Bitcoin Bucket Shop Kicks Bucket
bloombergview.com
bloombergview.com
There is a long, long history of financial scams. That's why the handling of other people's money is regulated. FINRA fines about one broker a day, year in and year out. Even with regulation, there are problems, but today in the US you can often get your money back. Bank failures occur, stock brokerages fail, and the SIPC and the FDIC pay off the losses up to $250K per person. Madoff's victims already have about half their money back, after years of litigation and clawbacks. Madoff himself, of course, is in the federal pen at Butner, North Carolina.
The Bitcoin world thinks it doesn't need regulation. About half of Bitcoin brokers, and most of the Bitcoin online wallet companies, have gone bust, most of them taking customer assets with them. Any questions?
Do you have a source for that?
So, how did that turn into "most of them taking customer assets with them"?
And that only talks about exchanges, not wallets.
(I'm also disappointed that it didn't break down what percentage of funds were lost).
Or think that, in a market not regulated to control them, they will be able to make money perpetrating them.
Bitcoin users and proponents dont "think they don't need regulation", they reject it. They don't "think they won't fall for scams", they accept the risk and possibility. They don't think "regulations are for the weak", they think regulations are for people who accept their government knowing everything about their finances and need transactional legal accountability. Your comment, and the parent one, are nothing more than really weak strawmen.
[1] :: I'm kinda sorta working on something that might help solve this problem, hyphaelia (https://github.com/kurotetsuka/hyphaelia), which could theoretically be used to create a trustable darknet marketplace. I'm nowhere near that point yet though.
I have yet to see any business in the bitcoin space that many bitcoiners themselves didn't say was a scam. Literally every business. As a group, bitcoiners are the most scam-declaiming group of people that ever lived.
As a group. Individuals are something else again.
Part of the problem is that it gets very hard to distinguish between woefully unprepared entrepreneurs and outright scams. It's difficult beforehand, when you think "Well, they're unprepared, but there's a 1% chance it might work anyway." or "They know they can't do it and they'll run with the money."
Even after the case, when they've failed and you know how they've failed, you can't always tell which is was.
Not that it matters much when the money is gone.
This has made me re-think my support for crowdfunding for equity for the masses. Even the best VCs aren't very good at sorting out winners from losers on a percentage basis (sorry, YC). They just have enough money to eat the variance and get to the winners. The general population doesn't.
On the other hand, I don't think most bitcoiners putting money into these schemes are stupid, I think they're just degenerate gamblers. I think they know the risks. Certainly once they've been around bitcoin for a couple months they do. You can't miss it.
Personally, I don't think they should be stopped from their gambling, but I can understand how people disagree.
> As I put it at the time, "Haha what? Just because you mumble the word 'blockchain' doesn't make otherwise illegal things legal."
> But the basic illegality of Sand Hill was covered in thick doughy layers of other, stranger illegality. For instance: The blockchain stuff was fake!
> overdetermined illegality
It's an interesting spin to see their situation described by multiple layers of compound illegal activity.
Can you describe how this was NOT illegal? They were illegally selling derivative contracts and illegally creating fake trade history.
>> Tech is an industry of moving fast and breaking things. Finance is an industry of moving fast, breaking things, being mired in years of litigation, paying 10-digit fines, and ruefully promising to move slower and break fewer things in the future.
After being told not to talk about this stuff, she thought she'd get someone else to guest-blog it for her (which she then published on her blog): https://archive.is/LBBC2
The arrogance and lack of self-awareness of these "creative entrepreneurs" defies belief.
http://blog.sandhill.exchange/post/121768113883/sand-hill-ex...
Also: they stopped being "allegations" recently, right?
Of course, I always have an open door policy, provided any discussion is private and off the record.
* Civil vs. criminal: Airbnb and Uber are violating regulations with civil penalties attached to them. SHX violated statutes with criminal penalties, though it appears they were charged civilly as a "slap on the wrist". The "1099 vs. FTE" issue Uber is running up against not only doesn't have criminal penalties attached (so long as they don't deliberately try to keep payroll taxes for themselves), but is also extremely common: 1099s are routinely reclassified.
* Ordinance/regulation vs. statute: The laws Airbnb and Uber are running afoul of are regulations set by regulatory bodies. The SEC is a regulatory body but it's also a prime mover in criminal enforcement actions, unlike, say, a taxicab commission.
* Principal vs. facilitator: The regulations Airbnb challenges are challenged by Airbnb's users, who are letting out houses and apartments in violation of local hotel/short-term-renter regulations. The law as it stands does not directly recognize culpability for sites that facilitate unlawful rentals. The law directly contemplates third parties marketing and creating venues for unauthorized securities transactions.
BTW, SHX would have been fine if they stayed under the radar for a while until they had a war chest to hire lawyers to argue and work with SEC to come up with a suitable compromise. See the example of Lending Club and Prosper that were shutdown by SEC in 2008/2009. Both emerged from it because they already had traction and enough of war chest to hire securities lawyers to work with SEC. Now Lending Club is a $5+ billion public company.
Hilarious in the lack of self-awareness
I really don't see the harm in prediction markets, even if they are putting together strange derivatives.
[1] (mortgaged backed) = lenders were rubber stamping home loans to people who given their current income would not be able to pay back the loan.
[2] "security derivatives" were created on those mortgages as financial instruments that could be traded like stocks, effectively like allowing a 3rd party to take out insurance on your car and get paid when you get in a crash... a full on BET against the bad mortgages - paying out if the mortgages went into default
[3] https://en.wikipedia.org/wiki/Credit_rating_agencies_and_the... — credit rating agencies, trusted to research, validate and rate the mortgages were for some reason giving the obviously bad and likely to default mortgages ratings on AAA, thus allowing for a greater insurance pay out on the security-derivative bets, creating an incentive for investors to make shit tons of money from defaults on these loans not to mention the repossession of the properties by banks.
TLDR; Unregulated 'prediction markets' seemingly colluded to create loans that could not be payed back, than created insurance on those bad loans - falsely evaluated as safe, inflating the pay out, and effectively fabricated a profitable bet against the entire global economy.
It's quite likely that a completely unregulated market would not have that particular set of incentives.
Another way to put it is that I sort bad regulation below no regulation: good regulation, no regulation, bad regulation.
Just because the impression that someone out there is protecting people will cause them to be less wary. Some people will still buy snake oil, but a whole nother group of people will come to use the term as a pejorative.
Given the actual history of how these regulations came about, and what things were like before and after, this statement is inane.
I take it you don't think it is possible for bad regulation to mislead people? Because that's a piece of what happened in the mortgage crisis, the ratings agencies were given a license to charge fees for putting stamps on bonds, and those bonds were sold into regulated investments like insurance and pensions, investments that people trusted to be in secure assets, in large part because they were regulated.
Take away the regulation and a bunch of that money is stuffed in mattresses, which while perhaps unfortunate, is obviously a better outcome than disappearing into a financial black hole.
Trust needs to be restored in regulators, rather than abolishing them and being left with so much uncertainty and a playing field ripe for malice.
The law is obviously imperfect. But the goal --- don't let us pretend we're financing we're just running games --- seems pretty straightforward.
So to my mind, debating the regs that brought down this exchange takes you in one (or more) of three directions:
1. You can believe we shouldn't regulate gambling at all, because people will find ways to gamble, and many people can gamble responsibly. As Levine points out, we might even benefit from the information generated by the gaming activity.
2. You can believe "main street" investors should have access to private company equity and not just large institutional investors.
3. You can believe we should not have "safety and soundness" as a goal for regulating retail financial transactions, and that the SEC/CFTC/&c should not serve a role for the financial system that is similar to the FDA's role for drugs (lots of people also think that the FDA does more harm than good). That is to say: companies should not have to spend large amounts of money to ensure "truth in labeling" for financial products.
I tend to think you probably have to believe all of these things to think what Sand Hill Exchange was doing should have been lawful. For instance: if you think there's value in generating retail exposure to startup equity, there are obviously saner ways to provide it than relaxing regs on derivatives betting exchanges.
Almost certainly not. The regulatory burden of operating in the finance industry is overwhelming - innovation is not so much stifled as killed. The big boys thrive because the little guy doesn't stand a chance from the get-go. The whole industry is estimated to be worth ~17% of global GDP and that money, which is almost equivalent to the output of Europe (or every country in the world except the top ~17 richest nations), goes to a list of companies so small you could probably write their names on a single page. It's a joke.
The insurance industry is worth another ~5trillion USD annually. The name of the game here, of course, is predictive analysis and I'd bet that my Netflix recommendations are more accurate than any assessment any insurance company has ever made of me.
I think you'd have diversification up the wazoo in extremely short order.
Edit: accuracy
This seems unlikely. Is this a top-line number? Why aren't existing VISA/MC processors the largest companies in the economy? The number you just gave is orders of magnitude higher than Apple's profits.
A couple minutes Google searching suggests that being a card issuer puts you in a relatively low-margin business with absolutely enormous network effects.
Edit because HN isn't allowing a reply: these numbers are industry revenue, not profit.
https://www.bcgperspectives.com/content/articles/financial_institutions_pricing_global_payments_2014_capturing_next_level_value/
http://data.worldbank.org/indicator/NY.GDP.MKTP.CD?order=wbapi_data_value_2013+wbapi_data_value+wbapi_data_value-last&sort=descIt's revenue, not profit, because I'm coming at this from the perspective of money (potentially) wasted. It's all in the first link.
That's not a reason in itself to not have it. I don't care if the rules are hard to follow. If you don't want to deal with them, go do something else.
"innovation is not so much stifled as killed."
If the "innovation" is stuff like mortgage backed securities, then good riddance. Finance is not a place where innovation should be happening.
"The whole industry is estimated to be worth ~17% of global GDP"
Which is about 17% too much for an industry that doesn't actually produce anything of value.
I don't mean that as an argument against regulation, but as an example, there are lots of stock market rules that make it simpler for individuals to make investments (required reporting of information, standards about how it is reported, etc). Without those rules, the risk would be higher and the investment would likely be lower, and the lower investment is exactly less connection to that market.
I don't buy that for a second.
I think if I don't own stocks and bonds it is quite clear that I am not as sensitive to those markets.
So given your testable claim, I'd expect you to be able to provide before-and-after examples of regulations, wherein you show that even a significant percentage (of all regulations) make things worse.
I don't have a magic information oracle, so I can't show you what the US economy would look like if there had never been an SEC, but I sort of expect that there would be less individuals that held stock in giant companies (because I expect there would be less overall investment and I expect that people with small amounts of money would be less inclined to expose it to an unregulated stock market).
One might think of Mt.Gox as a counterexample. However, I see that debacle more as an unintended consequence of too much regulation: making it too hard to setup legit exchanges reduces consumer choice and forces users onto alternatives like Mt.Gox even though they don't really trust them.
Hahaha, are you kidding me? https://www.reddit.com/r/sorryforyourloss
The thing that many tech entrepreneurs underestimate is the power of these financial regulators. It's not like Uber/Taxi industry that will bend to their wills. Financial regulators don't like any risk that they can't manage/mitigate.
"The Panic of 1819. The Panic of 1837. The Panic of 1873. The Panic of 1907. The Great Depression. The savings and loan crisis of the '80s and '90s. The financial crisis of 2007-2009. The list goes on and on." http://www.davemanuel.com/history-of-bank-failures-in-the-un...
PS: The average is more than 6 banks per month over the last 50 years in the US. With only 2 years from 1934 to now having zero bank failures in the US.
I don't agree. A fairly simple asset control system would have detected that someone was embezzling money from the exchange. That's been standard at companies I've worked at, even though they weren't in the financial sector.
I used bitcoin since 2011, MtGox was fairly much unavoidable at the time, tho I do remember #bitcoin-otc :)
Everyone knew mtgox was dodgy, and in the end the people who did get burned are those who forgot about their bitcoins there and those who were willing to gamble despite months of warning signs of impending doom.
Hell I think i have like 100$ worth of bitcoin there at todays rate but for the life of me can not remember the password I used.
They had virtually 0 real users because "strict fintech laws" were applied to them while they were still actively limiting their number of users and scope of use while planning to scale out.
I'm not sure how that is a demonstration that the "free market on its own is already pretty good at avoiding dodgy companies".
> One might think of Mt.Gox as a counterexample.
Well, yeah. Among others.
> However, I see that debacle more as an unintended consequence of too much regulation: making it too hard to setup legit exchanges reduces consumer choice and forces users onto alternatives like Mt.Gox even though they don't really trust them.
So, if a "dodgy company" fails before it gets many users (even if that failure is a direct result of regulatory action!), this proves that financial regulation isn't needed and the free market works to constrain dodgy companies.
And if a "dodgy company" gets lots of users and lots of real money before it fails and inflicts widespread harm on a large number of users when it fails, that also proves that financial regulation isn't necessary.
Is there any conceivable set of facts which you would not characterize as demonstrating that financial regulation isn't necessary?
Now, 1broker.com on the other hand...