Binance has lost $12B in assets in under 60 days

One of the big issues with Binance (as I understand it, as a mere tourist) is that /nobody knows/ how much actual money they have. They might have $12B + $1, or they might have $60B, or whatever. There is a lot of faith, backed by little evidence, that they have enough actual capital to cover their liabilities.

One client withdrew his funds long before Madoff was found out. With respect to this one customer, Madoff's service "successfully cleared $5.1 billion in liablities".

https://www.propublica.org/article/madoff-client-jeffry-pico...

This is not where the story ends though.

Eventually Picower (his widow) had to forfeit his gains from Madoff's account where all customer deposits were pooled, because let's be honest, it was not Picower's money.

https://archive.boston.com/business/articles/2010/12/18/pico...

It is only a matter of time with Binance. The story is still unfolding.

My stock broker and the NYSE can't secretly sell my shares and loan out the proceeds. They just hold the stock.

That Crypto "exchanges" think of deposits as assets makes it clear they're more like a hedge fund than a bank or exchange.

Banks work a bit differently, btw, they should also have more $ assets than liabilities, but there's generally no direct 1:1 link as described above.

The money in their vault is an asset, the balance in your account is a liability. When you deposit money, it creates both, though the asset by design doesn’t sit there for long in that form.

The assets are then used to create revenue and anything that has to be paid to the depositor are expenses.

When the deposit is withdrawn, the asset and the liability both decrease.

The full term is Assets Under Management so it's semi-understandable, but yes definitely not correct.

The entire thing is obscenely difficult and completely inscrutable for the average human. The number of ways a naïve participant can lose their entire balance is staggering. Even the notion of a hardware wallet is something that 90%+ of people holding cryptocurrencies will either never hear about, never understand, or never opt to use due to actual or perceived complexity.

The average person is simply not qualified to hold onto substantial (to themselves) amounts of cryptocurrencies in any form. And as it turns out, all of the available evidence seems to indicate that most exchanges aren't qualified to do so either.

"Rejection of the traditional banking system" was mostly a symptom of "Doing things the traditional system would label 'illegal'".

In which case the upsides of crypto are clear - You can pass money around online without regulation.

And the downsides are WELL understood - the "system" does not have your back if/when things go wrong. Just like most black market trades.

The problem happened when the "finance" crowd started seeing bitcoin's value increase at a large rate (and particularly how little media coverage was needed to temporarily spike the value), and essentially turned the entire thing into a ponzi scheme.

They weren't interested in using it as anything other than a pump and dump investment vehicle, and its lack of regulation was a magnet for the worst sort of folks.

As a tool for online dark exchanges, or other government forbidden actives (ex: fleeing the country with ill-gotten gains, or holding businesses hostage with malware) - there is a small niche for digital currency. I'm pretty well convinced there is NO other use case where your national currency does not serve as a better alternative.

Even the semi-plausible use cases (ex: preserve value during times of high inflation) have proven to be utterly meaningless if you're holding US dollars, and the vast majority of cases you would be better holding onto shiny metal instead.

Luke Dash Jr is an original Bitcoin core developer who understands Bitcoin deeply (he proposed the idea for the practical implementation for segregated witness), and he was able to lose 200 BTC (all his money) just recently by a hack.

But the main motivation for people buying into these coins is to speculate on them, having watched the bitcoin billionaires bloom.

And while I think there's a strong argument that "they should have known these crazy returns were too good to be true" I also think you have to take seriously just how hugely this stuff has been pushed in media, and by huge traditional financial player as well. When all the apparent authorities are saying "this is awesome join us" it's just inevitable that a broad swath of people will take that at face value.

Why? Because, no matter how you spin it, crypto of last few years is get rich scheme. And having centralized entities enable all form of fraud - from super basic ones, like FTX just openly stealing people's funds, through market manipulations all the way to more subtle and complex forms of scam.