
Bitcoin Bucket Shop Kicks Bucket - dsri
http://www.bloombergview.com/articles/2015-06-19/bitcoin-bucket-shop-kicks-bucket
======
Animats
The Bitcoin world has replicated most of the known financial scams. This has
worked because it preys on a population that doesn't know the known financial
scams.

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?

~~~
s73v3r
It's not that these people don't know the known financial scams. These people
think they're too smart to fall for them, and think that regulations are "for
the weak."

~~~
kurotetsuka
Neither of these are true. 'These people' don't want to let any particular
party regulate their use of money, for better or worse. By using bitcoin, you
implicitly accept the risks of a decentralized currency. Until there exists
some good way of decentralized regulation, if its even possible[1], these sort
of risks become a simple fact of life, a cost of doing business.

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](https://github.com/kurotetsuka/hyphaelia)),
which could theoretically be used to create a trustable darknet marketplace.
I'm nowhere near that point yet though.

~~~
emodendroket
Cash seems to be rather more anonymous than Bitcoin. There's no permanent
ledger for every cash transaction that's ever taken place.

~~~
kurotetsuka
True enough - but carrying and exchanging large amounts of cash is rather
unsafe. Not so with Bitcoin :).

------
stephengillie
This article was not only educational, but entertaining. Some of my faves:

> _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.

~~~
phdp
> 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.

~~~
stephengillie
Oh, I wholeheartedly agree. It delights me to see this situation described not
only as very illegal, but in layers of illegality, like an ogre.

~~~
phdp
Ah, I was thrown off by the word spin. I assumed it had a negative connotation
towards the writing in the Bloomberg article.

------
ghall
Here's our video response to the allegations. Many thanks to all of our users
for your continued support and trust!

[http://blog.sandhill.exchange/post/121768113883/sand-hill-
ex...](http://blog.sandhill.exchange/post/121768113883/sand-hill-exchange-
response-to-sec-enforcement)

~~~
tptacek
When you say you employed "aggressive marketing techniques", you're really
saying "you employed bots to create fake wash trades to create the illusion of
liquidity on the market", right? You launched a prediction market and then
traded manipulatively on that market.

Also: they stopped being "allegations" recently, right?

~~~
ghall
My friend, I unfortunately cannot comment publicly outside our video due to
legal sensitivities.

Of course, I always have an open door policy, provided any discussion is
private and off the record.

------
akg_67
IMO, the main problem is the success of Uber and AirBNB in flaunting the laws
has led some entrepreneurs to believe that they can ignore the laws. They just
don't realize that ignoring and fighting laws at municipal and state level is
much easier to manage than ignoring and fighting the federal laws.

~~~
tptacek
I don't think it has anything to do with local vs. federal. The real factors
are:

* 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.

~~~
akg_67
Both Uber and Airbnb violated the laws set forth by the cities and states. The
advantage for both startups was that the laws only extended to a city or
state. So both still had 100s of other cities and dozens of other states, that
were slow to react, to target and gain traction and turn this into "Principal
vs facilitator" and "consumer-benefit" issues. When you are running afoul with
a federal law, you are losing the whole country with very little recourse
unless you have a war chest.

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.

------
pdeuchler
Here is the archived Sand Hill blog post he talks about:
[https://archive.is/L97V5#selection-607.1-607.101](https://archive.is/L97V5#selection-607.1-607.101)

Hilarious in the lack of self-awareness

------
pnathan
One interesting question the author obliquely brings up is this: _Should_ all
the financial regulation exist? My general sense is ... "not for things more
complicated than savings accounts, checking accounts, and basic mortgages".

I really don't see the harm in prediction markets, even if they are putting
together strange derivatives.

~~~
lorddoig
> Should all the financial regulation exist?

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.

~~~
tptacek
It's far from obvious that the industry would be more diverse and less
consolidated if regulations were relaxed. The overwhelming majority of that
gigantic flow of money is not main-street retail activity; it's financial
engineering serving the operational needs of giant corporations, none of whom
are interested in e.g. working with a YC startup for their commercial paper
needs.

~~~
lorddoig
I profoundly disagree. You may very well be right about the majority of that
money servicing large corporations, but bear in mind that we're talking about
a pot of money the size of Jupiter here. Payment processing alone is worth
somewhere in the region of 1trillion USD annually. And that's just for
_moving_ money i.e. shuffling rows around databases. Bitcoin, while definitely
imperfect, offers the hope of innovating this whole industry into oblivion and
replacing it with something entirely autonomous.

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

~~~
tptacek
_Payment processing alone is worth somewhere in the region of 6trillion USD
annually_

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.

~~~
lorddoig
It's a number I found some time ago that on further investigation appears to
be quite wrong as you say. It seems it's closer to 1tn USD annually, which
would rank around number 16 in world GDP tables.

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=desc

~~~
tptacek
That huge number also does not square with the 2014 profits of the largest
issuers. Look at Amex and Discover, both of which have relatively pure
issuer/payment processing businesses.

~~~
lorddoig
Now it decides I can reply.

It's revenue, not profit, because I'm coming at this from the perspective of
money (potentially) wasted. It's all in the first link.

------
zyxley
The same folks were on HN a while back attempting to justify their poor
decisions:
[https://news.ycombinator.com/item?id=9642186](https://news.ycombinator.com/item?id=9642186)

------
paulpauper
Matt actually thinks that allowing the short selling of hot web 2.0/app
companies could actually make prices go lower, but in actually it tends to be
the opposite as short sellers have to scramble to buy back the shares in panic
as prices keep going up. Oh, you think snapchat is a bubble at $4 billion..now
it's worth $40 billion. Enjoy your 900% loss. Remember the Porsche/Volkswagen
short squeeze fiasco?

~~~
emodendroket
That doesn't mean it's not a bubble though; it just means it hasn't burst yet.

------
Hermel
Given that they had virtually 0 real users, I'm not convinced the strict
fintech laws are a necessity. It seems like the free market on its own is
alreardy pretty good at avoiding dodgy companies.

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.

~~~
nickodell
>One might think of Mt.Gox as a counterexample. However, I see that debacle
more as an unintended consequence of too much regulation

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.

~~~
yc1010
No one would have been using Mt Gox if there were better options back then
(the coinbases, krakens and bitstamps didnt exist then or were just starting
off)

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.

