Ask HN: Why is the crypto market any different then the stock market?
I think it's exactly the same. If you think one is a Ponzi scheme, they both are.
6 comments
The stock market is comparatively highly regulated - Ponzi schemes are explicitly illegal there, for example. The US stock market regulatory body, the SEC, actually has teeth and uses them.
There is nothing comparable in crypto - so it's a sea of crime.
If you look at the early history of stock markets - pre-regulation - it looks similar to current cypto markets - crime as far as the eye can see. This eventually caused regulation to happen. But everything is playing out much faster now, because it's all digital.
It's also much easier to run a crypto scam than a classical stock market one - way less work and time investment - so the bar is much lower. So, in the absence of much in the way of consequences, we would expect far more scams in crypto, because it's lower effort.
There is nothing comparable in crypto - so it's a sea of crime.
If you look at the early history of stock markets - pre-regulation - it looks similar to current cypto markets - crime as far as the eye can see. This eventually caused regulation to happen. But everything is playing out much faster now, because it's all digital.
It's also much easier to run a crypto scam than a classical stock market one - way less work and time investment - so the bar is much lower. So, in the absence of much in the way of consequences, we would expect far more scams in crypto, because it's lower effort.
> "highly regulated"
In favor of whom? Because I don't think it's in favor of the average American. IMHO, highly regulated would mean that 1. stock exchanges can't halt trading (eg robinhood) 2. People in positions of power (eg Nancy Pelosi) wouldn't be able to make any money from the stock market.
Obviously, coinbase can stop trading on their platform, but I don't have to use them or even need an exchange to trade on. The only insider trading on BTC would be lawmakers or a whale attempting to alter the price.
In favor of whom? Because I don't think it's in favor of the average American. IMHO, highly regulated would mean that 1. stock exchanges can't halt trading (eg robinhood) 2. People in positions of power (eg Nancy Pelosi) wouldn't be able to make any money from the stock market.
Obviously, coinbase can stop trading on their platform, but I don't have to use them or even need an exchange to trade on. The only insider trading on BTC would be lawmakers or a whale attempting to alter the price.
This isn’t my area of expertise by any stretch but it seems to me the important word you left out in the quote is “comparatively highly regulated”. Surely the SEC has flaws but it is still more regulated than the crypto space
Fair point, but I don't think 'crypto' or blockchains should be regulated at all so I didn't think it was necessary to include the entire phrase. Thank you for pointing out the flaw in my reply.
For sure, my callout above is really irrelevant to your point of “who the regulation benefits” (which seem good to me). I’m a bit saddened as well “crypto is being regulated” because it seems to cut across the grain of the whole point of decentralization - but I don’t know how any of this stuff works! (web3, taxes, financial regulation in the Gov. etc)
I do, however, feel that if crypto exchanges are being marketed to the public as “the future” via Super Bowl ads there should _probably_ be some sort of “safeguards” in place. But have no suggestions for what that may look like.
Stock exchanges only halt trading in very limited circumstances. If you're referring to the GME debacle no stock exchange forced Robinhood to halt trading; that was entirely on the broker.
I won't attempt to defend Rep. Pelosi but what she is doing isn't insider trading. She isn't an insider for any corporation that she and her husband traded on. Instead she is using political power to manipulate stock prices from the outside. This type of naked corruption should be banned, but let's not confuse the issue with inaccurate labels.
I won't attempt to defend Rep. Pelosi but what she is doing isn't insider trading. She isn't an insider for any corporation that she and her husband traded on. Instead she is using political power to manipulate stock prices from the outside. This type of naked corruption should be banned, but let's not confuse the issue with inaccurate labels.
I must have misunderstood the GME situation then. To me it seemed like a situation where average Americans could have made profit, but were stopped by people with bigger bags. I tried to sell my shares (for a very nice profit) but I was stopped from doing so, so yeah I feel cheated.
Thanks for bringing up the incorrect label, I can't think of a better one at the moment but I guess I included lawmakers with the label since they may have access to information we don't, so from my perspective it may as well be insider trading, but you're right about the label.
Thanks for bringing up the incorrect label, I can't think of a better one at the moment but I guess I included lawmakers with the label since they may have access to information we don't, so from my perspective it may as well be insider trading, but you're right about the label.
Yes you misunderstood. Read the actual SEC report. And don't risk your finances with shady start-up companies run by idiots and grifters.
https://www.sec.gov/page/sec-staff-release-gamestop-report
https://www.sec.gov/page/sec-staff-release-gamestop-report
Sure, it’s exactly the same, except that in one case you buy a little piece of a company that produces something, has revenues, holds patents, brands, factories, shops or distribution networks, and in the other case… not.
So to fix crypto, you need to give voting rights to crypto holders (and take it away from miners)?
The other case is not… it’s virtual commodities with artificial limits, while the market itself lacks the historical protections built up over time
If you think one is a Ponzi scheme, they both are.
To prove your point, all you need to do is create a company and get it listed on a major stock exchange with zero assets and the sole stated purpose and objective being to print and sell stock. Be sure to explain to the exchange that this is no different than any other stock.
Let us know how it goes and report back with your listing symbol so we can all buy in, help you inflate the stock price and get rich quick.
To prove your point, all you need to do is create a company and get it listed on a major stock exchange with zero assets and the sole stated purpose and objective being to print and sell stock. Be sure to explain to the exchange that this is no different than any other stock.
Let us know how it goes and report back with your listing symbol so we can all buy in, help you inflate the stock price and get rich quick.
This has been _legitimately_ done in regular markets before, albeit with debt-like, rather than equity-like instruments.
Remember sub-prime crisis and the "Collateralised Debt Obligation" -- basically: set up a shell "company" with no assets, issue 3 types of "stock" from it (tranches at the low, medium and high level), and then have this company buy underlying debt (say mortgages, or car repayment receivables), use the cashflows from those to pay the coupons (dividends) to the holders of the CDO in the various tranches, after taking a little something off the top. And voila - you have essentially the same idea.
We all know how that CDO thing ended, but, remember, it was _fully regulated_ and legit!
So lets not sleep walk into thinking that just because the SEC of the CFTC says it's okay, it is. They are flawed people, with profit motives, just like the rest of us.
Remember sub-prime crisis and the "Collateralised Debt Obligation" -- basically: set up a shell "company" with no assets, issue 3 types of "stock" from it (tranches at the low, medium and high level), and then have this company buy underlying debt (say mortgages, or car repayment receivables), use the cashflows from those to pay the coupons (dividends) to the holders of the CDO in the various tranches, after taking a little something off the top. And voila - you have essentially the same idea.
We all know how that CDO thing ended, but, remember, it was _fully regulated_ and legit!
So lets not sleep walk into thinking that just because the SEC of the CFTC says it's okay, it is. They are flawed people, with profit motives, just like the rest of us.
Hold up. This is explanation is completely wrong.
> set up a shell "company" with no assets,
CDO's were assets. They were collections of mortgages. When you bought CDOs, you were buying real slices of mortgages (at various levels of abstraction).
The fraud existed because there were quantifiable differences between the value of the underlying asset and the value of the securities being offered.
So I guess in that regard, the same sort of fraud is theoretically impossible for crypto because a) none of the assets have a quantifiable value anyway and b) it's okay to throw away investor's money if you properly disclose it as a risk?
> set up a shell "company" with no assets,
CDO's were assets. They were collections of mortgages. When you bought CDOs, you were buying real slices of mortgages (at various levels of abstraction).
The fraud existed because there were quantifiable differences between the value of the underlying asset and the value of the securities being offered.
So I guess in that regard, the same sort of fraud is theoretically impossible for crypto because a) none of the assets have a quantifiable value anyway and b) it's okay to throw away investor's money if you properly disclose it as a risk?
Fraud happens. But on a scale of 1 to 10, crypto is an 11.
There is no more blatantly direct, obvious or audacious fraud than creating money from electrons and selling it. Even wooden nickels were made from something in order to kinda, sorta look like money.
Crypto is proof of just how stupid intelligent people can be.
There is no more blatantly direct, obvious or audacious fraud than creating money from electrons and selling it. Even wooden nickels were made from something in order to kinda, sorta look like money.
Crypto is proof of just how stupid intelligent people can be.
CDOs were not fraud. They were legal. They were just extremely stupid and unethical, like some (but not all) crypto.
Just because its legal doesn't mean it's not a fraud --- crypto and CDOs included.
As you point out, CDOs were actually based on real assets with way more plausibility than crypto which is based on --- electrons.
As you point out, CDOs were actually based on real assets with way more plausibility than crypto which is based on --- electrons.
A share actually represents a legal piece of ownership of something.
If you own 1/4 of a cookie company and the cookie company goes out of business, you still get 1/4 of whatever is left over from the cookie business (in this case, probably some equipment and hopefully a lot of cookies).
But most crypto is not comparable to stocks. It's comparable to currency. Currency markets exist, and there is an awful lot of speculation in them. And a lot of currencies do fail! But the main difference is, if I buy a bunch of Swiss Francs, I at least know I have one person who will take it - the Swiss government. If I buy a crypto from a blockchain, will the chain buy it back? No.
If you own 1/4 of a cookie company and the cookie company goes out of business, you still get 1/4 of whatever is left over from the cookie business (in this case, probably some equipment and hopefully a lot of cookies).
But most crypto is not comparable to stocks. It's comparable to currency. Currency markets exist, and there is an awful lot of speculation in them. And a lot of currencies do fail! But the main difference is, if I buy a bunch of Swiss Francs, I at least know I have one person who will take it - the Swiss government. If I buy a crypto from a blockchain, will the chain buy it back? No.
> But most crypto is not comparable to stocks. It's comparable to currency
Gary Gensler, the boss of the SEC, would probably disagree. He's calling most of it (with the possible exception of Bitcoin and Ethereum) a security (read "stock").
As to your point about "currency" -- it's not _really_ that either, chiefly because of the tax treatment in most countries that have crypto-regulation. If you buy some foreign currency, it goes up, and you sell it, you are NOT taxed a capital gain.
If you buy crypto, or stock, or bonds, or real estate, it goes up, and you sell it, then you are liable for CGT. This makes crypto more akin to a digital asset, or a commodity.
Gary Gensler, the boss of the SEC, would probably disagree. He's calling most of it (with the possible exception of Bitcoin and Ethereum) a security (read "stock").
As to your point about "currency" -- it's not _really_ that either, chiefly because of the tax treatment in most countries that have crypto-regulation. If you buy some foreign currency, it goes up, and you sell it, you are NOT taxed a capital gain.
If you buy crypto, or stock, or bonds, or real estate, it goes up, and you sell it, then you are liable for CGT. This makes crypto more akin to a digital asset, or a commodity.
I can see where they are coming from. In the long term, the value for most crypto as a technology is it's way to decentralize ownership. But for the purpose of making an investment decision in cryptos right now, the vast majority of them really only derive their value from their usefulness in transactions.
> If you buy some foreign currency, it goes up, and you sell it, you are NOT taxed a capital gain.
Am I misunderstanding something? I thought Forex gains were taxed via the 60/40 rule.
> If you buy some foreign currency, it goes up, and you sell it, you are NOT taxed a capital gain.
Am I misunderstanding something? I thought Forex gains were taxed via the 60/40 rule.
Stock is only one kind of security. Security is anything you can trade. A dollar bill is a security, for example.
They are similar in that they both deal with "assets" that are volatile and not equal to real dollars. It is easier for authorities to control and regulate the stock market than it is a decentralized global ledger.
But overall there are many differences in how these assets are owned and used, and how this market is accessed - it is apples and oranges.
But overall there are many differences in how these assets are owned and used, and how this market is accessed - it is apples and oranges.
I wouldn't say it's a Ponzi scheme, but I tend to agree that they aren't much different because the price of the stock or crypto only goes up by the demand for said security. The only thing that matters in the end for an investor is that there's someone down the line that will pay me more for my shares than I did. I don't really care if the valuation is based on pure perception (in the case of most crypto or GME) or solid fundamentals. I've been more successful trading on human psychology and pulling profits early than any other approach I've tried.
But this is an argument that can be applied to any continuous trading, on any moving number. You can (spread) bet on cricket scores, weather, oil pipeline capacity, bandwidth, commodity prices, crypto, carbon credits, whatever, and make money if you can "read" the market and the human psychology of others trading in that market.
BUt, if you are a long term investor, rather than a swing or day trader, the fundamentals of the asset are much more important. The supply-side economics of the asset, its liquidity, volatility, correlation with other asset prices, etc, all come into play, and these are very different between crypto, stocks, commodities, bond, et al.
BUt, if you are a long term investor, rather than a swing or day trader, the fundamentals of the asset are much more important. The supply-side economics of the asset, its liquidity, volatility, correlation with other asset prices, etc, all come into play, and these are very different between crypto, stocks, commodities, bond, et al.