Crypto dominoes fall in the wake of FTX's collapse
axios.com
axios.com
[1] https://www.coindesk.com/markets/2022/11/17/crypto-exchanges...
That's how stablecoins work. There are two stable points: 1 and 0. When they break, they go all the way. As soon as the price breaks, there's a rush to exit. We've seen this happen a few times now.
Watch the Tether market cap decline here.[1] A billion here, a billion there, and sooner or later you're talking about real money.
The Mt Gox "hack" was in 2014 and people have still not gotten money back yet. That is 8 years and counting.
Whoever buys tether (and who is it? really? I don't think it's retail investors...) doesn't seem to be in a hurry to convert it to cash. I'm assuming it's mostly or all related to criminal activity, so they can't actually cash out?
Also, selling to quickly would at least temporarily depeg Tether and cost the creditors money.
Your argument does not make tether a scam.
By absolute number, sure, but if you count "most" by weighting them with trading volume, then no. Bitcoin and Ether will not go to zero.
That's crypto-speak for how to deny reality.
If the value of a USD dollar plummeted to $0.01, you don't pull out your wallet and say, "I have 100 of them, so no the value hasn't gone to almost nothing."
When crypto implodes, what are people going to drop their shitcoins for? I could see a few possible answers:
* They'll accept BTC or Ether because it's what they can easily get to in a pure-crypto market. If there's enough turmoil, major fiat offramps may be overburdened.
* They'll pile onto stablecoins (likely because exchanges present it a default way out, and sure, they'll exchange for dollars some day) running the risk of triggering further contagion to stablecoins themselves.
* They'll take fiat at increasingly terrible exchange rates just to get out of the dumpster fire.
No, what I mean is that anyone can make new coins in 5 minutes to commemorate their favorite meme. There's a very large number of these coins and almost all of them are already valued at zero. So now you can go around saying "most tokens value will drop to zero", which is factually true because they already are at zero, and never were worth much of anything, and nobody traded them. So what?
If you take a typical crypto hodler, most of the value in their portfolio is in tokens like Bitcoin or Ether, and very little value is in meowcatcoin or shibadibacoin. Bitcoin and Ether will not go to zero.
> The value of most coins will go to zero.
I think the obvious issue is no one is going trade their actual-money for it.
https://www.reddit.com/r/explainlikeimfive/comments/3hqxgs/e...
Why? Exchanges have existed before stablecoins, and you can still trade BTC et al without ever touching a stablecoin.
Which one retains value in a market crash? My money is on US Dollars, but you are free to disagree with me.
It's true no matter if you're talking about falling stocks or falling crypto.
Yes, the $10 exists, but that $10 trade may have inflated the value ("market cap") of the coin by billions.
At start you had 10 bucks and he had 10 bucks worth of crypto for total assets of 20
Now you have crypto with value of 0 and he has 10 bucks for total assets of 10
Overall 10 bucks is gone and yes there are winners and losers
Edit: TikTok quiz abbreviated: you buy for 50, sell for 60, buy again for 80, sell for 90. How much did you win / lose? ... the confusion for some people being created since they sold at 60 to buy back at 80
It's like a gold mine being revealed as barren. Whether you say wealth was destroyed or wasn't there to begin with is... distinction without a difference.
Here's an example of how this works:
FTX "minted" their own cryptocurrency. They minted billions of dollars of it.
When people purchased a tiny fraction of it, that established a price for one coin.
Once that happened, FTX could say "we're worth billions of dollars."
But keep in mind:
* the cryptocurrency was created out of thin air
* the value of the crypto crashed by over 90% in the past month
On top of all that, there was a "multiplier effect" when the "assets" were used as collateral on loans to counterparties.
The net effect is that the "assets" were worth billions at some point, but that value has evaporated. And loans were made on those "assets" which may have multiplied the actual impact several fold.
It's a banal comparison, but this is a lot like Beanie Babies in the 1990s. At one point the market was worth millions of dollars, and then it evaporated overnight.
That's deflationary, and if there's one thing the world needs right now, it's deflation.
A day later the Russian army hits my car with a mortar. You have $10,000. I have some scrap metal. Rather than $20,000 worth of stuff, there's now $10,000 (plus some scrap metal) total.
People losing jobs and thinking about their next steps are usually too late with not enough skin in the game to jump on the decade-long bandwagon. That's the "wealth" some of the commenters here seem to be pointing to. Essentially, inequality.
More than a half-century ago, John Kenneth Galbraith presented a definitive depiction of the Wall Street Crash of 1929 in a slim, elegantly written volume. Embezzlement, Galbraith observed, has the property that “weeks, months, or years elapse between the commission of the crime and its discovery. This is the period, incidentally, when the embezzler has his gain and the man who has been embezzled feels no loss. There is a net increase in psychic wealth.” Galbraith described that increase in wealth as “the bezzle.”
Burn baby burn.
These shitcoins with billion dollar market caps never actually took a billion dollars into any accounts. The volume is fake, the activity is fake, the price is fake.
How can a crypto coin lose 99% of its value? It was worth nothing to begin with. No wealth created, no wealth destroyed. Plain transference.
If I convince one person to pay $10 for a quarter, are all quarters worth $10?
If you answered "yes", you can run https://coinmarketcap.com/.
- How many Dollars does a bitcoin buy?
- How many Bitcoins does a Dollar buy?
- When the exchange rate varies, what does that say about the relative value of each currency?
- How many Potatoes can a Dollar buy?
- How many Potatoes can a Bitcoin buy?
- How many Drugs can a Dollar buy?
- How many Drugs can a Bitcoin buy?
The above is extremely oversimplified but much like a global foreign exchange relies on shifting exchange rates, so does the value of all currency in terms of relative buying power. In terms of absolute buying power - my personal highly subjective bid is that a currency's "value" is a compound of its' exchange rate as well as the amount of people willing to exchange it, and the amount of it in circulation as well as the breadth of people willing to accept it in exchange for goods and services.
If A mints a coin for free and sells it to B for $0.25, B sells it to C for $0.50, C sells it to D for $0.75, and D sells it to E for $1.00, at which point it crashes to zero, A, B, C and D have all made $0.25 each, and E has lost $1.00, but nothing of value was created or destroyed.
E incorrectly believed that the coin was worth $1.00 and thus that more wealth existed in the world than was actually the case, but that doesn’t mean wealth was ever destroyed, just that his incorrect estimate was updated.
For example, bitcoin has a market cap of $320B. At its peak it was worth about four times that. Did $960B just disappear? Basically, yes.
The coin has no intrinsic value (in the way that a can of corn does, for example). It's worth money because people say it is. And market cap is just a multiple of what it trades for at the margins times the number of shares (coins).
To give an example, say that I bought a bitcoin 10 years ago and that it was my only possession. At its peak, I could have sold the bitcoin for ~$64k, so I had a net worth of 64k. If I didn't sell it at that point and still hold it, I'm now worth ~16k. No one made $48K of of me... there were no transactions in that time period. The "wealth" has simply vanished.
This is pretty debatable. Bitcoin does have some intrinsic value as a medium of exchange and store of value.
I was hoping years back that all of this would have taken off for payments rather than silliness. I was wondering if we'd see a (low) Bitcoin value determined by the need to pay BTC transaction fees and those fees being effectively locked up until the next block comes
On the opposite end, a can of Cambell's soup has intrinsic value, because it's worth something to someone regardless of what anyone else thinks. The can of soup that Andy Warhol as the basic for his famous paintings has a mixture of both types of value (surely someone will pay significantly more for that can over any other identical can).
That doesn’t seem like a contradiction at all, right? If your fork somehow became well known and replaced the original, then yeah, your fork would have some intrinsic value as a medium of exchange and a store of value.
Intrinsic value is a value outside of perceived value. A can of soup is calories, which we need to survive, as long as it is edible, it will always be worth something to a human. Farm land has intrinsic value because it can produce food. Diesel has intrinsic value because farmers need this to produce food. Bitcoin9890812895, my fork of Bitcoin9890812894 has no intrinsic value to anyone.
Yes, and we're not talking about perceived value. We're talking about intrinsic value from a peer-to-peer network that's used by many people.
Consider a hypothetical Bitcoin, without the objective measures you describe. Without the capabilities of the network, people willing to accept it as payment for goods/services —- it is a coin that nobody has a use or want for, i.e. an unadopted shitcoin.
The value of unadopted shitcoins approaches zero as fewer and fewer people use it. Therefore, the value of Bitcoin is entirely comprised of perceived, and not intrinsic value.
Another way:
Compare a Bitcoin with a banknote. A banknote has perceived value (it represents one, or several, dollars, which have a stable value and are accepted universally) and intrinsic value (it is piece of paper that you could burn to provide a small amount of heat, in a pinch). The Bitcoin doesn’t even have that tiny amount of intrinsic value that the banknote has.
During the Weimar Republic, people burned paper money because it was cheaper than wood. In that situation hyperinflation led to the perceived value falling so low that it was below the paper money’s intrinsic value. If everyone stopped accepting Bitcoin and its perceived value evaporated, that Bitcoin would not even have the intrinsic value remaining, of heat from a single burning banknote.
What's happening is not great for crypto investors, but it's beneficial for people who want inflation to go down (nearly all of us.)
OP was worth at least 64k at some point and now is worth at least 16k. The value and total amount of wealth (in US Dollars) has gone down.
Take Elon Musk, for example. A lot of his wealth is in Tesla stock. But he can't sell that stock without also affecting its price. If he decided to sell all of it tomorrow, the price would plummet and he would only receive a fraction of what it's worth today.
This is what a lot of these companies are doing. I can create 100 tokens and sell you one for $1. In theory, my "net worth" is now $99, since I have 99 tokens that are worth $1 each. In reality, if I tried to sell all 99 of them, I'd quickly find that people are actually not willing to buy all of them for that amount.
I trust money more than wealth. Unsold stock should not be quantified until the moment it is sold.
It's getting tiring to hear about "so and so billionaire lost X billion". No, they didn't lose anything that they didn't have to begin with. Having more stock than the trade volume of that stock means all of that "wealth" is mostly theoretical.
That "theoretical" wealth clearly has a massive impact on the real world, so it's silly to pretend it does not exist. For example, Elon didn't buy Twitter with a giant bag of gold coins -- he borrowed against his wealth, which is mostly in stock.
Because no sane organization will lend out real cash over the same amount of collateral TSLA stock, and leveraged lending opens TSLA to extremely high risk as value dropping would means Musk will be forced to sell to cover/and or stake more TSLA. This is exactly how FTX failed - they counted their own token as their "asset". Spoiler: it didn't work.
Does this wealth have a high impact on the world? Of course it does. But does it has the same impact as same volume of cash? Absolutely not.
> Unsold stock should not be quantified until the moment it is sold.
I don't know Elon Musk's finances, but I imagine that he's got a bunch of stock, (let's say) an amount of cash in the tens or even hundreds of millions and debts well above the amount of cash he has on hand. If you don't count unsold stock, then Elon Musk is poorer than most college students.
I agree the numbers are misleading (e.g. Bill Gates money is very diversified and he has already paid many of the capital gains on microsoft stock sales, so comparing his wealth to Elon Musk's with a single number is quite misleading). But you have to count unsold stock for something.
Do I now actually have $300 in wealth? No, because it's illiquid, and the bid for it more broadly is likely $0, I have to apply a large liquidity discount. It seems like many communities behind these coins have been doing something similar to the internal trading I've been describing here, and hyping them to find outside people willing to trade some of their real dollars for these worthless coins, and those few trades have been used to establish the broader market caps of these things.
All illiquid and somewhat illiquid have this property to varying degrees, ranging from startup stock (no, selling 20% for $1M to a VC doesn't mean your company is actually worth $5M, unless you could find a buyer for all the stock for that much) all the way up to Amazon, Tesla, Apple, etc, because there's no buyer waiting to absorb all the outstanding stock at the current bid. There would be a buyer willing to absorb all of it at some level, but it's likely at a level far lower than the current market cap.
It may not be "real wealth" but it certainly is spending power and psychological cushion, which means different spending choices, which means inflationary pressure.
I had a lot of coworkers who listed crypto holdings on their mortgage application in the past few years. They wouldn't have been bidding as high if the perceived value of those wasn't there.
So in that sense, it _was_ wealth for the holders.
- You start the day with $200,000. You create an NFT and sell it to yourself for $200,000.
- Now you have $200,000 and a $200,000 NFT, meaning you've doubled your wealth to $400,000.
- If you can convince someone to buy that arbitrary NFT at 95% discount, you end up having $210,000 in cash by the EOD.
But you now also have a liability of $200,000. Your total asset is still $200,000 , not $400,000.
> If you can convince someone to buy that arbitrary NFT at 95% discount
so you just sold the NFT for $10,000. If somebody else got tricked into thinking they got a 95% discount - that's on them. A fashion store often marks up their clothing by 100%, and have "sales" of 50%!
Assets are not liabilities, so you'll need to explain why you think it is a liability.
Fashion brands and their physical goods are definitely not the same as NFTs, insomuch as they at least have intrinsic value. NFTs only intrinsic value is they good for ripping off greater fools.
For crypto, no one would want to buy the entirety of bitcoin, because it basically has no value if it isn't traded, so it's effectively worth $0 if someone owns all of it.
For companies, this isn't necessarily true. When acquisitions happen, the current market cap is usually the floor, not the ceiling. I agree with your overall point though.
You and every individual investor could have cashed out but that is as saying that Madoff customers could have cashed out. It's just an illusion. Most of the money disappeared once you deposited and Madoff, SBF, or some other scammer spent it on a new boat or house on an island.
*negligible not zero, because some tiny slice of crypto transactions actually are done by useful workers in order to shield wages from kleptocratic regimes.
The last time Serum was worth $2.1+ per token, it was Jan 2022. At current market prices, that same stake is worth less than $250M (given liquidity conditions).
Serum was also a dex that SBF's company, Alameda, pretty much made in-house, and then allocated themselves 1 billion tokens.
So this "wealth" was created out of thin air. And disappeared into thin air.
Ergo, it was not real. It wasn't lost. It never really existed in the first place.
Now no matter what the end game is regulation, either by someone like SBF to make it happen or knowing full well it was going to blow up. With regulation they can protect the fox in the hen house like they do with the stock market and keep all the control.
If you don't think so, read in depth what Bernie Madoff did and how connected he was. The best part is, stock market still allows PFOF which he invented to help with his Ponzi scheme.
Just my take on it all...
If that was his endgame he would've had better record keeping and books. Regulation and paperwork go hand in hand, he was not set up for existing in a regulatory environment.
How does this actually benefit anyone? It's not wealth redistribution.
> When will then take some of the extra money out of the real economy
But it wasn't real money in the real economy, it was fake money in a fake economy.
Admittedly some real money went in, and some came out again to buy stadium endorsements and superbowl adverts, but the main effect of this is to wreck the savings of (a) ordinary rubes and (b) over-optimistic VC firms. I can see why people want (b), but you can't separate it from (a).
Here's a "real world example:"
There's a house near me that's selling for $7,777,777 (get it? Lucky sevens?)
The cost of the house is obviously arbitrary, and it's listing has a bunch of references to bitcoin. The owners of the home are obviously trying to "leverage" crypto mania to find a buyer.
Now that a bunch of crypto "wealth" has been destroyed by falling prices, the owner of that house will need to re-assess whether $7,777,777 is a realistic price.
More than likely, it's not. And by lowering the price of the home they're selling, they're contributing to a reduction in real world inflation rates.
Also, yes, I know that inflation stats use a proxy for the cost of housing.
If the entire stock market went to zero tomorrow, exactly the same number of dollars would be circulating.
In your loan example, either you haven't spent the money they loaned you, which would then be reclaimed, or you have spent it, in which case someone else has it.
No money would be destroyed in either scenario, unless what you did with the loan was put it in a suitcase and burn it.
The only things that remove money from circulation are: bank accounts that only accrete (usually temporary, and thus not actual removal), taxes, and physical destruction.
It's now $250,000.
https://www.fdic.gov/resources/deposit-insurance/brochures/i....
> In your loan example, either you haven't spent the money they loaned you, which would then be reclaimed, or you have spent it, in which case someone else has it.
Not sure if you understood the parent's statement. Money is created largely by loans - when banks lend $1m to a company, the company owes $1m to the bank and gets $1m, but no one loses $1m anywhere. And by spending that $1m somewhere else, a fresh $1m is printed out of thin air and goes into circulation. When the company pays that back, that $1m is destroyed.
There is certainly a "root" of money that seems not to be created via loans anywhere, namely those issued directly by the central bank (the Federal Reserve in US's case). And no, they are loans nevertheless - since these money is backed by the government's ability to collect taxes, any money printed is effectively created via loans to the government, and the government has infinite ability to borrow money. When the government is unable to collect taxes anymore, nobody needs these money either and the government effectively goes bankrupt since its loan is no longer backed. As a result, dollar loses its value. That's how our current fiat money system works.
So your contention is that Bank of America prints the $1m dollars that it loans to me? Color me skeptical. I imagine they'd have better rates if they had a money printer. Or maybe they wouldn't bother loaning money at all.
Maybe it will alleviate the semiconductor shortage.
There’s real benefit when we consider the amount of man-hours spent the past years on trying to reinvent finance, with little success so far.
These (smart) people can use their time and skills towards more productive stuff.
But if society really believes that their smartness could have been used better, why aren't they paid for doing "more productive stuff" than crypto? These people did crypto because it paid the most. Therefore, at the time, it must mean that it is most productive to do crypto.
Fe. society might have been better off investing in nuclear energy in the past 30 years, yet it did not and it s starting to look as a mistake.
Circumstances play a role too. My opinion is that if it had not been for the pandemic and the economic anomalies that happened way fewer people would have paid attention to crypto.
Sure it is. It redistributes money from the marks to the crooks.
He seems like a grifter and responsible for presiding over the loss of a boatload of money for investors.
https://www.nytimes.com/2022/11/14/technology/ftx-sam-bankma...
[0] https://nymag.com/intelligencer/2021/09/crypto-conference-jo...
https://www.nbcnews.com/meet-the-press/meetthepressblog/sam-...
https://www.bloomberg.com/news/articles/2022-11-08/ftx-crypt...
> Bankman-Fried, known as SBF, threw more money at Democrats this cycle than anyone but George Soros, according to OpenSecrets data. One of his top lieutenants, Ryan Salame, has been bankrolling Republicans at almost the same pace as Steve Schwarzman and Peter Thiel.
There's a good chart of how the company distributed things at https://www.ft.com/content/428c7800-c72d-4c59-9940-4376fea6e...
None of those politicians are gonna stay bought; no more money is coming. There's no reason to think FTX can exert further lobbying pressure; they're cooked.
He was only behind Soros in terms of total dollars to Dems.
His mother started a couple of Dem PACs just 13 days before her son became CEO of FTX (imagine the coincidence!). Her money, as far as it is traceable is also very significant.
... This was I suppose part of his "effective altruism" (if you can say that with a straight face). Instead of downvotes, imagine the comments and rage if he had donated to Trump instead.
That's what his co-CEO was for; he played the same role with Republicans. $15M to a PAC he controlled (https://www.fec.gov/data/receipts/?committee_id=C00809020&tw...) that donated exclusively to Republican campaigns.
This is also the company that had a round 7 million on their excel sheet for a fund called TRUMPLOSE.
All I’m asking is for your honesty that some people who are looking the other way on this would be appalled. If you aren’t saying that some people would be associating Trump himself to these fraud-derived donations, you just aren’t being honest.
https://www.coindesk.com/markets/2022/11/15/analysis-ftxs-tr...
"For those looking for a shadowy tale that involves crypto in the halls of power in D.C., TRUMPLOSE is going to disappoint. It’s not a new world order talisman that shows FTX and Sam Bankman-Fried are complicit in laundering money to the Democratic party through Ukraine donations. Rather, it’s one part of FTX’s prediction market it ran during the 2020 U.S. election."
No one mentioned that. But you’re right. It’s irrelevant that FTX donated to Democrats, Democrats have spent as much on Ukraine since this summer than any full year for the entire US military operation in Afghanistan, and that Zelensky used non-combat US aid funds to invest in FTX.
There is literally nothing there, it’s all true, but it’s not what any conspiracy theorists think it is. I’m glad we have same voices that are here to help us know what to think.
Also, remember Citizens United was about publishing a movie critical of a political candidate just before the election. I'm not sure a world where the government forbids publishing about political candidates is a great alternate reality, either.
For example, the NYT was very pro the Iraq USD argument
More recently, they kept going on about Clinton's emails, while ignoring much larger security breaches from Trump's side
More recently than that, they kept saying coronavirus reinfections would be impossible
They also have been producing an endless string of anti-tech articles, but pro-crypto articles
In each case they had some clear editorial directive: "Bush good", "Clinton emails bad", "Coronavirus immunity persists (whether natural or vax)" "tech bad" "SBF good, crypto exciting"
You might agree or disagree with these positions and so that effects your reading of what I'm writing. But the point is they had an inflexible position on these issues. By contrast, a paper like the FT or the WSJ or the Washington Post generally tends not to have a monolithic party line on the points above, and would reports points on the issues above with nuance, mentioning evidence in favour or against the positions as it came out.
NYT does have some great articles but they're utterly unreliable if you don't have enough background knowledge of an issue to parse their party line.
I think we would be naive to assume anything has improved in the past century.
What a naive assumption.
For example, an article in 2003 pre-invasion skeptical of the WMD claim
An article in 2016 putting the email server in context or comparing it to Trump's own level of scandal
An article this year critical of Sam Bankman Fried
A single article positive on tech in past few years since their editorial position change?
An article from 2020 suggesting immunity might not be permanent for most?
Matt Yglesias deleted his tweet, but he basically said the NYT had a well known inside journalism policy of "never say anything positive about big tech co's": https://twitter.com/kelseytuoc/status/1588231892792328192
Edit: here's some background on the Iraq war stuff: https://en.wikipedia.org/wiki/Judith_Miller#The_Iraq_War
And here's some context on the NYT and Clinton's emails. It's a letter to the editor which cites a comprehensive Columbia Journalism review critique of the NYT on that point: https://www.nytimes.com/2019/10/24/opinion/letters/clinton-e...
“ Some of The Times's coverage in the months leading up to the invasion of Iraq was credulous; much of it was inappropriately italicized by lavish front-page display and heavy-breathing headlines; and several fine articles by David Johnston, James Risen and others that provided perspective or challenged information in the faulty stories were played as quietly as a lullaby. Especially notable among these was Risen's ''C.I.A. Aides Feel Pressure in Preparing Iraqi Reports,'' which was completed several days before the invasion and unaccountably held for a week. It didn't appear until three days after the war's start, and even then was interred on Page B10.‘
Nowadays you can link any story but back then position mattered enormously.
Timing too. A key report after the war matters much less
>but there was still a lot of content that wasn't "on message".
I do not, however, think this is true in the case of the Iraq War. Once we get into quantity rather than mere existence, we have to consider positioning in the case of the print paper. It may as well not have existed given the positioning and delay. The editorial team buried their reporters' work when it didn't agree with their slant
Edit: His own psychiatrist is giving interviews with the times. This story is so juicy.
https://www.nytimes.com/2022/11/15/technology/ftx-sam-bankma...
The article about his was written AFTER he lost all his investors' money (a few days ago). The prestigious conference where he is speaking is happening in 13 days from now.
Everyone knows this guy was a grifter, he created and ran an exchange from the Bahamas, he didn't invent the iPhone of crypto or something. I see 0 evidence of any Steve Jobs level innovation.
Everyone knows he's a grifter now. Some probably suspected earlier. Some of those probably invested anyways on the idea that they could get out before the collapse.
nobody is giving him money these days
He also hasn't been charged with any crimes yet.
https://www.nytimes.com/2022/11/17/business/ftx-bankruptcy.h...
I mean, in the speakers panel he is listed along side Mark Zuckerberg, Volodymyr Zelensky, Janet Yellen, etc. Comparing what he did with what he others in the speakers panel have done I get some cognitive dissonance.
In any case, I would suggest to never trust any news source nowadays and always supplement with your own research.
A whole bunch of these startups have sprung up; which take up real money (USDT or even USD, INR etc.,) promising very attractive guaranteed returns without locking up customers' fund. Look at these[1] for examples. Anyone who knows anything about banking in the traditional world knows how ridiculous it is. And indeed some of these are beginning to unravel[2]. In Anchor's case there are way more lenders than borrowers so Anchor is resorting to pay those high yields from their reserves. It's cutting close to being a Ponzi scheme at the moment. In a traditional banking world businesses take a loan either to cover for a short-term cashflow crunch (example an invoice that's delayed by their client) or for longer term investment. That money usually goes into economic activities which are expected (hoped?) to bear fruit to repay the loan. In the crypto world however such loans are taken only to be put back into the crypto world; to be swapped into some hot new coin to be staked and what not. The music has got to stop at some point.
It also failed because user money was stolen and mismanaged by hugely incompetent 20 year olds, not because it was invested in crypto.
It's like someone saying the whole stock market is a scam because of Bernie Madoff.
Meanwhile, the "crypto market" deals only in hype all the way down. There are no goods and services produced (unless you count "hype"), only dollars going in one end and coming out the other. If I put my dollars in some "crypto investment", it's only so that some early adopter with 50000 btc can get some dollars out. The rest is misdirection.
Ah, but you repeat yourself! Almost every actor in crypto is an incompetent 20-something, or an intentionally criminal 20-something.
Exchanges like Coinbase might be the "good guys" but when the assets they let you exchange are inherently worthless magic beans and many of them are intentional scams, it's hard to justify the stock market analogy.
What's the point of holding USDT or USDC if you're going to keep it in a quasi-bank? Isn't the whole point of crypto NOT to trust governments and centralized authorities?
How do you even know the exchange spent the money on crypto if you dont see the keys, you may have just handed over $$ for a positive transaction on a virtual spreadsheet
Perhaps originally, but now it is simply a bunch of get-rich-quick schemes, or maybe more accurately wallstreetbets-style gambling. I.e. even if people know it's going to all go to shit, try to play the game long enough and get out before someone pulls out the Jenga piece below you.
Oh well.
Decentralized solutions are vulnerable to this.
Idealistic decentralized solutions...
I don't understand. Central banks are finally raising rates after 2 decades of ultra-low rates. If anything, central bank excesses are well below their peak now.
The problem with crypto evangelists is that they keep forgetting it's humans who use it.
These people took on risk, but not enough to warrant being on-chain, and in the process, lost it all. Weird place to be in - risky enough to lose it all, not risky enough to be completely speculative. Really in no man's land.
Not really...
https://www.mollywhite.net/etc/ftx-contagion
See also her explanatory newsletter
If its not completely clear by now: no, these companies can't promise you 8% APY without essentially running a ponzi scheme. I'm sure even Madoff had some good years during bull runs. The only other semi-possible option is burning VC money with those APY's, which is maybe what Coinbase is doing
It's almost impossible to beat the market after fees. Anyone who promises to do so, consistently, is full of it. French (2008) and a whole body of literature before and after.
though it is possible to find some bonds that have an annual yield of 8%. Though no one would expect them all to make it maturity without any credit issues.
https://treasurydirect.gov/savings-bonds/i-bonds/i-bonds-int...
iBonds hit above 8% return in a year if you bought at just the right time this year, IIRC.
Of course, if you calculate real return then you will have a sad.
Inflation bonds are kind of an exception there, since if inflation is 8% the market should be doing much better than that on average.
Utilities and co-ops issued ~15% paper which also did extremely well for those who purchased it in the early 80s.
For reference, the 30 is now at about 100bp less than shorter treasuries:
Not this dead horse again. Yes, academics have written a lot of papers claiming things that turned out to be false. See Renaissance Medallion Fund and Berkshire Hathaway for references.
> The efficient-market hypothesis (EMH) is a hypothesis in financial economics that states that asset prices reflect all available information. A direct implication is that it is impossible to "beat the market" consistently on a risk-adjusted basis since market prices should only react to new information.
But anyway, it sounds like we agree on the main point: relatively few individuals are able to consistently beat the market.
2. BRK is dead even with the S&P 500 over the last decade. This is despite the fact that BRK has access to cheap/nearly free leverage
There are better examples out there if you want to critique EMH.
The original point still stands. The vast, vast majority of professional investors (let alone retail investors) underperform the market. Almost everyone who promises safe alpha is full of it.
I'm curious. Can you give some links, please?
> The original point still stands. The vast, vast majority of professional investors (let alone retail investors) underperform the market. Almost everyone who promises safe alpha is full of it.
EMH claims that nobody can consistently beat the market in terms of risk-adjusted returns. Yes, almost everybody who promises safe alpha is wrong. That's self-evident from the fact that the stock markets are mainly professionals trading against other professionals. If one professional makes money with a good trade, there is (most often) another professional at the other end of that trade. Obviously you can't have a negative-sum game and then have the majority of players making positive returns - it wouldn't be negative-sum in the first place if that were possible!
I've seen "bonus" APRs as high as 40% offered.
https://crypto.com/us/earn is still offering 14.5% APR, and 8.5% on stablecoins, after accidentally sending $400M to a competitor.
> Earn 16% on Crypto
> Make your idle digital assets work for you with Nexo. Start earning up to 16% APR, paid out daily.
e.g. to hit the headline rate of 14.5% APR, you need to hold no more than $3,000 of DOT and at least $40,000 of CRO (their own token)
the reason it's so high for DOT is that DOT is currently paying 15% APR to validators.
It's extremely shady what crypto.com are doing but not necessarily unsustainable, because they're basically lying about what APR you can get
Holding 40k in CRO would be extremely unwise right now no?
https://www.binance.com/en/support/announcement/earn-up-to-4...
It's hard to have empathy for these people when they've been so obnoxious up until now to anyone trying to help them with learned experience.
Assuming you're not running an outright Ponzi scheme, then when you increase interest rates, you lower your borrower quality by the same amount, meaning your risk increases by at least the same ratio (or more).
By taking 8% interest or more, during a period of historically low interest rates, you were lending to the least reliable borrowers in existence - those borrowers that absolutely everyone lending money at lower rates said no to or, even worse, shady gamblers who can't legitimately draw finance from the traditional financial system without raising alarm bells.
There's no surprise in this outcome to anyone with even a basic understanding of maths and/or economics. It's sad, but utterly predictable.
With Crypto, I'm not sure if I do. To my understanding, you deposit money into a cryptocurrency, like ETH for example, in an exchange. The exchange then uses it as liquidity to allow other people to convert one cryptocurrency to another. Am I understanding this right? If so, it was my assumption that they were making 10% on transaction fees & rewarding you with 8% or something lower than 10%.
In that case, my risk/reward assumption was that many of them would raise/lower their rates based on the amount of transactions being done & how valuable the liquidity was to them. I saw that some exchanges did this in terms of months & others were constantly changing their rates.
Am I wrong in thinking that this is something that should be feasible to do without be a ponzi scheme? Of course there is extra risk based on how long the interest rate is fixed for if the market were to go down fast. I would assume banks are similar in the sense that you might buy a Certificate of Deposit (CD) or type of a bond and you get a fixed rate for a period of time. Your country's currency could drastically change or inflation could change. For most countries this isn't near as volatile though.
Both parties of the transaction send their money to the exchange before the transaction takes place. That means the exchange actually has excess (working) capital.
So if I want to sell my ABC token for XYZ token, they are borrowing your XYZ token that you have gaining interest to make the transaction work. They are then taking the ABC token I sold to credit an ABC token they had borrowed from someone else.
I may be completely wrong on this but that was my understanding of why this worked. Of course it doesn't work when everyone wants to take their money out. I would assume a responsible entity would use the money earned from fees to help provide liquidity.
I would also assume a responsible entity would want to stop transactions of ABC token if there was no longer enough liquidity to support the above borrowing & trading.
Amen. I burned a couple grand in Prosper in the mid 00s, primarily because I'm an idiot. I think a lesson there also applies here:
1. If you are a borrower, and had decent credit, you'd just go to a normal bank, because you could get much lower rates.
2. So the only people borrowing on Prosper were people with horrible credit (and for good reason), who basically got free money on Prosper and then promptly defaulted, sometimes after like a month or 2 of payments.
Same thing goes with crypto. If you're earning 8-10% interest, it means someone else is paying slightly more than that to borrow, which they would only do because they can't get cheaper rates.
This reminds me, I think the exchanges also used that borrowed money to allow others to borrow against it to hedge or speculate on big moves. Those people were for sure paying much higher rates. They would of course pay those higher rates because they were assuming a big move in the price.
You buy some sort of tokens on their marketplace with which you can partake in (what very much looks like) ponzi schemes. It's far from clear what their role is in all of this, even if I would think we all would be better off if they distanced themselves from it.
There is probably a lot of customer demand here too. We've seen even the staunchest opponents give in one after another, and offer marketplaces for these tokens.
If you look into protocols like Polkadot you will find that inflation is built-in and staking is a mechanism used to secure the protocol. In turn, you get a nice APY, but the coin dilutes over time.
It doesn't mean its a ponzi, but certainly an 8% yield isn't a safe investment, there will be some liquidity/market/credit risk. Hopefully its just liquidity.
They do offer staking but that's the not the same either. Return is generated from the networks themselves - like with ETH they are offering 4% APY after a 25% cut. That seems completely fine.
https://news.ycombinator.com/item?id=33630150
(336 points, 344 comments)
The debate about whether these tokens meet economic definitions of currency is besides the point; the goal, like tradFi, is to accumulate as many of them as possible and do whatever it takes to protect their price (pump) until you're ready to shift the risk to someone else (dump).
Traditional finance also had plenty of those, but they're super heavily regulated, so now they're a lot rarer.
Glad it's falling apart now before it sucks the entire economy down with it.
If a pension fund loses 1%, that's manageable. If it's 10%, that's a crisis for anyone expecting benefit checks every month, and possibly a much wider pool of people/orgs if some kind of rescue or bailout is required.
Holy !@#$ing cow. Dodged multiple bullets. At least I didn't share my financial plan at the time at the Thanksgiving table last year or it would be really awkward now (thank goodness my uncle took that role in a small capacity)...
that reminds me of the tranches in mortgage backed securities during the 2008/9 financial crisis.
See this scene from The Big Short https://www.youtube.com/watch?v=4WUGhteNlzM
I've still got everything on just Coinbase, which I assume (?!) is reliable enough to not be at risk.
What's the "upsell" for using a wallet? The "not your keys" argument logically makes sense to me but it doesn't seem worth it from a convenience stand-point.
This is what anyone could have said about FTX until suddenly it wasn't.
The upsell is complete access to the DeFi ecosystem. Not just the part your exchange wants to support. The convenience issue is overblown, at least for tech inclined people like commenters here would be.
I can use my recovery seed phrase after, but as far as I’m concerned that’s an “oh crap” backup. For all I know I could have screwed up writing it down. Unlikely, but possible. Apparently it’s also possible to other software wallets to get the crypto off of there.
Frankly, if there aren’t ways for the average non-tech person to safely and reliably hold crypto there’s no point. Most of my stuff is on Coinbase and I’ve always figured that if that ship goes down the whole thing will come crashing down anyhow.
Bernie Madoff's exclusive private fund had investors lining up to get in, based on Madoff's history of returning a steady 10% to investors. Of course it was all a big Ponzi scheme...
Alameda received more Tether ($36.7B) than anyone else in history. Where are they? Did they ever even exist?
> actual economic activity
Nice subtle burn at the end of the article.
As far as I'm aware, none of those involve anything that looks remotely like financial speculation.
ENS is the only good example, standing naturally next to many imitators and scams.
(If you ever wonder why people treat crypto as a joke, think back to this moment.)
The ENS and ens.link are different people. You have misunderstood the situation.
I'm not aware of anyway to securely scale a decentralized cryptocurrency without recursive proofs of correctness that are fast to prove and fast to verify. Every year since 2016 I've seen major progress being made in this area but we have far to go. We just barely got there in 2020. We could probably build a scalable decentralized cryptocurrency in 2020, maybe. Give it another 5-10 years of advancement like we saw over the last 5 and you will have the ability to build scalable decentralized cryptocurrencies. That doesn't mean people will build them or that even if they do the built systems won't suffer from serious drawbacks. It is a long road ahead.
Now there are other problems to solve as well, but everything i being gated right now by proofs of correctness. We have a steam engine, we can put it on rails and it can pull a small load. Unfortunately the expectation has been set that we have train that can move millions of people. The fact that we can't meet this expectation doesn't mean that steam engines or engines in general are bad.
It is unlikely that Charles Babbage is going to be able to build his difference engine and even if he does it is so complex and so prone to failure that it probably will never be commercially viable.
vs.
It is unlikely that Charles Babbage is going to be able to build his difference engine, thus proving computers can't work and have no utility.
It's just a statement.
What does "money not controlled by a central entity" do? What problem does it solve? Why do I need it?
Keep in mind that in my day to day life, I rely on a central entity, a government.
And in places where people can't, life is NOT BETTER. It's awful. We call those places failed (fragile if you want to be nice) states.
And government should be able to control money. Money is tied to the economy, it's tied to politics, it's tied to the society.
The idea that by decentralizing things money will be fully democratic is just silly. Plus, full blown democracy doesn't even work. It leads to tyranny of the masses, that's why every modern country has a constitution that basically say: "you can't do that, no matter how much you want, since you can't abuse others you don't like[1]".
[1] In practice, "can't do that" means something really hard to do, usually stuff like "persuade at least 67% of your countrymen to let you do it", to rein in the insanity.
I think it is glaringly obvious at this point that most of society does not understand how money works, and will fall victim to the same old scams no matter where they manifest.
This entire crypto collapse has been a long time coming. You can't simply manufacture money out of nothing, nor can you inflate debt endlessly.
Bitcoin as a community has distanced themselves from 'crypto' and these boiler-room pump and dump scams.
Bitcoin maxis fight for the simplicity and real-word cost behind proof of work for a reason. Bitcoin may be arbitrary digits in a ledger but it isn't free to make. The supply is capped, yet the work anyone can put into securing the ledger is unbounded.
Regardless of where you choose to invest, self custody is king. Get your tokens off exchanges. Not your keys, not your coins.
Of course when the mania settles I have no idea if the value of digital-gold-sans-gambling would be $5 or $500,000 or $0. But I do think there is a neat idea that isn't just a pure scam buried in there.
To me I think the neat thing about Bitcoin is that the decentralization and lack of intrinsic value are exactly what make it (mostly) purely market driven.
Blockchain/decentralization as a technology I'm not very sold on yet.
No they don't. They promote Lightning Network as some sort of savior of all things, but it's the complete opposite of simplicity and soundness.
LN should never have been pushed as hard as it was. If they'd launched it and it'd naturally outcompeted regular Bitcoin transactions then fine whatever, but destroying on-chain capacity before LN was even coded was truly crazy.
Is there a connection between FTX and Cal?
FTX Chief Operating Officer Sina Nader earned his bachelor's degree in humanities from Cal and was a walk-on member of the Golden Bear football team as an undergraduate. He played defensive end from 1999-2001, when he was a teammate of such players as Andre Carter, Tully Banta-Cain and Scott Fujita, and graduated in 2002. Sina's last named at the time was Pyghambarzadeh (he changed it to Nader to make life a lot easier!).
Who at Cal was involved in the decision?
Members of the athletic department worked with Cal Bears Sports Properties (Cal's multimedia rightsholder and local dedicated LEARFIELD team) to lead the discussions that led to the agreement with FTX. University leadership were informed throughout the process, including Chancellor Carol Christ. The approval for naming FTX Field at California Memorial Stadium came from the Space Assignments and Capital Improvements Committee, chaired by Vice Provost Lisa Alvarez-Cohen, which addresses use and assignment of campus space, capital-projects planning and the development of the capital-improvement program.
[1] https://calbears.com/news/2021/8/23/athletics-news-cal-ftx-a... (Archived at https://archive.ph/wip/MhjHd)
What a stain on the name of a great mathematician
https://www.cnbc.com/2022/11/16/genesis-lending-unit-halts-w...
I suspect it will take some time, but at the ecosystem level, contagion is already here. Time will tell if it spreads beyond to the markets (but it feels inevitable at some level).
Depending on the size of the hole Genesis might outside the other non-ftx ones combined, and is structurally much more important than them.
Despite the appearance, this is not the story of a bunch of degenerate kids playing with made-up money.
Real serious money is at stake, billions of it, people are losing their shirts, or something else.
"Which specific tree do you think I should have hit?"
The Gemini Earn page appears to redirect to this announcement:
> We are aware that Genesis Global Capital, LLC (Genesis) — the lending partner of the Earn program — has paused withdrawals and will not be able to meet customer redemptions within the service-level agreement (SLA) of 5 business days. We are working with the Genesis team to help customers redeem their funds from the Earn program as quickly as possible. We will provide more information in the coming days.
https://www.gemini.com/blog/an-important-message-regarding-g...
The language of this announcement is bizarre. Withdrawals are "paused," not "halted" as reported. In other words, there's a chance that Genesis will cough up the funds.
But the biggest red flag is that nothing is said about new deposits. Apparently, Team Gemini is still taking them. This is, unfortunately, par for the course with these schemes going all the way back to Mt Got. "Pause" withdrawals, but continue to allow deposits. The language of the announcement makes this look like a temporary blip that will soon be resolved. It's a tactic with a long history and an almost boringly predictable outcome.
Did you read the article you linked to?
The coins themselves are sometimes worthless (like FTX's token), or can be frozen (Tether does this: https://www.coindesk.com/business/2022/11/10/tether-freezes-...). It doesn't matter if you hold a collapsed coin in your wallet or an exchange's; it's still not gonna do you any good.
Users bought it but the exchange didn't have it, which is what the OP was saying. If you don't have the keys, you don't really have the coins.
Citadel Securities has in their books securities sold, not yet purchaed. $65 billion. How is this not the same thing ? lol
1) FTX didn't even bother listing their customer liabilities on their balance sheet, unlike Citadel.
2) I would assume (hope) that Citadel isn't a completely fraudulent company without the capital to make good on those assets if delivery is demanded!
They could obviously get completely wrecked, but the shares are real things.
This is astounding to me. I would be curious how long they kept their money in an exchange and if that’s common practice among other firms.
FTT: $26 -> $1.60 Serum: $0.80 -> $0.26 Solana: $36 -> $14
Or, more indirectly all crypto 'market cap' in general: $1050B -> $825B. Ok, so market cap is pretty ephemeral, but chances are, if you held any crypto prior to FTX collapsing, its theoretical value has dropped because of it. DeFi doesn't make you immune.
This is the first big clearout of the shitcoins and fraudcoins.
Crypto will never really die in my opinion, its just going through its infancy phase.
Real regulation is probably the thing that is the next on the horizon, in order to build up trust that was lost (or never there anyway).
Users must be sure that their coins can not all of a sudden be frozen by some shady exchange operating out of the Bahamas or wherever.
Crypto has to mature now.
"Mature" ~= "lose the decentralized anti-regulation design that was its entire reason for existing in the first place"
I just don't see the point, though.
Once you've said "it's gotta be under the watchful eye of the government," well...
Fiat currency is a thing, and doesn't require massive computer networks with mindbendingly-complex algorithms to do.
I see absolutely no advantage to the cryptocurrency design if it's going to be used and regulated in a centralized manner.
Once you go there, it just seems like it's "banks 2.0, but with software that's way harder to get right."
It's hard to argue that 95% of people in Scotland aren't true Scots.
Anything that involves a person one both ends of a transaction chain inherently has one or more 'human institution' dependencies.
In fact, many crypto proponents are happy that these centralized pseudo-banks get all flushed the out.
Competing with centralized entities is hard.
Pretending collapses like FTX don't impact the cryptocurrency space in negative ways is dishonest.
I warned people last year not to use FTX. Now FTX is gone. Please tell me what feelings I'm allowed to feel now that they're finally gone.
Because it doesn't? While all centralized exchanges are suffering from FTX's collapse, decentralized ones like Uniswap aren't facing any existential risks from it.
BTC price isn't moving, no one is liquidating, volatility is lowest its ever been, none of the hodlers have given up yet and probably won't, they are just waiting it out to try again in 2-5 years.
https://www.investopedia.com/terms/d/dutch_tulip_bulb_market...
Did they even get a moment of silence?
Vaporware has a way of eviscerating
[0] https://www.smithsonianmag.com/history/there-never-was-real-...
Notice how I didn't say disemboweled with entrails all over the place with all of the fud being distributed about crypto ponzis/vaporware.
https://www.wordnik.com/words/eviscerate
Literacy is fun the mental in your case :p
https://www.investopedia.com/terms/l/law-of-supply-demand.as...
"stuck" - LOL. Hope dies last.
So... chapter 11 by Monday?
Unless there are right regulations in a capitalistic system, capitalism will create abuse and problems.
We are in 2022 and it's really annoying how we cannot discuss deep changes in how capitalism functions unless an army of trolls brings up the gulag point: "the soviet union failed, thus there is no viable alternative to capitalism".
It's already almost difficult to discuss it criticize growth, so socialism is really beyond taboo.
Yes, the right regulations are indeed vital for a capitalistic system. Saying "capitalism will create abuse and problems without regulations" is like saying "cars will cause death and destruction without a steering wheel". That's why we don't build them without steering wheels, and a car without a steering wheel is not really a car.
A financial market is a market, the very word "market" necessarily implies regulation, like all markets had since the dawn of time (it's why you brought your stuff there, and why the customers came). If a new technology creates a new niche in the financial market, and regulation has not caught up yet, nothing is wrong with the concept of capitalism, the problem is that regulation has not caught up yet. And now it largely has, and these companies are blowing up, and the system works. Not sure what is supposed to make us "discuss deep changes in how capitalism functions" if how modern capitalism functions is fixing the problem.
turning the social meta from positive sum to zero or negative sum is the most disastrous idea conceivable. everything you cherish, including your physical safety, is built on an assumption of shared future rewards. people will seek advantage no matter what; they must have a socially productive avenue or it will be taken from others.
if you are so sure an alternative is possible, i encourage you to demonstrate it -- live your life with others in a way that defies market forces. the proof is in the pudding; for now, there is only one game in town.
are you implying that you positively know that there is not a single group of people on the planet living an alternative that's better than what the majority is doing?