The incomparable Molly White has put together a contagion flow chart, which she is updating regularly:
https://www.mollywhite.net/etc/ftx-contagion
See also her explanatory newsletter
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.