FTX Collapse takes toll on the Bahamas
wsj.com
wsj.com
My digital timestamping paper is cited by the original bitcoin paper, so people assume I appreciate cryptocurrencies. They're an environmental crime and a Ponzi scheme. Many people have tried to explain to me why cryptocurrencies aren't a Ponzi scheme. The poker player / oral examiner in me kicks in: They may not realize they don't understand or believe what they're saying, but they don't make sense.
Denial is powerful. People want to believe this is their moment.
"In denial" is basically a pop psychology term, meaning that we are not admitting something that is true and obvious[0].
Like, if our spouse is cheating on us, and they come home at 1AM, smelling of booze and perfume, with lipstick all over their collar, but we say "I'm sure he was just working late."
The "Vegas Fountain" bit is a joke, as they have a pyramid-shaped building, for the Luxor casino[1].
Any currency or "thing", be it fiat, crypto, or commodity, is given value by people who trust and believe in it. If you get more people to adopt and have faith in it, its value goes up. Once people stop believing in it and seek to escape it, its value goes down.
This is why oil is priced in US Dollars; this creates demand for dollars and gives the US government power. This is also why the Brtish pound tanked recently; people didn't like the direction of the newly elected British government, and sought to sell their GBP denominated assets.
So if your definition of ponzi scheme is "people trying to get more people to adopt it because it enriches them", then yes, all currency systems are "ponzis", they compete and have incentive to take value from other currencies.
The US dollar holds value because the US demands you pay taxes in it. It also helps that you can actually use it to buy stuff - from an ice cream cone at a street vendor to an oil platform. And it is backed by a massive government, worldwide banking system, and not-too-shabby military.
Meanwhile, crypto is proving to be woefully ill-suited for any kind of payment, contract, or loan. The vast majority of its use is either speculation or crime.
Crypto seemed promising in 2012, but a decade down the line nothing convincing has come out. It is still a solution looking for a problem, and at this point I highly doubt one will come out of the woodwork any time soon.
Obviously you're not going around trading ramen and cigarettes, but if you live in a some closed system like a prison, then yes, anything of value can be used as a currency. History shows many societies have used many different things as money. Eventually gold out-competed those monies and became the de facto standard for money. You forget that US dollars were originally promissory notes for redeeming gold at a bank; this is what gave US notes value (trust that you could get gold for the notes), and the de-pegging of gold gave birth to the experiment that is modern day banking.
I mean, I seem to remember the Mesopotamian cultures using "fiat" accounting for 3000-odd years? That's one of the theories of the development of writing: accounting.
I’m not a historian, so I could be wrong, but my understanding is that currencies came very early, raw bullion wasn’t really used for normal trade, and silver was much more predominant than gold.
This is how you end up with the US government installing a military base over a huge stash of gold, called Fort Knox. They don't do the same for silver and copper.
The value of the constituent metal is dictated by the price (in count) that the mint pays. Nobody pays less because you could go to the mint, and if anybody demands more, you just melt the coin. It was the count that gave value to the metal, not the other way round.
The only evidence for currency from barter comes from the imagination of economists of a particular bent.
When talking about money with no use, such as USD or bitcoin, however, they've got nothing to hold them up but the demands of the government that issued them to be paid in them.
The US dollar is just an IOU from the government that gets cancelled if you owe the US government anything other than prison time. Bitcoin is an IOU from no one, and the only way to spend it is to find a sucker who wants bitcoin.
What holds up gold or bitcoin is firstly the trust of the society that adopts it, and secondly the inability for any party to rapidly debase it.
Whose the sucker when they tell you that limitless, growing, roll-over debt is a actually a feature of the system? Who pays the price when a government hands over billions of dollars to bailout the financial/auto/x industry?
> assets linked to governments or value generating corporations will have value for the foreseeable future
"foreseeable future" means whats exactly? UK pension funds were about to collapse until they were bailed out by the government. How foreseeable are events like these, wiping out people who have otherwise done nothing wrong?
https://www.theguardian.com/business/2022/oct/06/bank-of-eng...
>Real estate/stocks/bonds/gold/silver/etc is a ponzi scheme because liquidity in it only comes from the next sucker buying in.
Tell me why the above statement is wrong.
The human element seems to completely elude them.
Crypto is an asset, not a market. Decentralized digital assets cannot inherently be ponzi schemes. The level of transparency and trust in the market on which they trade is what determines if it's a ponzi scheme. I am convinced that many cryptocurrency markets/exchanges are ponzi schemes and need to be significantly regulated so that market manipulation is reduced significantly, especially when non-accredited investors are involved. However the fact that these markets trade crypto is not relevant.
Every time crypto implodes (what are we, on the sixth extinction?) people love to stand by the sidelines and say "see I told you so!". All that's really happening, as someone else on HN aptly put it, is we're speed-running the history of finance out again in crypto-land. It is a shame that self-regulatory efforts that Gemini and Circle tried essentially failed, but it's not really surprising. Power corrupts, and there's almost no regulation in the industry. The industry has clearly shown it needs regulation, so the time to claim that it doesn't is completely gone.
I for one, am extremely optimistic about what cryptocurrency means for the human race. I honestly believe it will do for the human economy what the internet has done for knowledge. I hope I am not wrong, and I'm certain that there will be dark periods full of bad actors, just as there was/is for the evolution of the internet.
I should state that I own no cryptocurrency at the moment, even while being optimistic about the future of cryptocurrency.
I’d be surprised if the person who said this meant it was a good thing. The sentence literally acknowledges a similarity between crypto and traditional finance. Yet instead of taking those lessons and implementing the solutions the crypto space insists on making the mistakes over again and maybe learning the lessons. The cognitive dissonance in this space is intense.
That said, this is all growing pains. It’ll pass.
The price of crypto does not need to stay high for the benefits to be present. It just needs to stay above the price level where an adversary can simply buy a significant percentage of the network.
I still believe in the promises of crypto.
And each of those times there was more saturation of public interest to be achieved, which levitated prices across the entire asset class.
That’s now done.
Expect to see a steady waning of interest and prices until some stable state is achieved. The entities left in the space will predominantly be obstinate true believers and criminal enterprises.
It's also weird to see people repeating - at scale - mistakes from the past, as if following a playbook. Finance regulation is a pretty well researched and historically attested field? I suppose greed tops all.
I love how many people will read this sentence, and then respond by trying to explain to you why cryptocurrencies aren't a Ponzi scheme.
They don't "believe" in shitcoin's "white paper" but they believe there are more ponzi buyers.
To be fair most retailers do the same with stocks so it's not that different. I don't even mention CFDs where the vast majority lose. Even "analysts" score various instruments based on "demand"/market sentiment not value.
I agree but this doesn't change the fact that many people don't care about the underlying business and often the stock price and underlying business are disconnected. They just gamble whatever is "hot" or if they think they are smarter they trade the chart. In this way it's no different than crypo "investing". Both can make you rich or get you bankrupt, fast.
That however does not mean some of the currencies/tokens are not such, or that such schemes are not run with or advertising currencies.
Or that they aren't pure crap anyway as concept.
Also many of the current cryptocurrencies run on tiny amounts of energy (Algorand, Cardano).
Some of the brightest minds in applied mathematics and cryptography are working on this stuff. Maybe you should be a little more open minded.
Edit: downvoted without any discourse. This site is so strangely anti crypto, stay smug, let’s see how it works out for you.
That's easy to do if you don't care about fair distribution of coins. One company initially holding the entire coin supply is not very decentralized.
Well, for example losses of this people in FTX collapse are limited. Unlike fraud sector of Bahamas economy described in the article.
It's easy to find these things, especially with somebody who's been in computing for so long and probably has a huge digital trail and no desire to hide their identity. If I didn't see anything in 30 seconds of browsing his post history, next step would be to look up the authors of the papers quoted in the Bitcoin paper(not many) and see if any are still living and interested in astronomy, based on his username.
Fundamentally the crypto community is populated by doomers/nihilists who think that crypto is somehow be immune to economic and political shocks, and scammers. Smart contracts might be thing some day, but that's it so far
https://protos.com/the-curious-case-of-ftx-and-farmington-st...
Much as money launderers captured small Floridian banks in the 1980s, I’m sure we will be learning in the coming months how crypto schemes pulled the same trick.
Salame is an FTX executive.
If you're actively inviting scammers to play a big role in your economy, I guess it's tough for me to feel too much sympathy when you get scammed.
Or they're just idiots that won't have to deal with the consequences, which is usually the case.
They pretty much just threw money at everything that moves in SV and hope they become real companies.
Their months of background research? "He graduated from an ivy league school and is rich, he must trustworthy"
What consequences?
That FTX is no longer able to steal money from people and spend it into the Bahamas economy?
No, I don't feel bad about that at all.
Did they knowingly invite scammers, or did they invite people who later turned out to be scammers? There's a huge difference between the two.
The politicians in Bahamas cannot even remotely consider that crypto is a scam because it would open the possibility that they get charged by whoever is a victim (e.g. in the US).
They will put the blame on FTX and that they are victim, but the problem is not only FTX, it's crypto and greed.
Did they knowingly invite scammers? Probably not. Someone showed up talking about free money with no strings attached and they decided not to question it.
Every scam is a situation where people want to believe it isn't a scam - otherwise they wouldn't get off the ground. There's a story that doesn't really feel right, but you don't want to investigate it because you want to believe the upside.
"We'll give you 8% interest at a time when banks are giving you 0% and mortgages are 3%!" That was one of FTX's offerings. If you start asking questions, it becomes clear that's impossible to offer. Where's the money coming from to pay that interest? New depositors? So it's a ponzi scheme. Putting the deposits in crypto...which is always going up...because of new buyers of crypto being willing to pay ever more? So it's a ponzi scheme. Anything where you're not
No, they didn't knowingly invite scammers, but they also didn't want to ask questions because here's a company willing to pour huge amounts of money from global sources into a small economy. Even if you tax them at such a low rate, you're essentially getting to tax worldwide economic activity and keep that money for your small country. You don't want to question how their business model works. Crypto has been soaring for years and you've met the people and they're really nice to you and they're offering you a way to become the most beloved politician your country has ever seen - MONEY!
If you're a politician, money is so valuable to you - especially if you can get it without taxing your residents. Money lets you give generous raises to all your public employees. Money lets you improve schools and roads. Whatever people are looking for, someone else's money can buy.
Scams work because people don't want to ask the right questions. They might even know what the right questions are, but no one wants to listen to the nay-sayer when times are good. Meme stocks? They only work so long as there are new people willing to keep paying inflated prices for something worth very little. People literally know that some will be left holding the bag at the end. But people often don't want to question things. Scams let you imagine your amazing future life, what you can do with all that money, and all the happiness you'll have. "Shut up brain! No one asked you whether this seemed plausible! Now keep that fantasy dopamine coming!"
It was only 8% for the first $10k in deposits and 5% after. The extra works 3% out to $300/year, which is a pretty reasonable customer acquisition cost. I've seen brokerages/credit cards/bank account offers from well regulated companies that have better dollar value than that. The base 5% rate is still high relative to a FDIC insured savings account, but is roughly in line with US high yield bond yields at around that time[1].
>Putting the deposits in crypto...which is always going up...because of new buyers of crypto being willing to pay ever more? So it's a ponzi scheme. Anything where you're not
Crypto was in a bull cycle back then, so there were many people want to lend fiat/stablecoins to buy crypto. Traditional banks didn't really want to get into the business of providing portfolio loans to crypto investors. Both of these provide a plausible explanation for why FTX would want these deposits, and why they could offer higher rates than FDIC insured banks.
>Even if you tax them at such a low rate, you're essentially getting to tax worldwide economic activity and keep that money for your small country.
You call it a "tax", they call it regulatory arbitrage/competition.
> You don't want to question how their business model works.
FTX is a crypto exchange that collects a percentage on every trade. That seems like a pretty straightforward business model.
As far as I know the Bahamas just dropped the idea.
2) I also have limited sympathy to Russia for consequences of their invasions (much larger toward Russians who at least tried to leave Russia or did anything at all)
3) The same applies to disastrous smog-related stupidity in my own country, Poland
* or even very close to it
The storm basically sat still over Grand Bahama for 24 hours as a Category 5 storm with up to 185mph sustained winds:
https://en.wikipedia.org/wiki/Effects_of_Hurricane_Dorian_in...
Speaking of work that never got started, did Nikola ever build that factory?