Ftx.com Has Probably Collapsed | Hacker News Reader

Ftx.com Has Probably Collapsed

forum.effectivealtruism.org

106 pointssawzaw186 comments

This is maybe tangential of me to say, but since this post is coming from an EA forum: I think the cozy relationship between EA and FTX has done immense damage to the public image and standing of the EA movement.

I've never been an EA person (much less a utilitarian) but I can appreciate the meat and potatoes of applied ethics, especially when those ethics are applied consistently. The infusion of cryptocurrency funny money into that world has completely perverted both aspects: much of EA now seems focused on speculative concerns (AGI) rather than real ones (world hunger or civic integrity), and all sorts of perverse rationales are offered for wealth extraction in service of future utils rather than just doing morally good things.

I'm a bit behind on the times, but I'm failing to see how the philosophy of effective altruism and cryptocurrency are related. Do you know how the two got intertwined?

SBF participates or participated in the EA movement.

My (outsider's) understanding is that the "longtermist" sub-school of EA has grown over the years, and has developed increasingly convoluted and speculative rationales for behavior that would otherwise be considered unethical.

The example I'm most familiar with is calculating utils in terms of the expected total human population of the galaxy, were we to achieve interstellar travel: it's not inconceivable that orders of magnitude more humans would be alive in the distant future than are alive now, which makes their combined future interest more important than the interests of any (or even all) living human beings. Consequently, we should divert money away from the welfare of people living today and towards efforts that maximize the likelihood of a galaxy filled with colonized planets.

If that sounds ridiculous, it's because it is.

This is called “the end justifies the means” and EA did not invent it, unfortunately.

That phrase refers to doing immoral acts and justifying it by the supposedly positive impact of that act in the long run. It does not refer to acting in the long term future's interest instead of the short term future's.

Honestly, I think this is even more perverse than the "normal" hedonic trap of the ends justifying the means: this particular branch of EA expects us to make world-altering decisions based on what mostly comes off as speculative science fiction.

I would understand it more if it was purely hedonic: at least I could then argue about whether the ends actually do justify the means! But instead it's this sort of unfalsifiable, "but what if" reasoning that's actively diverting money away from worthwhile causes.

Galactic utility is ridiculous. But so is the other extreme, to act only on short-term utility. The asymmetry is that most humans don't need any encouragement to think short-term, but they do need some impetus to think long-term. But it takes wisdom to balance the two concerns. And yes it is a huge downside to any strategy that delays gratification that it can be "hacked" for evil, which is a problem more general than EA or "longetermism".

Assuming utilitarian ethics for a moment, I agree!

Maybe someone more familiar with the EA movement can answer this: why has rule utilitarianism disappeared from EA rationales for behavior? That seems to me a very natural check on these otherwise extreme (long and short-term) leaps of reasoning.

I don't know about "EA rationales", but rule utilitarianism is unpopular among philosophers largely because it's believed to collapse into act utilitarianism. The phil101 caricature is that rule utilitarianism says "no stealing, because 'no stealing' is a rule that increases utility" and act utilitarianism says "steal if you think it maximizes utility" - but on the one hand "no stealing, except for bread to feed your starving child" is an even better rule, and so on; and on the other hand not incorporating uncertainty into your decision procedure isn't being a good act utilitarian, it's just being an idiot. And so in practice they endorse the same decision procedures in pursuit of the same end.

>>If that sounds ridiculous, it's because it is.

Based on how you described it, I don't see what's ridiculous about it.

It is utter hubris to put the lives of fictional future people, mere characters in a story you've invented, over the lives of real people alive today.

It can justify virtually any action. The future is unknowable, so we can spin a new yarn every time we want to justify a new ethical compromise.

In principle, a greater number of future lives matter more than a lesser number of present lives. The principle itself seems sound to me.

The problem is you can't actually be certain those future lives will come to exist. One assuming they will, and being so confident in their assumption that they deprioritize the lives of the currently living based on it, is hubris, but only because it over-estimates one's powers of prognostication.

If we agree the principle can't be applied - why would we consider it sound? That's like saying the principle behind 1 + 1 = 3 is sound, with the small caveat that you get the wrong answers. If something looks good on paper and turns sour when we try to use it, that's the indication that we've miscalculated.

Another perspective to consider; the best way to help people in the future is to help people today. Solving the challenges of our time is an investment that will compound into the distant future. Speculating on what life could be like in a hundred or a thousand years, and tailoring your efforts to that imagined future, is much like creating a product without a customer in mind. If you end up with something useful, it's almost certainly on accident and not because your speculation was accurate.

A principle can be sound while not being applicable. Principles and applications are two separate things and there's no reason to conflate them.

>>That's like saying the principle behind 1 + 1 = 3

That's not sound in principle..

>>Another perspective to consider; the best way to help people in the future is to help people today.

That is an entirely valid, and I would argue probably correct, perspective yet it doesn't invalidate the principle that a greater number of future lives matter more than a fewer number of current lives. It may be that the best course of action for both future lives and current lives is to pursue the best interest of the currently living.

Guarantee you that the same people espousing this use Net Present Value to evaluate their investments.

> Consequently, we should divert money away from the welfare of people living today and towards efforts that maximize the likelihood of a galaxy filled with colonized planets. If that sounds ridiculous, it's because it is.

It sounds ridiculous to you because you framed it in an uncharitable way. Another way of saying "maximize the likelihood of a galaxy filled with colonized planets", so far as contemporary people are concerned, is "minimize the likelihood of civilizational collapse". Even a marginal reduction in the risk of nuclear war, for instance, would be a very good thing.

How does giving your money to crypto businesses improve the future?

When did I say it did?

parent was sarcastic

> Even a marginal reduction in the risk of nuclear war, for instance, would be a very good thing.

Nobody disagrees with this. But since you brought it up, I think it's worth asking: what precisely has the EA movement done to reduce, even marginally, the risk of a nuclear war?

> what precisely has the EA movement done to reduce, even marginally, the risk of a nuclear war?

Nothing that I'm aware of. In general I think that most of the current "longtermist" organizations are useless - but that doesn't mean they're incorrect.

Here’s how I think about it: they aren't necessarily incorrect, but they are behaving in a misleading manner by labeling speculative ethical behavior as “EA” when it’s neither effective nor particularly altruistic (in the sense that Singer uses).

I don’t belong to the EA movement, so maybe it just isn’t my place to say what should or shouldn’t be EA. But this kind of bootstrapping of classroom ethical dilemmas into actually diverting donated money away from human welfare efforts astounds me.

> misleading manner by labeling speculative ethical behavior as “EA” when it’s neither effective

I agree that they're ineffective, but I don't see any evidence that the MIRI types are lying - they're trying to help, they think they're helping ... and they're mostly wrong. It happens.

> But this kind of bootstrapping of classroom ethical dilemmas into actually diverting donated money away from human welfare efforts astounds me.

Are you sure that's what's actually going on? Donations and especially effort are not fungible. The techy libertarian futurist types in the MIRI orbit, for instance, are so far as I can tell simply not as bothered by poverty as Singer et al. A world in which they're not worried about AI risk is not a world in which they give just as much to other causes; it's a world in which they give less.

I believe the general consensus is that nuclear war is a great risk and important to prevent but the effectiveness of philanthropic efforts is low. Fighting malaria is still a more effective form of altruism.

https://www.givingwhatwecan.org/cause-areas/long-term-future...

https://80000hours.org/problem-profiles/nuclear-security/

https://www.effectivealtruism.org/articles/carl-robichaud-fa...

I know you're not defending this take, but I'm having trouble seeing how scam coins benefit future people.

My understanding is that the EA argument for cryptocurrency boils down obtaining the means to do the most good: they want to do the most good, and that requires financial resources. This allows them to justify just about any financial activity, so long as they can convince themselves that the long term utility of their behavior outweighs its downsides. Which gets us cryptocurrencies and oil company investments.

The philosophies aren’t related beyond the fact that EA seems to view making as much money as possible a virtue if you use the money effectively, and the crypto space has happened to be the place where people are making the most money the fastest.

"Using the money effectively" is the operative point: as more and more of the money in the EA sphere comes from cryptocurrencies (and other civically corrosive sources), the EA movement's notion of "effective use" seems to loosen.

OP is complaining about SBF coming into ea and using his crypto money to donate huge amounts to speculative and sometimes even harmful causes such as ai safety and that Oregon house seat instead of meat and potatos ea causes of global health/poverty and animal rights

As someone kind of on the outside of all these movements, I think this is mostly a "founder effects" thing.

A lot of the initial people in EA came from the world of rationality. Classic LessWrong had 3 main topics that were actively discussed - AI risk, Rationality, and EA. It also happened that cryptocurrency became known and somewhat popular among some LessWrong visitors.

We're probably talking like 1% of LessWrong visitors, mind you - but a few of those became crypto-millionaires.

So that's why a bunch of people, who were interested in both AI risk and EA, and now have millions, are infusing the EA movement with cash. Or at least, that's the story as I understand it.

Effective altruism and cryptocurrency are related because SBF's pledge to donate his wealth represented a significant portion of total wealth pledged to EA, and the FTX Future fund represented a large portion of the present funding available for longtermist causes.

> The infusion of cryptocurrency funny money into that world has completely perverted both aspects: much of EA now seems focused on speculative concerns (AGI) rather than real ones (world hunger or civic integrity)

My impression is the (excessive) AGI focus predated FTX (which was founded in 2019), rather than being caused by cryptocurrency money. For example, OpenAI was founded in 2015.

Yeah. To be clear, I'm not claiming that the AGI focus comes from FTX, or any particular monetary source. The claim is that "easy" money (or, more accurately, the prospect of easy money) from those sources has made those aspects of EA more prominent, drowning out other "schools."

IIRC lots of people had issues with EA even before they went all in on MTX.

AGI nonsense was always at the forefront of the EA movement. You can thank Eliezer Yudkowsky for that.

>much of EA now seems focused on speculative concerns (AGI) rather than real ones (world hunger or civic integrity)

this has been the case since perhaps the very start of EA. many prominent EA/utilitarian faces and perhaps all "long-termists" have been involved in highly speculative stuff like that. it's a meme at this point, as they say.

This is an incorrect understanding of history. Eliezer Yudkowsky more or less created the rationalist movement, out of which EA emerged, as a way of funding AI safety research. MIRI is older than EA.

My understanding is that EA mostly came from Peter Singer's ethics. The "rationalist" movement adopted a lot of the language and metaethical principles espoused by Singer, but Singer has not (to my knowledge) indicated particular interest in AI. The books I've read by him mostly focus on animal welfare and human welfare in developing nations (cf. "doing the most good").

Peter Singer happened to write primary source material, but your comment is like saying the EAs came from Jeremy Bentham. EA the organization began with LessWrong which, again, was all along a play to generate funding for AI safety research.

Edit: The original version of the comment implies LessWrong is the single precursor to EA, which is wrong. But it is a relevant and influential one.

The key distinction between Bentham and Singer is that Bentham is dead (unless you count the auto-icon!), and Singer is actively publishing books about EA.

I have no doubt whatsoever that EA the organization, LessWrong, and MIRI are all instrumental in EA the movement. But my understanding, including from actually reading just about everything Singer's ever written, is that the applied ethical groundwork for EA was laid at least a decade before LessWrong or MIRI arrived on the scene.

I was reacting to your original post which implied that speculative concerns have marred EA the movement by pointing out that EA the movement has had close ties to speculative concerns since the beginning. It's a large, complex group with many on-going projects. LessWrong's top charities are still meat and potatoes human development in the 3rd world.

If by "EA the organization" you mean the Center for Effective Altruism, it came out of the Oxford philosophy department.

No, Oxford is incidental to the story. The term was used to mean roughly those ideas at least half a decade before CEA was founded. Some history is here: https://jacyanthis.com/some-early-history-of-effective-altru...

EA was created by will macAskill at Oxford.

Agreed. This was not a good look for the movement https://twitter.com/kateconger/status/1590478599844339712.

> I think the cozy relationship between EA and FTX has done immense damage to the public image and standing of the EA movement.

And it couldn't happen to a nicer cult.

EA and BankmaniFried receive your criticism for trying to do good. Is it really the case that other billionaires who earn their money say selling cigarettes, or helping old ladies gamble their life savings away, or selling vaping kits to children, and spend their ill-begotten gains on expensive champagne and private jets, are somehow better because they are morally consistent?

What about my comment made you think I’d be okay with any of those things?

I think you missed the point about consistency: I was trying to say that EA, minus the recent tangent, has my appreciation for its consistency. Consistency on its own isn’t a moral virtue, but it is a sign of earnestness. And I like it when people are earnest.

I presumed your comment about consistency was regarding the fact that on the one hand EA has at its core applied utilitarian ethics, but on the other hand the greatest source of EA funding is from an apparent charlatan.

Of course I don't think you find other dubious money making activities to be acceptable. I was pointing out that consistency is not a very useful moral yardstick. But since you don't seem to be claiming it as such with your clarification, my comment was unnecessary.

The collapse of FTX will impact the whole crypto space negatively. Nothing is spared.

1. All the alt-coins in FTX/Alameda Reasearch holding will be liquidated. E.g. Solana has been down >40% already.

2. The value of the FTT tokens issued by FTX valued at billions has evaporated. The value of FTT were used to buy other coins, directly and indirectly inflated all of them, including Bitcoin and Ethereum. When the value of FTT evaporates, it can be thought of as billions have been sucked out of the crypto markets. The prices of all coins will drop, including BTC and ETH.

3. The cascading falling of the alt-coins. Some alt-coins will fail. Just now there's an incoming $1B+ Solana tokens being unlocked and will be released to flood the market. Other alt-coins will be impacted in a similar way. One can argue some of these coins are created out of the thin air just like FTT. Their value can simply vanish just like FTT.

Having watched the MtGox, Mark Karpeles, Willy Bot saga, and then see that same pattern repeat over and over really is almost surreal.

What’s funny, in a tragic kind of way, is that initial market manipulation from Karpeles is what drove the initial wave of VC interest who thought they were seeing an indication of genuine widespread demand. And then they couldn’t be left holding the bag and it just snowballed where we’ve seen this ongoing pattern of ever bigger scams and market rigging.

Same for me, and it's the whole pattern, down to the same talking points being shared by people in cryptocurrency forums. There's a level of hope and coping with cryptocurrencies that is hard to see outside of gambling addiction.

Does anyone know how Coinbase avoided this fate? I really thought it would be them to fall, but they proved everyone wrong.

There’s some key difference between Coinbase and an exchange like FTX. Is it because FTX had a token, and then leveraged themselves using their own token?

Binance has a token too. Are they in similar danger? It would be an interesting contrast to know why one exchange is safe vs another.

Here’s SBF testifying in front of congress in Dec 2021 that FTX is completely transparent and therefore safe: https://www.tiktok.com/t/ZTRxC7XrT/

Consumers need to be able to research claims like these. Is there a way to make a “Warning: this exchange is over leveraged” indicator? Or is it just impossible to know?

Binance has a token, but it is a lot more useful than FTX's coin. Binance has their own blockchain with a lot of applications. Their coin, BNB, is used to pay for fees on that network. As far as I know, FTX's coin FTT was used by FTX customers to get cheaper trading fees and for price speculation.

Coinbase makes money on fees and doesn’t lend out deposits.

Seriously look at their balance sheet!

They have zero risk of this kind of insolvency, their only risk is people stop using them to trade.

Say what you will about that being a weird/dumb model but here we are.

They are facing a systemic risk of crypto having such bad PR that no one will be willing to go near them.

>their only risk is people stop using them to trade.

ahh my bad. Moving a bit quick. So much is going on.

In theory they make money on fees... They posted a net loss of $544.6M on a 64% decline in transaction revenue in the quarter ended Sep 30 [1]. This next big drop probably doesn't bode very well for them...

Coinbase may eventually run out of money and go out of business because their operating costs presumably exceed their revenue, but the customer funds won't evaporate if/when they do, unlike the shadier exchanges.

1. https://www.reuters.com/technology/coinbase-reports-third-qu...

Coin base doesn’t offer margin loans?

They stopped in 2020.

Like I said, the model is sort of stupid and weird but it’s less stupid than FTX’s at the moment!

I mean really it seems like FTX’s issue is that it got raided to serve as a hedge funds piggy bank. They’re not stupid, they wouldn’t accept such a massive amount of collateral in their own token if it wasn’t mostly owned by their hedge fund that they want to funnel assets too.

> They have zero risk of this kind of insolvency, their only risk is people stop using them to trade.

US regulated companies can, in fact, go bankrupt, and frequently do. They can also misuse funds or make foolish decisions that cause them to to under even if customers keep using them.

There is even have a system for scoring this risk, called the Altman Z score. A good score is above 3. A grey zone score is 1.8-3.0.

Coinbase’s current score is 0.15!

In the distressed zone with serious possibility of bankruptcy within the next two years.

https://www.gurufocus.com/term/zscore/COIN/Altman-Z-Score/CO...

Anyone who disagrees with this solvency risk assessment is free to purchase some of their outstanding bonds. Their bond coming due in 2028 goes for 53 cents on the dollar.

If they don’t go bankrupt, you’ll double your money in five years. A yield of 13.3% per year!

https://markets.businessinsider.com/bonds/coinbase_global_in...

The point is that if Coinbase goes bankrupt their customers will not lose any money because customer assets are segregated from Coinbase's assets.

  Because custodially held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors

https://finance.yahoo.com/news/coinbase-warns-customers-coul...

>may

There’s no precedent. Disclosures are always worst case scenarios

And again, will anyone please read their fucking balance sheet?

Liabilities of $105bn, $101bn which are deposit liabilities vs. $101bn of customer assets.

Even in a worst case scenario depositors get a <4% haircut.

THIS IS VERY DIFFERENT FROM WHAT FTX DID

I don’t want to cite Dunning-Kruger, but Coinbase’s core business model (if you looked at their balance sheet as I suggested) leads to them segregating customer assets from everything else (there’s a special line with a footnote and everything). Those assets line up exactly with the liability line for deposits.

If you’re even a little bit familiar with bankruptcy law, you know that those depositors are the top of the stack (by a mile) and part of the reason Coinbase scores so low on those tests you cite is because the customer deposits get ignored (since they legally can’t touch them).

This is different from A) FTX which lent out those customer deposits irresponsibly and B) Thinking they are a good business whose corporate debt I want to buy.

Like I said in my original comment, that’s a stupid/weird business model that no one else follows because it’s so stupid and weird!

It’s also based on a Ponzi scheme!

But anyway…

Coinbase has those assets listed nice and separately but that is unlikely to hold up in bankruptcy court.

SEC specifically forced Coinbase to disclose the following:

“ "Because custodially held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors”

“Deposits” legally are a banking term and coinbase is not a bank.

The money given to Coinbase is more akin to a gift card balance. Starbucks segregates customer gift balances on its balance sheet but if they go bankrupt gift card holders are in line with other unsecured creditors.

1) I love the energy of taking a risk disclosure at more than face value (they are clearly speculating and write that because it is free to do so and it covers their asses, not because the SEC “forced” them).

Show me the precedent where bankruptcy courts considered depositors as general creditors, since you are so sure that’s what will happen.

2) Will you please please please read the balance sheet.

As a favor to me?

In it you will see that of Coinbase’s $105bn in liabilities, $101bn of it is owed to depositors. That is offset by $101bn of depositor assets.

So even in your worst case scenario, depositors get what, a <4% haircut?

I’d love to see the number of FTX depositors who’d take that deal rn…

EDIT: Maybe this will help. What’s special about Coinbase isn’t the fact that deposits are a line item on their balance sheet (FTX did the same), it’s that Coinbase actually keeps the assets.

So whereas FTX not only lost solvency in its core business, it also lost solvency in deposits, Coinbase can only lose solvency on its core business, which is minuscule relative to the scale of deposits.

Alright so I read the balance sheet:

1. The numbers you refer to are from the unaudited quarterly report

2. The last audited numbers are from their annual report, end date Dec 2021, during the tail end of bull market

3. $95 billion of the assets on the balance sheet are crypto assets. This is an unaudited figure, but there is no obligation to hold crypto 1:1 from what was deposited

4. Concentration of credit risk was a significant risk listed. This would apply to non insured funds at banks in excess of $250,000 and they also face risk of Tether or USDC imploding. We do not know the composition of their crypto assets. About 1/3rd of their audited crypto assets are classed as “other”

There’s plenty of room there for saying “I am shocked, shocked that our assets were not redeemable at market value en masse in the flash crash”

We’re talking about a company which has been repeatedly and publicly slapped by the SEC, in an industry full of accounting fraud, in a bear market, and which the markets rate as highly distressed.

Perhaps they risk criminal prosecution for missteps, but there are plenty of examples of that not being sufficient deterrent, of companies trying to dig themselves out of a hole.

You were referring to their unaudited 2022 balance sheet correct? I am not an expert so please tell me if I have missed something

Another risk is if they get hacked.

Binance's claims about 1:1 backing for BUSD seem legitimate but then again FTX also seemed like a legitimate exchange.

People who use exchanges should withdraw their crypto asap. Does not matter if it's binance or coinbase or kraken. There is 0 benefit to keeping it on any exchange and unlimited risk for doing so

> There is 0 benefit to keeping it on any exchange

Conversion to/from fiat

Keeping as in long term, more than a day or so

Coinbase avoided this fate by being a us regulated company. FTX.us is still above water. It’s the Bahamas based company that was able to cook the books and is now defunct.

As for Binance, they have the SAFU (https://academy.binance.com/en/glossary/secure-asset-fund-fo...) which they just topped up to $1B at current market prices (today). You can verify the balances on chain, but there aren’t any statements about outstanding obligations, and there are no guarantees that those funds haven’t been earmarked for other things.

> FTX.us is still above water

FTX.us has been under SEC investigation for security fraud for months, so still too early to make this call

They making the claim of "above water" for $NOW. It's not to early call $NOW but it is too early to call $NOW+30D

Coinbase is listed on NASDAQ and has significant reporting requirements because of that. Civil and maybe criminal penalties for the board if they lie on SEC filings.

$1B doesn’t rly reassure me unless I’ve misunderstood. Ftx had $6B in withdraws in 72hours (which they fulfilled) so I don’t rly think binance has shown anything that would provide real protection against a bank run like we just saw.

So their "Secure Asset Fund for Users (SAFU)" are crypto funds. If that's not pulling the wool over everyone's eyes. This industry needs to die.

How are they insulated from each other? I always assumed that one holds the other. Correct me if I'm wrong?

About 40% of the SAFU is in BNB; their own FTT-like token. Its literally the same reason FTX collapsed; BNB just still has value.

Yeah agreed. This seems needlessly risky.

BNB isn't a token though. It's a real cryptocurrency like ETH.

Sure, but the point is that if Binance were ever in a position to where they needed to start liquidating the SAFU, its reasonable to assume that the market for BNB would be in a very poor state; either because of whatever caused them to need to liquidate the SAFU, or because of the liquidation itself. BNB's typical 24h volume is only around 8x the total amount of BNB in the SAFU.

More broadly, the existence of the SAFU should raise eyebrows. If they're acting as a depository trust, in other words maintaining a 100% reserve ratio, then why does the SAFU need to exist? Maybe just marketing? Giving cryptobros something to point at to say "Binance is safe"? I guess that's fine. I don't know; just weird.

Its like, imagine if JP Morgan only dabbled in 0% interest checking accounts, literally just took your money and put it in a box, then said "we've got a billion dollars here to pay out in case we go bankrupt. Half of it is in JP Morgan Stock, that should be fine right?". The situation doesn't make much sense to me, but I may be missing something.

> FTX.us is still above water

I wouldn't be too sure of that. Sequoia just emailed all their LPs saying that they are marking down their investment in FTX.com and FTX US to $0.

CZ says the primary lesson is "never use a token you created as collateral", and Binance has never used BNB for collateral, and (by implication) FTX did use FTT for collateral.

https://twitter.com/cz_binance/status/1590103159506341888

As far as I can tell, this seems to be the correct analysis. The technical term for why you should avoid this is "wrong way risk".

Devils advocate: how do we know binance hasn’t used BNB for collateral other than a tweet (which isn’t proof at all)

We don't, but it's good for Binance, so we can expect Binance to do so out of self interest. Avoiding wrong way risk is standard part of risk management.

if it was a mistake for ftx to avoid that, it was a mistake for all the other firms, yet the other firms did it like ftx. Probably all these other firms would have claimed they did standard risk management, yet so many have died, one after another.

So it's not satisfactory to say surely binance wouldn't do that, because it seems many of these companies were doing similar things but always claiming they were safe.

Aren't they publishing their books, or audits? IIRC them and CoinBase has/have/had audits to show 1:1.

i don't think they've done either. binance has just today linked to some wallets of some of their holdings but haven't provided any info on any liabilities they have

Coinbase is a perfectly normal company. They take your money and exchange it for crypto (and vice versa), taking a cut in the process. There's no funny business with tokens or lending out customer deposits. They are also regulated as a public company by the SEC and Delaware courts. If they do go out of business it'll be due to good old fashioned operating losses.

Note that Coinbase does have lending business. The reason it's not visible in their balance sheet is because it's not popular.

https://www.coinbase.com/borrow

I didn't know that, but considering that half the page is disclaimers and legal notices I guess they at least somewhat know what they are doing.

We don't know what happened at FTX (if anyone says they know, they're speculating). FTX said, right up to the weekend, that they weren't leveraged at all. Maybe that was a lie or maybe the problem is elsewhere. It may take a few months for the truth to come out.

I'm not an expert, but the reason this keeps happening is the financials of these firms are opaque. No one really knows how much they have, how much they have leveraged various investments to make new investments with loans on them. They are not audited. They all claim they are in excellent financial health and then boom they are gone because there are too many withdrawals and they can't pay back all their customers. Of course normal supposedly well-regulated companies also fail like ltcm. But that's systemically limited from regulation mandated from previous problems (like us 1930s).

I'm curious about why was he buying out all those other failing crypto firms? Did he not understand his own situation? Was it binance's triggering via the sale of ftx that triggered customers pulling their money out? Who knows about binance now. Any external investments they had went down in value, their crypto holdings went down. There's not particular reason to worry about binance. I've never bought into these inexplainable crypto giants anyway. How many more are left to fail?

It sounds like FTX wasn't unfortunate but fraudulent. The business model of running an exchange is pretty solid, and reasonably risk-free financially. Crypto exchanges could be hacked, there are technology risks, counterparty risks against individual traders etc. but in general an exchange takes very little financial risk. Exchanges merely facilitate the shuffling if money and assets between people, risk-free for them (mostly). Same as bookmakers, who mostly match off people betting on opposite sides.

In the bookmaker analogy, it sounds like FTX took the betted cash and spunked it away to prop up Alameda. Nominally this was a loan backed by the FTT token, but at best this was a risky asset, and FTX could no longer promise they can pay out all the bettors - because FTT could, and did, drop in value.

Note that at no point during the various crises of past 15 years has any fiat exchange been under financial pressure. Banks, funds and insurers, yes, but they take outright financial risks. But not a single exchange.

The good times made crazy people look smart and the bad times are making crazy people look like idiots.

Yes. Go find the video "Line Goes Up", which covers this issue at length.

The Video

https://m.youtube.com/watch?v=YQ_xWvX1n9g

I keep seeing these headlines, and I keep really trying to feel sorry for these people that are potentially loosing their arses. However, I just can't get there.

NFTs are the ones I'm really LOLing about vs the currency plays, but since the currencies are failing too, it just kind reveals the house of straw the whole thing truly is.

Empathy for people worse off than you, even for people who you think make bad decisions, is not hard. Think of someone you care for unconditionally, maybe your child, and imagine that person suffering through this because of poor decision. Would you castigate him or try to soothe him?

I would say that sucks but you were warned multiple times and still did it anyways so now you must deal with the repercussions

Yes, true. But If can still feel empathy for that person you love, for what he’s going through.

Nope, I think you have sympathy and empathy confused.

I can sympathize with them because losing your arse sucks. Been there, done that.

I can't empathize with them as I've just never been in that situation, nor would I ever put myself in that situation. I've been on my arse before, but because of other things mostly out of my control. Investing in a scam after being advised not to is not the same thing.

If it was my kid, both. Only soothing or only castigating would miss the opportunity to teach and learn. With a balance you can move forward and grow.

If it was a young child where parental guidance is effective, then they probably would not be old enough to be investing in a scam. If they are old enough to be investing in a scam and discussed it with me as their parent, I would have 100% advised against the investment. If they said "shut it boomer, you just don't understand tech", then I'd naturally laugh and let them enjoy the reaping of what they sowed. If there are grandkids involved, then they can come stay with me while their deadbeat parent deals with their shit. At some point, the kid has to become an adult.

Fortunately for investors in public companies, you can mostly sort out the crazy people ahead of time

By inspecting the growth mechanism of the company. Amount of leverage, yield on investments relative to risks, assumptions about future growth, management commentary etc.

Unfortunately for investors in FTX, they had no visibility or regulations/protections against their deposits being stolen

FTX’s exchange business is regulated by the Securities Commission of the Bahamas.

Sounds trustworthy

They haven't even published anything on the FTX debacle: https://www.scb.gov.bs/news/

Looks like they've stepped up.

> FTX assets frozen by Bahamas regulator as crypto exchange fights to survive

https://www.ft.com/content/c6658ce8-26a3-4580-9e64-6083a7d35...

You all about the fundamentals. <3

> Fortunately for investors in public companies, you can mostly sort out the crazy people ahead of time

> By inspecting the growth mechanism of the company. Amount of leverage, yield on investments relative to risks, assumptions about future growth, management commentary etc.

Why waste your time like that? Just buy an index fund.

> Unfortunately for investors in FTX, they had no visibility or regulations/protections against their deposits being stolen

Even more important, short sellers couldn't correct the price, I guess?

Index funds are only as good as their constituents.

Why buy index funds that hold many overvalued companies, like Chipotle at 50x PE (2% yield), or Costco at 40x (2.5% yield) when 10y at 4%. To name just a few of many

Also certain sectors and companies will do better than others in this macro environment.

Would rather buy things that are fairly valued. But to each their own

I believe in a weak form of the efficient market hypothesis that says by the time I have heard of any news, Goldman Sachs and the hedge funds will have already traded on them.

Since hedge funds are allowed to short, that includes any estimates I could make about things being overvalued.

All the news are priced in by the time they reach me.

> Also certain sectors and companies will do better than others in this macro environment.

Definitely, but that's already priced in as far as I can tell.

However, you might be more confident in your ability to spot undervalue and overvalued companies than I am.

I do agree with you that less liquid markets, like private companies etc, are less likely to be efficient.

Well you haven’t been investing very long if you believe the banks have any idea what’s going on.

They pretty much all had 5000 price targets on the S&P for 2022

Buy recommendations on stocks with wild overvaluation that later collapsed 90%. Just look what most banks and funds were doing during the dotcom bubble

Price targets and buy/sell recommendations are obviously rubbish. Regard them as PR.

You need to look at what people do, not what they say. And market prices are an aggregate of the former.

Btw, the efficient market hypothesis says that the current market price is basically the best 'price target' / forecast available. (Modulo an accumulation of interest and cost of carry etc.)

> Just look what most banks and funds were doing during the dotcom bubble

That's an interesting example to bring up!

If you had bought the Nasdaq composite index during that time, you would have done pretty already today.

We didn't so much have a dotcom bubble, as an irrational dotcom burst where tech stocks were perhaps irrationally underpriced for a long time.

Do keep in mind that I am not saying that market prices are a perfect predictor. Just that they are the best predictor we have.

In an efficient market, you would expect prices to look like a random walk. So prices going up or down isn't any evidence against EMH. (Someone consistently outpredicting the market would be evidence against EMH.)

Dotcom was an obvious bubble.

It doesn’t matter if the index level reached new highs 15 years after crashing. Valuing 15 years of company growth into today’s price almost always means that it’s a poor buy. You could obviously buy something more fairly valued today and enter later at a more optimal price.

Is cloudflare a good investment now at 12-15x sales? Almost certainly not. It becoming a $1T company 20 years from now doesn’t invalidate that

There are plenty of people who beat the market consistently, including myself. Warren Buffet, Michael Burry, Druckenmiller, Peter Lynch, Renaissance Capital.

Are they statistical outliers, or do they have an edge?

To me, it appears quite easy these days if you have any sense of fundamentals, which 90% of market participants seem to no longer have.

You literally have many companies that are direct peers/competitors trading at far different multiples. That alone is enough to invalidate the EMH.

Look at valuation differences between single tenant net lease retail stocks, for example. The biggest edge will be in smaller cap and less followed names. And there are thousands of them. Pretty easy to find small cap peers in RE that have better growth, same risk profile, and much lower valuation multiples, for example

Warren Buffet hasn't beaten the S&P 500 in a while.

> Look at valuation differences between single tenant net lease retail stocks, for example. The biggest edge will be in smaller cap and less followed names. And there are thousands of them. Pretty easy to find small cap peers in RE that have better growth, same risk profile, and much lower valuation multiples, for example

Less liquid markets are less efficient. People who go and exploit these mispricings help make the prices better, and the market pays them for it. (But that only works for as long as there are mispricings.)

> Is cloudflare a good investment now at 12-15x sales?

Please short cloudfare and make some easy money.

That was incredibly fast. Interesting to note is that the failures are growing and FTX contagion is real. I am weirdly positive about this because I like the tech but I don't like the "degens" Having spent the last 20 years in Finance, the last thing you want is fuck around with other people's money.

I've been waiting for this for years.

You’ve been waiting years for people to suffer? Lookup “ schadenfreude”.

Many of us have been warning people for years that this would be the outcome. We were ridiculed for it.

I understand. but an “I told you so” response is not your best. Be your best self.

Nobody was ridiculed for advising people to keep their coins in their own wallet. You were probably ridiculed for saying crypto is a ponzi. But Bitcoin's and Ethereum's prices are consistently higher now than they were 2 years ago. What's the bad outcome you've been warning about that actually happens?

> Bitcoin's and Ethereum's prices are consistently higher now than they were 2 years ago

Which is something that will be true until it's not. Bitcoin dropped around 25% in the last week (though is rebounding a bit this morning). It only needs to drop around 33% from the current price to break your 2 year thing. Anything is possible here (in any direction), because it's an insane market propped up by all sorts of shady bull****

not op but -

I do not think crypto itself is a ponzi - I think long term it has uses, but not this stupid "get rich quick" bs.

But I was laughed at for saying "don't buy crypto to make money". NFTs can genuinely be useful - but if you're using them with the goal of making money then you're using them wrong. This stupid art stuff and other general stupid "get rich schemes" have obfuscated it's actual usefulness, leaving it overvalued as all heck, and everyone scammed.

The very volatile price caused by this stupid "get rich quick" hype makes it even more difficult to actually use it.

The bad outcome I was warning about was the 80%+ drop. Even advising people to keep coins in their own wallet is commonly dismissed with "yeah but [exchange] does x differently and is too big to fail".

> Bitcoin's and Ethereum's prices are consistently higher now than they were 2 years ago

Just wanted to come back and say - today the price (Currently ~$15950) has dipped below the price two years ago (~$16100)

So that didn't age so well!

No kidding - get into x coin or y coin - it’s mostly pump and dump meme speculation with no dcf model worth anything

Been waiting for years for the obvious ecosystem of fraud and hot air to implode and take with it the unbearable hype that has infected the tech space.

And yes, I believe a little schadenfreude is appropriate, given the circumstances and all the "Have fun staying poor" crap.

There are lots of dumb HN comments on any cryptocurrency related topic. Most of them don't know what they're talking about. It's one of the topics where engagement here isn't worthwhile imo.

The FTX story is interesting though - mostly reads like an execution by CZ: https://twitter.com/jonwu_/status/1590099676744646656?s=46&t...

The main technical innovation of cryptocurrency is the capability to self-custody funds. People ignore this at their own peril. That said, bad UX will lead people to do the wrong thing even when their life depends on it, so it’s not a surprise it continues to be a problem.

My main takeaway from this is that Coinbase continues to be underrated in the crypto community and Brian Armstrong is a good CEO: https://twitter.com/brian_armstrong/status/15900886737267179...

I'm a little surprised SBF was engaged in this kind of scheme, there's a pretty interesting interview with him and Sam Harris here: https://www.samharris.org/podcasts/making-sense-episodes/271...

Though I suppose Jane Street does select for people willing to take massive risk on bets they think they can control. It might have continued to work out too, but CZ saw an opportunity to destroy a competitor and had the capital to carry it out.

He’s responded in a thread: https://twitter.com/sbf_ftx/status/1590709197502812160?s=46&...

Crypto is a cesspool for scammers and a lot of regular people have lost lots of money.

This is coming from someone who genuinely hopes there will be real benefits coming from crypto.

It's not that many of us long-time crypto users want people to suffer, it's the jaded "I told you so" moment.

Many of us have seen many "too big to fail" exchanges fall, have seen 2+ other "crypto bubbles" drop the price by 80%+.

When we told everyone "don't keep your money on an exchange" and "we've seen seen these 'too the moon' skyrocketing prices before - be prepared for the eventual crash" - they laughed and confidently said it was different this time, that we were just jealous, didn't understand defi/web3 etc.

I seriously do not enjoy seeing people suffer, I tried to warn people to prevent them from losing huge amounts of money. But when your warnings were laughed off - it's hard and there's some mixed emotions, and many of us are a bit jaded.

I do think crypto has a legitimate use, but this "buy crypto because you'll get rich" mentality just creates these detrimental hype cycles.

To be fair, ftx as an exchange had none of that Degen culture. They didn’t even have an Earn product with high yield. You could loan out your crypto, but the rate fully depends on how many people want to actually borrow it.

The FTT token itself was only used on the exchange to get some benefits like lower fees or free withdrawals and didn’t give any yield at all when staked.

From a risk averse user perspective and someone working in tech, there really wasn’t anything shady going on to suck people in. So them collapsing hurts and is very sad news for the entire ecosystem

The shady thing in the whole cryptocurrency scheme is the lack of total transparency, aka: lack of regulations.

Without regulations there's absolutely no incentive for them to be transparent, there are tons of perverse incentives to hide and cook the books though.

DeFi products like Uniswap, Balancer, GMX are all 100% open source and transparent. They can't lock customer funds or collapse because the funds are held by code, not humans who can secretly gamble it away.

It's frustrating that centralized opaque companies keep failing and yet people keep trusting them or lumping DeFi into the same bucket when they are night and day different. Decentralized Finance is the point of Crypto.

DeFi, where buggy code is the law and there's no reversing transactions in case of it.

No, thanks...

> FTX is currently unable to process withdrawals. We strongly advise against depositing.

This is good for Bitcoin! \s

FTX was obviously a ponzi scheme, as described half a year ago here: https://www.bloomberg.com/news/articles/2022-04-25/sam-bankm... by a very well-respected financial columnist (Matt Levine)

> I think of myself as like a fairly cynical person. And that was so much more cynical than how I would've described farming. You're just like, well, I'm in the Ponzi business and it's pretty good.

If effective altruists with their superior analytical abilities can't figure out that the money they're getting is fraudulent, how do you expect them to make rational decisions on what charities are most effective?

and yet Bitcoin is off 4.5% off of lows $15.6k -> $16.3k

Serious question: how long can it last at these levels. Where’s the support for this asset?

Drugs, Money Laundering, Money Hiding, etc. etc.

There is utility in a black currency for all sorts of illegal things

But bitcoin is the absolute worst black currency. Every single transaction has a permanent public record.

> absolute worst black currency

Yeah, Visa is much better.

Why not prepaid debit cards? (Bought with cash)

Cheaper fees, more portable, no limits, transactions can't be blocked

You seem to imply something here, what it is?

If you do crimes you shouldn’t take notes on it. Let alone record it in a public traceable ledger that the authorities actively track.

But why do you think so? They track it, so what exactly? Last time I’ve seen a ransomware it demanded ETH, not something else.

Edit: not bitcoin, eth actually, but it makes no difference here

Because the ledger is pseudonymous. Meaning that if they can connect your real identity with your wallet address at any point, then your entire transaction history is revealed.

In your ransomware example, it means that if you ever used that wallet for anything in the past or future that can be connected to you then they now have a pretty good proof that you committed a serious crime. And everyone who transacts with that wallet now can be questioned if their identity is connected with their wallet

It would be like if you took someone hostage and asked for marked bills with the serial numbers recorded. And also providing the cops with a list of all the other times you might have committed a kidnapping.

Most criminal enterprises deal with cash because because it acts nothing like bitcoin. No transaction history, no nothing

Criminal organizations must be seeking same optimal risk/fee balance as any other. Cons of cash is, it is hard to move around. Some may use cash only, some a proportion of both, what makes you so sure? You can imagine two bitcoin wallets cash/date-gapped in some low-control country for a meaningful fee and now you have at least a grey wallet instead of black one. Do you think that FBI agents sit at every crypto exchange and watch who does what? Or is there something that prevents from incrementally laundering the money this way?

Still somewhat useful for ransom ware.

This is a value in crypto in general. There is no reason that in 10 years time, bitcoin will be the coin most used for these activities. Bitcoin could drop to absolute zero and some other coin rise up for its utility value.

Well, it has no intrinsic value, so it's all psychological on the basis of what numbers sound low or high.

Sounds like my kind of asset

>>Well, it has no intrinsic value

Like nearly every other asset. 'Bitcoin is dead' has been said for over a decade now. We'll see what happens. I mined one of the first few thousand blocks. I don't think it's going anywhere unless civilization gets destroyed but that's just my opinion.

> Like nearly every other asset.

Prove to me you know nothing about investing in one sentence. Bravo.

Plenty of assets cashflow and provide tangible value. Crypto is not one of them. Unless you consider yields from a lending ponzi to be sustainable

Ditto. Just because people call it "an asset" doesn't make it one. It's not an asset. It's no more than a Ponzi scheme, just a complicated one at that.

Why is bitcoin not an asset?

It's not an asset. It doesn't provide value or a return.

It is an asset, unless you consider gold etc. to not be assets either?

Gold has industrial uses without even talking about jewelry. Even if everyone stopped valuing gold as a form of currency, it would still has some intrinsic value.

What would that value be though? 20% of its current value? Would you then say that gold was only 20% asset and 80% ponzi?

It's down 20% in the last week..

Is this effective altruism or ineffective altruism?

more like a very effective way of losing all your money

If I had a billion dollars, I'd ignore what the billionaires are doing with philanthropy and the EA crowd alike.

I'd go here and in seconds it would be gone:

https://www.pay.gov/public/form/preview/pdf/103

For a moment, inflation would run backwards.

That is effective altruism. It saves all of the overhead in distributing your assets - like an index fund for philanthropy.

Many young people had the hopes of maybe getting rich through crypto when all other avenues to a comfortable life that were available to boomers had disappeared. Now this will be a bucket of cold water to those hopes.

Meh. Zuck has altru’ed a lot more market cap this year on his VR punt.

Utilitarianism makes it impossible to make a credible promise. Duh, the utilitarians were lying for the greater good. What did you expect?

That's a very naive view of utilitarianism.

See eg https://en.wikipedia.org/wiki/Rule_utilitarianism

SBF was a very positive force for EA, now that he's down everyone piles on him? shameless

Well, he apparently hoodwinked his customers by abusing and losing their deposits.

I don't think people who made billions by scamming well meaning customers should be held in high regard.

In fact, I wouldn't be surprised if he ends up in prison

Madoff was also a great patron and philanthropist. Al Capone was known to help Chicago's poor and hungry.

Selling crypto is less legit than black-market booze.

I believe it's the common folk who had money with FTX who are down. All the way to zero. One wonders if EA is could be considered a guilt-compensation mechanism.

Ea probably isn’t super worried about crypto gamblers tbh.

What was SBF upto? Regulatory capture? this is going to make nice Netflix drama. Probably played high stakes poker and lost.

it's not over yet

To clarify the comment (and this being contingent on every user of FTX getting his money back which it appears it's going to be so) SBF was playing 5 billion dollar hands of poker because he was winning with lower dollar value hands than that, problem is that he kept raising the stakes until he went bust.

I doubt any exchange/bank could save themselves by facing the extremely bulky and fast withdrawals in the span of hours that FTX was facing; the only play there was to save face while avoiding locking withdrawals as much as possible e.g. the binance play (obviously horrid but it did buy some time.)

Besides that, the net worth of SBF and Alameda being denominated in FTT and using customer funds (unproven as of now) to make more gambles is obviously terrible, and here everyone is to free to shit on him all they want, but the point is, the EA community shitting on him? Having Sam donated more than a hundred milli to various orgs? mind you that he still is a good poker player, likely to come back, and cover all users funds.