Bitcoin as the world's biggest game of hot potato: https://prestonbyrne.com/2017/11/26/the-bear-case-for-crypto-part-ii-fractional-reserve-marmot/ … @prestonjbyrne
Liquidity crunch catalyzed by any disruption in the price would cause a bank run.
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Why is that distressing? Because it suggests that, when the Bitcoin music stops, 1+ real financial institutions will take eight or nine figure credit losses.
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I'd like to underline the "When 1+ Bitcoin exchanges looks like it is going to go under, everyone is going to go for the exits in BTC." part of the doomsday scenario. In particular, what happens when any one Bitcoin exchange looks like it is likely to go under.
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What will happen is, to avoid their assets being tied up indefinitely (ala Gox), account holders will try to move their BTC off-exchange. The entire Bitcoin network, which is saturated, can only serve ~3 transactions per second worldwide.
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This means that an exodus from one exchange, in addition to spooking account holders at every other exchange, will make it pretty difficult to move BTC in or out of another exchange.
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Your rational action, as an account-holder of a non-imperiled exchange, is to a) immediately request a wire (yes, a wire) of your USD and b) bid as high as possible for a transaction to exfiltrate your BTC.
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This turns non-imperiled exchanges into imperiled exchanges, quickly. The technical term is "contagion" and the way to avoid it is *drumroll* "temporarily freeze withdraws."
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End of conversation
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To be fair, what they assume is that their cryptocurrency will be accepted as a medium of exchange even without an intermediary backing it. The challenge there is how the trading partner will handle 5-10% currency moves that are becoming the norm - thats hard to hedge against
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