Sunday, August 21, 2016

Bitcoin's Price is Antifragile to Hacking

I got into a little discussion in this post by Fred Wilson about the Bitfinex hack after a comment from blockchain expert William Mougayar about how bitcoin exchanges need to have deposit insurance. It makes sense on paper, but the truth is that with deposit insurance the best you're getting is a forced liquidation of your cyrpto assets should a hack occur.

In the comments I pointed to Coinbase as they hold 20% of the active bitcoin in circulation and questioned what would happen to the price should those coin disappear overnight. He didn't have a good answer for me, but I suggested a lower end of $100,000. Interestingly, in the previously linked post from Qntra they actually did a similar calculation a full year and a half ago and came to a similar conclusion. Their numbers were 100,000 BTC (Bitfinex was 119,756 BTC) and when they put that on the Bitstamp order book the price was $99,999 and that only got ~12,500 BTC in return.

All of this is to say that when bitcoins get stolen, the price goes up. The price is antifragile to hacking.

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