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Comment by nscalf | Hacker News Reader

For what it's worth, all reasonable people in the crypto space want regulation to make sure these types of poor lending practices don't continue. Regulators have been slow and ineffective when it comes to crypto, which has lent itself to the crypto v SEC narrative, but all the adults in the room known there is a need for some regulation.

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The biggest "adult in the room" by far, whom was pushing for regulation, turned out to be another scammer that was simply trying to regulate away his competitors and enshrine his own fraudulent crypto scheme as the only sanctioned one.

The crypto community's truest Scotsman proved to be just as terrible as everyone outside perceives the crypto space to be. Benefit of the doubt simply can't be given for what "reasonable crypto people" say at this point.

I completely understand the view that crypto should no longer be given the benefit of the doubt and subscribe to it myself, but I think that even without the benefit of hindsight from the FTX implosion, Coinbase is clearly the adult in the room in crypto, and has been for some time.

> biggest "adult in the room" by far, whom was pushing for regulation, turned out to be another scammer

SBF was far from an adult in the room. He got zero policy to even a serious discussion phase. To the degree we see meaningful calls for regulation, it comes from Banking and Financial Services committee members who not involved with crypto pushing draconian rules.

But SBF was pretending to be the adult in the room by pretending he's in for regulation.

That sounds nice in theory, but of course these companies are free to sit down and hammer out professional standards without the government telling them to. "We really want to be told what to do but nobody will" is code for "I'm not doing anything until the government makes me, and I'll redirect blame to the glacially slow government the whole time."

That’s easy to say, but that’s going to make those companies uncompetitive. Look at how fast FTX overtook Coinbase, a long established player that - as far as anyone can tell - isn’t doing anything shady.

There's nothing uncompetitive about not going bankrupt while your competitors do.

There's nothing uncompetitive about publishing 3rd party audits.

These are the trust signals the market rewards. Meanwhile the market is punishing bad actors with insolvency.

Your example undercuts your thesis. Given that FTX no longer exists while Coinbase does, FTX was not competitive in the long term. Being “competitive” for a couple years is typically not the goal of founders or investors.

> Being “competitive” for a couple years is typically not the goal of founders or investors.

Crypto actually seems like a perfect field to pursue this strategy. Make outrageous promises, find customers willing to believe that ("crypto is different"), cash out.

This worked really well for banks in the early 20th century

Some of us find it hard to believe there are any reasonable people in the crypto space. The whole thing seems like a dumb sham. The FTX collapse and contagion is sad but unsurprising.

There is no reasonable people in the traditional finance space either if you look at the 2008 crash.

https://projects.propublica.org/bailout/list

Not even remotely true. We need regulation to keep the big banks honest but that doesn’t mean nobody knew what was going on. We were living in New Haven at the time and briefly considered buying. I got pre-approved by BofA for a ludicrous amount with almost no diligence, and was quoted half that by a Connecticut state bank which actually checked things. I had a good conversation with the loan officer who said that it was going to be ugly for the big banks but they had kept their foreclosure rates low for decades by sticking with traditional banking practices and weren’t planning to change. A few years later I checked and he was right: their foreclosure rate had gone up a tiny fraction but they were fine.

Correct. That's why finance needs to be regulated up the ass. Repealing Glass–Steagall was a terrible idea and probably eventually led to 2008. Cryptocurrency generally seems to want to go in the opposite direction and have a speculative free-for-all.

> Regulators have been slow and ineffective when it comes to crypto, which has lent itself to the crypto v SEC narrative, but all the adults in the room known there is a need for some regulation

It's a "damned if you do, damned if you don't" situation. Mainly because of the outsized lobbying power of the wealthy folks backing VC's backing crypto.

Clamp down on crypto with regulations and many, many wealthy political contributors are going to be pissed off by stifling growth. Don't clamp down and you get the situation we're in now where everyone is losing their shirts.

What about the middle ground? I think we can only now talk about it because enough wealthy people also lost big chunks of their investment in these last few months.

BTW, despite whatever implied connections to FTX Gary Gensler has, his series of talks at MIT on blockchain[0] technologies leads me to believe that there are few people better equipped to navigate this from a political perspective.

[0] https://youtu.be/EH6vE97qIP4

The "reasonable people" want all the gains that crypto was making without all the poor lending practices and contagion that were fueling said gains.

You don't 'regulate' a ponzi scheme (at least not in the sense that you mean regulation), you prosecute it.

By regulate they mean bail out

Do you also consider fractional reserve banks a ponzi scheme?

We have successfully regulated those.

> For what it's worth, all reasonable people in the crypto space want regulation to make sure these types of poor lending practices don't continue.

I'd be very keen to learn what kind of regulation, exactly, anyone is seriously proposing for these crypto products? Namely, the problem I see is that the products in the crypto lending space in my understanding simply can't exist in anything that has any resemblance of current financial regulations. To be honest, I am not sure how they can exist in any regulatory scheme that tries to penalize scamming people. Now, if the regulation said that it is okay to scam people in crypto industry, that might be interesting. But i am not sure if anyone has been proposing that.

> For what it's worth, all reasonable people in the crypto space want regulation to make sure these types of poor lending practices don't continue.

With direct regulation can come normalization and a misplaced trust on something that ignores (but doesn't replace) trust.

Perhaps rather than regulate crypto itself, instead we should regulate the regular economy's exposure to it.

The market is punishing bad actors with insolvency. Yet somehow the conclusion is that markets are not effective in self-regulation.

The consequences doled out by the market are not distributed equitably. A bunch of late-comers and depositors lost everything, while the people most responsible for the disaster live in multi-million dollar homes in the Bahamas. This seems like a recipe for the same thing happening again and again.

If SBF sees the inside of a prison cell that won't be the free market at work but rather the government.

When the market punishes bad actors like this there tends to be a lot more fallout.

Government regulations can help limit the blast radius or avoid them altogether.

In 1929 the free market punished the banks for their bad behavior and everyone suffered a decade long depression because of it.

I disagree on all points here.

Not only did the US central bank create the conditions for the stock market crash of 1929, but the interventionist policies of FDR prolonged the economic hardship. Interventionism put the "great" in the "great depression". Not only did they create the bust, but they magnified the blast radius.

https://cdn.mises.org/Americas%20Great%20Depression_3.pdf

https://mises.org/library/did-fdr-make-depression-great

https://mises.org/library/forgotten-depression-1920

https://mises.org/wire/1920-crash-cured-itself

Hmm. all the same source, as if there is an agenda...

And that source is Ron Paul's think tank

Misattributing a source is not the same as engaging in a discussion. It isn't a substantive reply or even tangentially related to the topic.

Furthermore, I have a bridge to sell you if you believe that central bank apologists do not have an "agenda".

Evaluating the argument on the merits solves all of this.

What about all the clients that lost their money? This is a zero sum game, if someone loses $10b, someone is making $10b on the other side.

if anything collapse of Luna, FTX and BlockFI showed that regulations are not urgent or really needed. Regulations in finance are needed when collapse threaten real economy or regular people (similar to contagion from housing market or Bear Stearns in 2008 financial crisis). With FTX collapsing with zero repercussion on broader economy, why regulate it? If people want to play casino, let them play casino.

Right now crypto is a closed ecosystem with no practical use cases beyond gambling or ponzi. Crypto failed as anti-inflation hedge. If real businesses or people start using crypto for something useful then regulations will be needed but this time is not now.

Regs are needed because people didn't know it was a casino. Look at the poor guy in this discussion who lost 10% of his wealth here. He was surprised at the outcome.

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