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Comment by skrebbel | Hacker News Reader

For years plenty of people have kindly explained to whoever would listen that crypto is 99.9% a scam. Uninformed individuals buying into the hype are victims, but every investor in FTX or any related firm knew exactly what they were doing and chose to take the risk they took. They’re responsible for their losses and complicit in the scam.

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In fact one could argue that the majority of investors knew precisely that it was a scam, precisely that it was a house of cards and, blinded by their own greed, thought they could get in and out before it all fell down taking some other sucker with it.

The people I feel bad for in this situation are the people on the receiving end of the pension funds that bought into it.

It seems like there are plenty of people essentially thinking something along the lines of: "I know this is a useless asset that only an idiot would think has real value, but I will get in and unload it on a bigger idiot before the crash...".

The issue with investing using the "bigger idiot hypothesis, is that sometimes, you are the biggest idiot and are left holding the bag of sh$#.

Sadly, it seems that often the biggest idiots somehow end up in governments and financial institutions.

The Ontario teachers pension fund invested $95 million into FTX that they have to write off. They have $295 billion under management, so 0.03% of their assets were lost. In the last week the Canadian dollar fluctuated between from 75 down to 73 cents on the US dollar, or 4% of its value. I don't think the teachers pensions are affected by the fluctuations of the USD based portfolio of the fund, and they certainly aren't going be affected by the FTX investment.

Yep. Thank you. I have been doing this and have been constantly downvoted.

People just don't understand that it is fundamentally broken as it is. Not only it is broken as a financial instrument, it is a magnet for shady people and shady money.

I am unsure if you are knowledgable about the situation with FTX given your comments. However, I do want to hear your opinion. Could you share what was broken about crypto in this FTX case?

I know this is going to sound heretical but perhaps crypto is broken because it is not regulated.

Exhibit A: FTX

To be fair, FTX isn't a result of crypto being unregulated. Operating an exchange is regulated to some extent, but this is a story of failed corporate governance amongst many other things.

FTX is exactly because of it being unregulated or where there was regulation -- it being absolutely inadequate and ineffective.

Any sane regulator would not allow the shit happening that happened in FTX.

This is not a company making bad business decisions. This is company making bad criminal decisions with the money they did not own and were not free to do what they pleased and creating impression of value in a fraudulent way.

"Failed corporate governance" is the root of most crimes like this. It just means that no one was watching the hen house.

What's criminal here is that it wasn't just failed governance, there was literally no governance. They comingled funds (it's just a big pile of cash, right?) and didn't even consider risk. [1] This is what happens when Scooby and The Gang run a hedge fund. Zoiks!

The point of regulation is that it ensures that companies have frameworks like this in place, and that the actors are playing fairly. Mainly because we can't trust some people among us to not take advantage of having access to other peoples money. You can't build a civilization on the back of "Trust me bro I'm good for it".

Think about it, why do people regularly hand over their money to their bank, when they've never met the people actually running it? We trust that if we put money in, that later it will come back out. But why? It's because regulation solves the trust problem, if your bank is FDIC insured you're covered. Thanks government!

Yes regulation is an evil, but a necessary evil. It's a tax on everyone because some people can't be trusted with the keys to the bank vault. The government ties their hands, that's a good thing. It's harder to raid the cookie jar with one hand tied behind your back.

[1] https://www.yahoo.com/video/sam-bankman-fried-said-hed-13173...

Agreed to everything you are saying. I think the issue I have with most comments here is that they are misinformed of the issues and are just pointing a finger at the asset class even though it wasn't the cause.

By asset class I assume you mean crypto in general?

The issue I have with this space is that lack of central/governmental control is the original selling point. Lack of regulation is a defining feature, not a bug. This is a huge red flag for me. If I was a con-artist, I'd be drawn to this space like a moth to a flame. I don't trust any of the players in this space, anyone legit would be making real $$$ in TradFi. It's the modern day junk bond.

This picture summarizes the situation perfectly. Caveat emptor indeed. [1]

[1] https://i.redd.it/qul2xd7anl2a1.jpg

FTX, or Coinbase or any of them, are not regulated.

Not as exchanges, not as brokerages, or anything else resembling their supposed business model.

They’re registered business but that’s about it.

That's not true, and I said they are regulated to an extent. They have to get their licenses and maintain certain requirements like separating client assets which is regulated by FSA depending on the country.

I think this begs an explanation.

The reason people detest regulation is because a) people detest the government and b) people think regulators are corrupt and/or ineffective.

But what people are doing is incorrectly extrapolating from one aspect of the problem and then falling into a trap of a logical fallacy.

It goes something like this: The government or the regulator is corrupt and/or ineffective therefore regulation is bad. If regulation is bad then no regulation must be good.

Well, in fact what the government does (at least to some extent, at least in some countries) is it takes care after its citizens. Even if this care is not distributed justly, equally, efficiently and competently it is still the fact that most citizens are way better off having the government than not having it.

Of course this doesn't mean we should stop pushing government to do better.

Similar happens in financial world -- people dislike regulation for all its failing but the truth is that great majority of financial players by numbers are better off with regulation than without it. By numbers, most players in financial markets are simple people who invest money for retirement but don't have enough knowledge to protect themselves from financial predators.

Case in point: crypto. Where regulation is thin or non existent and people get robbed blind right and left by organisations who have knowledge and resources to build schemes to extract wealth from smaller players that can't defend themselves.

If you are like me, saving your money for retirement, you absolutely want regulation. Regulation is your friend -- this is some government weight trying to make sure that at least some rules are respected at least most of the time.

There are financially savvy people who will do well regardless. Regulation does not affect them much -- they will make money regardless. Regulation is for small people like you or me trying to save up a bit and not loose it, because without regulation you are bound to loose the money sooner or later. Or you will pay dearly to protect your assets to the point where it is difficult to accumulate any wealth on your own.

I agree regulations is good and I am for it. However, all of your comments are just pointing a finger at cryptocurrency as the cause of the issues here when it's not. Your arguments might be valid in other discussions, but your premise is misinformed.

The FTX fallout wasn't not a result of the asset class in question. It was much more than that. Even IF crypto had regulations, it wouldn't have been able to prevent the blatant fraud and criminal activities that happened in FTX. I would really suggest you to read more about it first.

You can learn about it in this video here which covers the key points: https://www.youtube.com/watch?v=l3HfrRjWilQ

Here is another commenter who also talks about it: https://news.ycombinator.com/item?id=33879829

Crypto could totally be a currency. The fact of the matter is that it sort of is. In its most raw terminology of currency. It is not however an insured currency. So you will get all the fun things you get with that. Massive inflation/deflation, bank runs, sudden insolvency, probable scams, etc. Our current currency system is the way it is precisely of what you are seeing in real time in 'crypto'. These sorts of things happened many times before our central banks got involved and regulated them. If you want to see some real shenanigans read about the banks from the 1800s. History does not repeat itself but it sure rhymes.

I was not surprised it happened. The only thing that surprised me is that it took this long for someone to make an enron sized mistake.

The macro econ guys should have a ton of fun and probably a few papers out of it. As it looks like in addition to the probable fraud here there may be some new things to learn about monetary systems. In this case how crypt might actually be very tied to existing monetary systems they seek to get rid of. Which is an interesting result that crypto was promising to end.

The issue wasn't cryptocurrency itself though. The issue was that FTX was investing into companies and they were essentially trying to run a fractional reserve against their own client assets. Those issues would happen regardless of the asset class.

No arguments. Crypto is a form of payment system, if we want it or not. It is however an unregulated and uninsured currency system that may or may not have actual capital backing it up (depending on the coin). My point is you will see wild swings of interesting things happening precisely because of the unregulated nature of it. This is not 'new' because of crypto. It has happened before, it will happen again. Regulation also does not necessarily means 'it will not happen'. It usually just slows it down enough to catch it before it gets wildly out of hand. Also as a payment system crypto is interesting, as many people seem to be using it as an investment vehicle precisely because of those wild swings.

Except that FTX isn't "crypto" it is/was a centralised exchange, a company just like others. So whether you believe crypto itself is a scam or not, this is straight up old-style fraud from a company doing things they shouldn't, so not really the same thing.

FTX had enormous crypto holdings and made investments in companies you’d definitely consider crypto companies, notwithstanding that there aren’t any “pure” exchanges in the crypto world anyway—they all get their noses in it.

FTX wasn't just an exchange for crypto. they had their own crypto token, FTT. the whole fraud is based around the fact that the valuation of FTT was in reality fraudulent.

No it isn't. That's what SBF is trying to tell people to make it sound like it's just a story of incompetence and incorrect valuations. They stole user deposits which were specifically not meant to have anything done to them but be held and used them in the trading arm/to prop up other things.

The price of FTT shouldn't have mattered to anyone not holding FTT. But yes the precipitant here was that they had clearly been thinking "oh we have loads of FTT still so can always sell that to cover user withdrawals and won't get caught".

ok, I agree with that too, but I also strongly believer that FTT (and most tokens) are created to enable fraud such as this (we can use our fradulent token as a means of collateral). Perhaps your argument is, even without FTT they would have found other means of stealing peoples deposits with a different cover story, and I guess I buy that as well.

Just use their list of "assets" to illustrate your point. In descending order from the back-of-the-envelope balance sheet of doom: SRM $2,187M "other ventures" $1,475M GDA $1,150M SOL $981M MAPS $616M FTT $553M Anthropic $500M "locked" USDT $500M HOOD $472M USD in Ledger Prime $200M USDB $73M PYTH $63M OXY $54M ETHE $53M TWTR $43M STG $45M FIDA $36M DAI $28M DOT $28M

and so on in to irrelevancy. Its a bunch of garbage "coins-that-definitely-arent-unregulated-securities" (SOL, MAPS, OXY, MSOL) and related garbage producers (SRM, GDA, etc). More or less their entire set of assets is either crap that they made up to sell to rubes, or crap that someone else made for FTX to invest in and sell to rubes. They dont and never did have meaningful assets to back teh house of cards once they stole their customers real USD.

https://d1e00ek4ebabms.cloudfront.net/production/7ab64a3b-6c...

The root basis for the for all of the fraud Sammie boy engaged in starts with the FTT token.

Now the no true Scotsman fallacy people are throwing around is just that, FTX is and was a crypto company.

Do you mean that before FTX directed customers to wire deposits to Alameda and then immediately misappropriated the funds, they launched a token? like, one of them temporally preceded the other, even though the actions were unrelated?

This is incorrect, they just stole customer funds. They could do that without issuing a token.

> Except that FTX isn't "crypto"

nobody buys this line

> it's not real communism

Same thing all the time, true believers have a hard time being critical of themselves.

FTX was a crypto company full stop

If you’re trying to equate communism stuff with Stalin or something then of course there will be reasonable push back. You’ll find a lot less if talking specifics like Lenin or Cuba. Otherwise communism and politics are a lot more complicated and nuanced than the simplicity that is cryptocurrency.

> this is straight up old-style fraud from a company

Traditional banks definitely go up bankrupt, and regulated financial entities definitely break laws, but it seems to happen with alarming frequency with crypto companies.

Given that the only two proven use-cases for crypto are doing an end-run around regulation/laws (however foolish or unjust people may believe those rules to be) and speculation/gambling, it also doesn't seem that surprising?

I would probably add a distinction that one of the main current use-cases proven is avoiding restrictions rather than regulation/laws. I think a much more positive case can be made for working around limitations that are put in by large players in various industries to make it harder for the common person to do something or start a business in a given area, even in cases where there aren't specific laws around it.

> avoiding restrictions rather than regulation/laws

Could you give an example? Most of the ones I've seen are regulations/laws that someone simply thinks are unjust, eg a country's currency controls or avoiding laws designed to stop money laundering.

Or, you know, explicitly trying to make sure north korea can sell the crypto they make with ransomware.

> Traditional banks definitely go up bankrupt, and regulated financial entities definitely break laws, but it seems to happen with alarming frequency with crypto companies.

Traditional finance can be just as bad. Remember the savings and loan crisis? Just as regulations had to catch up with banking so too will they for cryptocurrency exchanges.

Sure, but I’ll note that you’re pulling an example from 30-40 years ago here where I’d be a little surprised if you couldn’t find an example of malfeasance leading to loss of deposits for at least every year since MtGox went down.

Yes but also consider how long banking has existed, and yet this still happened just 30-40 years ago. Cryptocurrency exchanges are relatively nascent in comparison.

The fact that a lack of regulation results in a marketplace of scams was known before bitcoin was invented. Naivety of that is not acceptable. Bitcoin chose not to build in any protections in a financial systems to stop scams means they were purposely, or out of abject stupidity, leaving them out. Bitcoin doesn't get to say "oops we can add the ability to stop scams later" because it should have been table stakes from the very beginning

But bitcoin was literally built to be free from regulation. Why is that?

Okay, but imagine instead recreating the system where the SLC happened vs continuing in one where it's been accounted for...

Among its other endeavors, FTX created FTT, a token that had a peak notional market cap just under $10B, and that value seems to have been used to paper over massive holes in the FTX balance sheet. Massive, unexplained movements of FTT between FTX and Alameda Research[1] presaged the imminent collapse of both companies, and Binance dumping their FTT holdings was the precipitating event. FTX is about as "crypto" as you can get.

[1] https://cointelegraph.com/news/alameda-research-ftt-token-tr...

A self-issued asset is an unregistered security and has nothing to do with decentralized cryptocurrencies like bitcoin or Ethereum.

Nice when you get to define what Real Crypto is. I had been lead to believe that anything goes.

Then you're part of the problem. Bitcoin is real, the rest are scams. What part were you struggling with here?

What property of Bitcoin make is less of a scam than ETH?

The rules of Bitcoin are fixed in place, and no one party can adjust them in future. ETH has core developers who can make any changes they wish whenever they wish.

Well that's untrue.

The rules of both BTC and ETH are enforced by miners. At the moment ETH miners are generally amenable to changes by the core dev team. But there is no reason why future BTC miners could not do the same.

In particular, some of the same groups mine both BTC and ETH so it is clear they are amenable to changes.

Secondly, it's unclear why your presumption that change is bad is correct. The change to proof-of-stake for ETH is clearly a good thing environmentally for example.

FTT was an ERC20 token on the Ethereum blockchain.

If it's "nothing to do with decentralized cryptocurrencies" then neither is DeFi which is built around trading ERC20 tokens.

now you’re getting it.

If FTX isn’t crypto, then I guess Binance, Coinbase and Crypto.com aren’t crypto either?

Funny how crypto pumpers, when they were looking to sell some NFTs or whatever, have been more than happy to promote these exchanges as easy ways for retail investors to get their money into the system. But when the shit hits the fan, now the same crypto pumpers are saying that real crypto is something completely else.

> If FTX isn’t crypto, then I guess Binance, Coinbase and Crypto.com aren’t crypto either?

Indeed they're not. "cryptos" are cryptocurrencies, like Bitcoin. FTX and alike are centralized exchanges (CEX).

This confusion is like calling banks and Wall Street "the US Dollar". And when Madoff and Lehman Brothers happen, calling out on the USD instead of the fraudsters.

The USD allows to do money laundering, fund terrorism and create scams, but that doesn't mean it is a scam itself, or that it should be banned, or that people who use the USD participate in a scam.

Eh, USD is not just the dollar, it is an entire set of systems that include regulations that prevent fraud schemes. The USD without these systems would be the broken joke BTC is currently.

That's right, they are not crypto. They are exchanges. They operate very similar to stock exchanges except the asset classes they operate around are different. People pointing at crypto's failure right now would be equivalent to TD Ameritrade blowing up and saying stocks failed.

This comment is just as dumb as someone which would accuse tradfi of being 99.9% scam because they fell for Bernie Madoff.

Complicit is however the lobbied senate giving sbf a platform, but even worse is the SEC / Gensler, borderline criminal, definitely negligent and incompetent.

I would love to know who in power knew what, and who looked the other way. It reeks of corruption.

Rep Tom Emmer was one of the original "Blockchain 8" who asked the SEC to back off of asking tough questions in the crypto space. [1] Of note, 5 of them received direct campaign donations from FTX.

Now Emmer recently is on the record saying the FTX debacle isn't really FTX's fault, it's the SECs fault for letting this happen. [2]

In his own words here. [3] You can't make this stuff up.

[1] https://prospect.org/power/congressmembers-tried-to-stop-sec...

[2] https://www.theatlantic.com/ideas/archive/2022/12/ftx-crypto...

[3] https://twitter.com/RepTomEmmer/status/1504117902080942084

Hmmm... Everyone knows when they approach a roulette wheel that the odds are 37 to 1 against them. I'm not sure the same could be said for crypto investors.

And, honestly, I have no particular sympathy for them because even my low-brow self saw all kinds of red flags and stayed away from crypto. But I'm not going to claim they all went in with their eyes wide open. There was some serious hype/subterfuge going on that no doubt fooled a lot of people.

It's easy to write off anyone who got into the crypto space at all as grifters and scammers--or maybe rich people/institutions who made a small side bet because "why not?" But you probably also have some number of people who can't see their way to ever having six figures of savings and they see other people getting rich and think "Why not me?"

I know. Might as well throw in Powerball and slot machines as well.

I have at least one friend that makes risky investments for the very reason you gave: he's not going to get rich any other way.

I still disagree with him though. I prefer the "get rich slow" schemes over all the others - even though it means I'll never own a yacht.

I the rigged system around me but that doesn't make playing the lottery smart.

Every teacher in Ontario lost $600.

I think your comment is a bit misinformed. Your reply is written as if crypto itself failed when it was the exchange that failed. They took client assets and re-invested into other companies which also serviced retail investors. This collapse is due to poor corporate accounting and controls.

"Crypto" encompasses both the technologies and the systems created and the external effects they generate on the world. When the result is a bunch of scammy centralized exchanges crumbling? That's what "real" crypto is, regardless of any initial guiding light goals.

Just like how the USSR and its actions were "real" communism, regardless of how close they mapped to original utopian dreams about what communism would be. How it plays out in the Real world is what matters, and what makes it the Real thing.

I think you are conflating your understanding of the definitions.

Stock exchanges run exchanges to trade stocks.

Crypto exchanges also run exchanges to trade cryptocurrencies.

FTX is an exchange that trades cryptocurrencies. FTX went under and pulled all companies it invested in with it. However, the cryptocurrencies are still running.

What FTX did was criminal and it's well documented and more of it is still being discovered. It's just odd that you would suggest an asset class results in "scammy centralized exchanges crumbling".

It would be like saying:

> "Stocks" encompasses both the technologies and the systems created and the external effects they generate on the world. When the result is a bunch of scammy centralized exchanges crumbling? That's what "real" stock is, regardless of any initial guiding light goals.

“Crypto” has incentives that have caused this to happen over and over again.

A person with so much too much money that they invest in scams like crypto doesnt deserve pity. They are no victims. In a sense, that is financial darwinism at its best.

People don't deserve to be exploited just because they don't know better.

There is a difference between greed and plain uninformedness. Those that invested into crypto are clearly greedy, wanting to multiply their money without providing any value to the society.

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