Is there any hope of individual creditors getting any of their money back? I'm unfamiliar with how bankruptcy works.
I say this without an ounce of judgement, explicit or implied: can you speak to some of your motivations for putting your life savings into these kinds of vehicles?
For sure. My rationale was that keeping crypto in cold storage was effectively currency speculation and didn't really do anything to add value to the world. By instead keeping it in an interest-earning account it could be earning interest independent of the exchange rate with USD and providing some value to the world in the form of liquidity and loans.
It's the same rationale I use to justify keeping money in VTSAX instead of under my mattress.
I'm trying to avoid coming across as blaming or rubbing salt in the wounds, but I just wanted to say that the rates they were offering during times of such low interest rates in general, were really be a huge red flag.
However you feel about cryptocurrency in general (and it's safe to say I'm a sceptic) you have to look at that and think either that something fishy was going on or they had to have an exceptional business model.
To the OP: Why is losing 10% of your investments a pretty big blow? Almost everyone's 401K plunged by more than that this year. If you're young this won't be the last time.
Thanks for the affirmation. My wife and I are 31 so a 10% drop is definitely something we can recover from. We've already lived through this high-risk crypto part of our portfolio falling to half it's value over the last 19 months but the other half completely vanishing overnight has hit me psychologically harder.
Instead of the narrative of "sure the crypto dropped in value but it's done that before and gone back up and it's reasonable to think it could go back up again," "now it's on sale," and "time in the market beats timing the market," the narrative is just "it's completely gone because you got defrauded. Here's a list of the specific people responsible. You shoulda been more diligent in evaluating the risk of giving them your money ya freakin' idiot."
There is a decent chance you'll get a small fraction back in several years, but it all depends on how many assets they have remaining. Keep an eye out for communications from the bankrupcy trustee once there is one - will probably go to the email you used to register your account.
Honestly anybody who only lost 10% in the last year looks like a genius (crypto included).
I can see where it might look tempting or even rational to see how long you can keep the hand on the oven without getting burned for some of the interest rates being offered on these "exchanges", especially in times of pretty desperately negative real interest rates on USD.
No matter what you invest in war, plague and inflation will get you.
Obviously you know that, just somewhat of a silly observation to make that he "lost less" when he actually lost 100% of his investment (barring recovery in bankruptcy court)
Here's my rationale: https://news.ycombinator.com/item?id=33779052
Voyager had only 3 creditors so they weren’t well diversified. When one of their creditors eventually went belly-up, they predictably lost about a third of their holdings.
On the other hand, I don’t know if people who retain a class action lawyer specializing in this case get special treatment or not.
I'm not a specialist in the area, but here's my explanation as a financial professional.
When a company goes bankrupt, it's assets and liabilities are summarized by an administrator who is hired. Typically a well known firm with lots of experience, and they will do things like find out where the assets are, possibly liquidating some of them. You may have seen that FTX has a new CEO. They are in fact empowered to run the company.
There's then something called the capital structure, basically an order in which liabilities are paid to creditors.
First of all, you want the admin to want to bother doing the work. So they come first in the queue of people.
There's then the tax man (actually, which comes first, admin or tax? Might depend on where you are).
Then there are secured creditors. For instance you might have a factory with equipment, and some loan was made against the equipment. Or you have property and a mortgage against it.
Then there are unsecured creditors, like employees owed final payments.
Depending on how complicated the firm is, the whole credit part of the capital can get super complicated, basically tranches where each junior tranche is only paid if senior tranches are fully paid.
It's unusual, but if somehow the assets exceed the liabilities, the equity holders will get the rest. Don't count on that, because it's unusual for such a firm to go bankrupt.
Now with high profile bankruptcies there are sometimes investors who will buy your position in the queue. If you get an offer the gamble is basically that it's worth your while to get out immediately and let the bankruptcy speculator deal with all the BS as well as the waiting time to get the money eventually. A friend of mine got offered this from Lehman, turned it down, got paid pretty reasonably, eventually.
My not-a-lawyer interpretation is I didn't 'give' the money to Blockfi and thus Blockfi doesn't owe me any money. Am I understanding this wrong?
1) Farming it for interest
2) Collateral for trading / other asset
3) Maybe some other corner case I can't think of here
-or-
4) Morons.
My guess above was (1) since it was both a large amount and the losses were unexpected. I do not think it would be 'yours' except in the 4th case which would be morons storing unvested deposits on cex for any purpose but short term exchange.
My rationale was that crypto just sitting in cold storage could only gain value if the underlying asset appreciated which is effectively currency speculation. By storing it in a crypto "bank" my money could be working to generate actual value via. liquidity and loans akin to a real bank.
If the money was earning a modest amount of interest it didn't feel like as wild of a risk. Even if the exchange rate to USD is unstable I can still see the amount of crypto going up each month.
What’s missing from this picture is actual productive economic activity. Banks make loans to real-world businesses who use it to produce goods and services, and assuming those are desirable in the market, part of the margin on those products ends up paying the interest to the bank.
Crypto lenders make loans to crypto traders who ultimately produce cash by extracting it from other traders and from new investors that bring in real cash into the system at the bottom of the pyramid. There’s nothing producing anything in the hermetic crypto bubble. When the retail interest ended, the system started running out of dollars.
It sounds like as long as there's enough money to pay the admin, the government, secured creditors, and unsecured creditors, anything left over would get split amongst individual investors like me. Is that right?
Because the exchanges have been promising sky-high interest rates to get you to do that.