20 February 2014

Viva la Difference [update]

Here's an interesting quote (from here):
Does that ring a bell? That kind of trade is similar to transactions in derivative products known as credit default swaps that played a key role in the financial crisis. Credit default swaps allowed investors to bet on the health of housing-related securities; with Bitcoin, they're betting on the health of Mt.Gox.

That's almost correct. And, of course, it was the quants that went hog wild ("But I was just following orders!") with CDSs. There is a difference: with CDSs, there's no limit on how many can bet on the underlying entity's failure. Kind of like the craps table: one shooter, but lots of bettors. The Mt. Gox situation is simply discounting the instrument, much as a stock will crater on bad news. Unless, of course, these Mt. Gox-ians are emulating "The Producers" by selling more than 100% of what they hold. Wouldn't that be fun?

"It took me less than 12 hours of programming to do this, and I didn't have to get approval from anyone," Jones said. "It's an uncertain time, and I think there's money to be made and lost."

If that sounds like financial anarchy, I'd bet you're quite correct. I wonder how many survivalists have BitCoins next to their Rands and M-16s?


Mt. Gox is officially dead: here

And in the same Top Stories box, we find that gold is (allegedly) manipulated by some London banks. "We make money the old fashioned way, we cheat."

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