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2017-12-22 10:17 by Karl Denninger
in Editorial , 591 references Ignore this thread
And Now We Find Out....
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which of the so-called "exchanges" have been acting as true exchanges (that is, not attempting to insert themselves into the transaction for profit-by-arbitrage) and which have been playing bucket shop, "not really delivered" games and similar.

The opportunities for chicanery in a "market" that has a couple of thousand people controlling 95% of the float are ridiculous.  When the people who own the "exchanges" are some of those folks the opportunities are not only ridiculous they're nearly assured to be taking place, especially when there are no cops on the beat.

The government would never allow the people with any material percentage ownership of the stock outstanding to run a stock exchange.  Why?  Because there is an obvious conflict that cannot be policed or resolved.  Yet we have exactly that today with the Winklevoss twins, among others, in the crypto space.  This, in any regulated market, would never be permitted and if attempted through concealment would lead to immediate indictments and imprisonment -- for just cause.  But in a space where no such rules exist, well, why not?

In the crypto space, especially with the recent parabolic moves in price, the incentives for intentional misconduct are just too high.  The simple arb games between exchanges and the privileged position of the exchanges in terms of settlement and pricing make a nearly-impossible to resist target for such activity, especially when there's nothing like the Exchange Act that makes such illegal (never mind that nowhere near all of them are subject to US laws anyway!)

For the people running same, however, the risk is obvious -- when the worm turns what was a profitable arb turns into a monstrously losing one -- and can do so before you can react and stop doing whatever you were doing.  That which was in "float" (being gamed) at the time it happens you now eat, and if you can't absorb the loss, well..... sucks to be you, and worse, sucks to be a customer of the "you" who had your funds there and allegedly "safe."

Remember that unlike regulated brokerages and such there is no SIPC protection on these places, or any other sort of protection for that matter.  A few exchanges have taken out "insurance" against hacks (can the insurer pay?), but this is not a hack.  Does that insurance cover losses in an instance where the organization holding the funds fails and even if they are involved in something nefarious?  I don't know, but you may be about to find out.

Never mind the liquidity problem -- to sell, someone else has to buy.  To turn Bitcon or any of the other scams into dollars someone has to give you dollars for those cryptographic solution keys.  If nobody will then your Bitcons are worth exactly bupkis.

So have fun folks, because a 40% decline in price over a couple of days isn't a "dip".

It's a crash, and in a crash those who are out over the end of their skis or worse, playing games all lose their clothes in the resulting yard sale and wind up in the snow with their 2" dicks hanging out.

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