believable, but is a world a way from saying that any individual trader has the same statistics.

When you take a hundred or so people with similar size positions who win 51% of the time, with uncorrelated returns, then you!!!8217;ll expect that on aggregate they have far more up days than down.

It!!!8217;s not easy to work out the actual individual numbers needed, as it depends on the frequency of days when something big and random happens, as on those about exactly half of all traders win, and half lose.

westernpromise

The 90% figure seems very misleading to me - it could mean that you did a trade on Jan 1 that made you £365 which thereafter lost £1 a day, meaning that every day, you were in profit versus your original cost. Your overnight MTM would look like a loss but your book would still be in profit.

There is also the consideration that most of a bank's business isn't prop, but client; so the airline buys a jet fuel fix from the bank, or a grain company sells next year's crop to the bank, which hedges either position for a tick. That looks like profit, and is, but it's not the result of accurate speculative price calls.