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Crypto dominoes fall in the wake of FTX's collapse (axios.com)
300 points by rurp 75 days ago | hide | past | favorite | 409 comments



Tick, tick, tick. The doomsday clock for Tether just moved closer to midnight. When Tether finally depegs, all the exchanges will go under (except maybe Coinbase and a few others that are tightly regulated). Coinbase will probably still go bankrupt because the crypto trading market is going to evaporate. The value of most coins will go to zero. There will be a liquidity crisis the likes of which we haven't seen since the 19th century.


People need to actually redeem the tethers for actual US dollars in order to collapse the tether scam. I think all the crypto exchange collapses and bankruptcy declarations will actually help tether. All the money will be locked up for years as the lawyers and accountants go through everything.

The Mt Gox "hack" was in 2014 and people have still not gotten money back yet. That is 8 years and counting.


Why do you think that bankruptcy courts wouldn't order the Tether to be sold long before they figure out how to reimburse the creditors?


What makes you think they would do so quickly?

Also, selling to quickly would at least temporarily depeg Tether and cost the creditors money.


Presumably they'd try to sell it at some rate wouldn't depeg Tether, and the reason to do so is to preserve cash for the creditors in case Tether depegs for some other reason.


The redemption of tether (and other) can happen a long time before any payments to creditors happen.


But the only thing that matters so far is Tether's market cap... which has barely moved through the latest shitshow.

Whoever buys tether (and who is it? really? I don't think it's retail investors...) doesn't seem to be in a hurry to convert it to cash. I'm assuming it's mostly or all related to criminal activity, so they can't actually cash out?


"if people all try to retrieve their savings from banks, they will see the banks for the scam they are, as they will collapse".

Your argument does not make tether a scam.


Thankfully we'll always have USDTea. https://usdtea.io


I think we all need a bit of stabilitea in the modern world. Good thing it's iced tea though; as we all know, proper tea is theft.


Wasn't sure about the peg to a soft drink but the whitepaper sold me.


Who knew if you made an unregulated market full of sharks that you would get this outcome? /s [0]

0 : https://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929


> The value of most coins will go to zero.

By absolute number, sure, but if you count "most" by weighting them with trading volume, then no. Bitcoin and Ether will not go to zero.


> By absolute number, sure, but if you count "most" by weighting them with trading volume, then no.

That's crypto-speak for how to deny reality.

If the value of a USD dollar plummeted to $0.01, you don't pull out your wallet and say, "I have 100 of them, so no the value hasn't gone to almost nothing."


To use your analogy: Parent's point is that even if all the quetzals and colones and cordobas and lempiras go to zero, the USD will still have value.


The dollar holds value in tough economic times because it's the exit-channel for a lot of sketchier assets. You sell your quetzales and lempiras (or iffy stocks and bonds) when the market starts to tremble to get back to relatively reliable dollars.

When crypto implodes, what are people going to drop their shitcoins for? I could see a few possible answers:

* They'll accept BTC or Ether because it's what they can easily get to in a pure-crypto market. If there's enough turmoil, major fiat offramps may be overburdened.

* They'll pile onto stablecoins (likely because exchanges present it a default way out, and sure, they'll exchange for dollars some day) running the risk of triggering further contagion to stablecoins themselves.

* They'll take fiat at increasingly terrible exchange rates just to get out of the dumpster fire.


Exactly!


That's not what I mean at all, but I can see how you might arrive at that misunderstanding.

No, what I mean is that anyone can make new coins in 5 minutes to commemorate their favorite meme. There's a very large number of these coins and almost all of them are already valued at zero. So now you can go around saying "most tokens value will drop to zero", which is factually true because they already are at zero, and never were worth much of anything, and nobody traded them. So what?

If you take a typical crypto hodler, most of the value in their portfolio is in tokens like Bitcoin or Ether, and very little value is in meowcatcoin or shibadibacoin. Bitcoin and Ether will not go to zero.


I don't think they will go to zero either...necessarily...but much much lower...I think you underestimate the amount that ponzi liquidity inflated everything...


I never claimed that they couldn't go much lower. I was arguing against this statement:

> The value of most coins will go to zero.


There is definitely an energy, art, nutritional, collectable value to a steaming pile of shit.

I think the obvious issue is no one is going trade their actual-money for it.


Thanks so much for the explanation!



I wonder: what will be the last straw that breaks confidence in Tether?


Tether will keep pretending to be fine until every last real dollar behind it has been drained. This is what is happening right now, with Binance (and previously FTX) propping up the crypto market with their purported bailouts and pretending nothing is out of place. Then one morning, all of a sudden, it will all come down with some really spectacular fireworks to watch.


> Tether will keep pretending to be fine until every last real dollar behind it has been drained.

That's how stablecoins work. There are two stable points: 1 and 0. When they break, they go all the way. As soon as the price breaks, there's a rush to exit. We've seen this happen a few times now.

Watch the Tether market cap decline here.[1] A billion here, a billion there, and sooner or later you're talking about real money.

[1] https://coinmarketcap.com/currencies/tether/


Something is happening in stablecoins.[1] Binance and OKX exchanges "temporarily suspended" support for USDC and USDT on the Solana blockchain. Unclear why.

[1] https://www.coindesk.com/markets/2022/11/17/crypto-exchanges...


But that's in the wrong direction? They're suspending deposits, not withdraws.


Maybe they don't want to be holding those "stablecoins". If you withdraw USDT or USDC, it's off their books and they have no further risk. If you deposit it, and it's credited as US dollars...


Solana ecosystem is largely supported by Alameda which we all know went bankrupt. And furthermore Solana network is not quite stable, its validators are costly to operate and it has been down many times so maybe exchanges are losing confidence in the network's reliability.


> When Tether finally depegs, all the exchanges will go under

Why? Exchanges have existed before stablecoins, and you can still trade BTC et al without ever touching a stablecoin.


You have my hopes up. Let's hope your prediction is the lower bound.


I wonder if a crypto contagion could actually help the broader economy by acting as an escape valve. For the past 14 years, the government keeps stepping in to bail out bad bets and keep all the scum floating. But with crypto, it was an an area of the economy that government largely kept its distance from and lacked a mandate. So there will be no will to rescue anything and a full on bank run can commence, destroying lots of wealth. When will then take some of the extra money out of the real economy without having to destroy any traditional business.


> So there will be no will to rescue anything and a full on bank run can commence, destroying lots of wealth

How does this actually benefit anyone? It's not wealth redistribution.

> When will then take some of the extra money out of the real economy

But it wasn't real money in the real economy, it was fake money in a fake economy.

Admittedly some real money went in, and some came out again to buy stadium endorsements and superbowl adverts, but the main effect of this is to wreck the savings of (a) ordinary rubes and (b) over-optimistic VC firms. I can see why people want (b), but you can't separate it from (a).


When you take money out of circulation, you reduce inflation.

Here's a "real world example:"

There's a house near me that's selling for $7,777,777 (get it? Lucky sevens?)

The cost of the house is obviously arbitrary, and it's listing has a bunch of references to bitcoin. The owners of the home are obviously trying to "leverage" crypto mania to find a buyer.

Now that a bunch of crypto "wealth" has been destroyed by falling prices, the owner of that house will need to re-assess whether $7,777,777 is a realistic price.

More than likely, it's not. And by lowering the price of the home they're selling, they're contributing to a reduction in real world inflation rates.

Also, yes, I know that inflation stats use a proxy for the cost of housing.


Just like when you step out of the ocean in wet trunks you reduce ocean levels.


Well, most people pee when in the ocean.


I would never, how dare you


Except in both the real world scenario and your example, no money has been taken out of circulation.

If the entire stock market went to zero tomorrow, exactly the same number of dollars would be circulating.


Money is not just dollars. I consider my bank account money, even though I know its backed by some fraction of its value in actual dollars. People take out loans that are backed by stocks, for example. If the stock market went to zero, they would default on the loan, and money would be destroyed.


Your bank account is the solidest non-money because FDIC insured up to $100,000. If it weren't, then it would be an IOU from a bank, worth whatever that trust is worth.

In your loan example, either you haven't spent the money they loaned you, which would then be reclaimed, or you have spent it, in which case someone else has it.

No money would be destroyed in either scenario, unless what you did with the loan was put it in a suitcase and burn it.

The only things that remove money from circulation are: bank accounts that only accrete (usually temporary, and thus not actual removal), taxes, and physical destruction.


> If the stock market went to zero, they would default on the loan, and money would be destroyed.

> In your loan example, either you haven't spent the money they loaned you, which would then be reclaimed, or you have spent it, in which case someone else has it.

Not sure if you understood the parent's statement. Money is created largely by loans - when banks lend $1m to a company, the company owes $1m to the bank and gets $1m, but no one loses $1m anywhere. And by spending that $1m somewhere else, a fresh $1m is printed out of thin air and goes into circulation. When the company pays that back, that $1m is destroyed.

There is certainly a "root" of money that seems not to be created via loans anywhere, namely those issued directly by the central bank (the Federal Reserve in US's case). And no, they are loans nevertheless - since these money is backed by the government's ability to collect taxes, any money printed is effectively created via loans to the government, and the government has infinite ability to borrow money. When the government is unable to collect taxes anymore, nobody needs these money either and the government effectively goes bankrupt since its loan is no longer backed. As a result, dollar loses its value. That's how our current fiat money system works.


>Not sure if you understood the parent's statement. Money is created largely by loans - when banks lend $1m to a company, the company owes $1m to the bank and gets $1m, but no one loses $1m anywhere. And by spending that $1m somewhere else, a fresh $1m is printed out of thin air and goes into circulation. When the company pays that back, that $1m is destroyed.

So your contention is that Bank of America prints the $1m dollars that it loans to me? Color me skeptical. I imagine they'd have better rates if they had a money printer. Or maybe they wouldn't bother loaning money at all.


> FDIC insured up to $100,000.

It's now $250,000.

https://www.fdic.gov/resources/deposit-insurance/brochures/i....


Not true. You would need to know the cost to build the house and/or the price paid for the house prior to this selling event. Once its been sold again, we can assess whether there has been a net reduction or addition to the supply of money/credit/debt.


Well it would still have a devastating effect. Most businesses would insta-close tomorrow. And remain closed for months while shit is sorted. Meanwhile panic ensues - world population drops 5b in 1 month.


What is real money anyway? Money is an idea and the money supply contains far more than physical currency. If someone believes they have crypto wealth, they will spend accordingly and the velocity of what we measure as the economy increases. If that crypto wealth disappears, that person is going to cut back on their real spending. The economy is human.


It's easy to take a philosophical stance on this, but this represents many peoples' life savings. There are countless lives that have been irreparably harmed by crypto scams, which has a net negative effect on our society.


I think the idea here is that pumping the economy full of helium will eventually be catastrophic. If this crypto crash is allowed to actually play out instead of getting bailed out it could prevent something far more damaging later on than even a million people losing their deposits.


How is that different from people who have been affected by regular scams?


> How does this actually benefit anyone? It's not wealth redistribution.

Sure it is. It redistributes money from the marks to the crooks.


> How does this actually benefit anyone?

There’s real benefit when we consider the amount of man-hours spent the past years on trying to reinvent finance, with little success so far.

These (smart) people can use their time and skills towards more productive stuff.


> These (smart) people can use their time and skills towards more productive stuff.

But if society really believes that their smartness could have been used better, why aren't they paid for doing "more productive stuff" than crypto? These people did crypto because it paid the most. Therefore, at the time, it must mean that it is most productive to do crypto.


I guess society is not optimized for max productivity. As a group, society makes many resource allocation mistakes and (hopefully) corrects them later on.

Fe. society might have been better off investing in nuclear energy in the past 30 years, yet it did not and it s starting to look as a mistake.

Circumstances play a role too. My opinion is that if it had not been for the pandemic and the economic anomalies that happened way fewer people would have paid attention to crypto.


> How does this actually benefit anyone?

Maybe it will alleviate the semiconductor shortage.


Some say if you can't afford to lose it all, you can't afford to invest in the first place.


Well, the money is not gone. It's just that somebody else has it. Interesting idea though.


No, the wealth actually is gone.

For example, bitcoin has a market cap of $320B. At its peak it was worth about four times that. Did $960B just disappear? Basically, yes.

The coin has no intrinsic value (in the way that a can of corn does, for example). It's worth money because people say it is. And market cap is just a multiple of what it trades for at the margins times the number of shares (coins).

To give an example, say that I bought a bitcoin 10 years ago and that it was my only possession. At its peak, I could have sold the bitcoin for ~$64k, so I had a net worth of 64k. If I didn't sell it at that point and still hold it, I'm now worth ~16k. No one made $48K of of me... there were no transactions in that time period. The "wealth" has simply vanished.


Let's take a different example. Let's say I have 100 foobar coins. I sell one of them to an associated entity for $1, the market cap is now $100, I have $99 in "wealth". That entity sells one back to me for $2, now the market cap is $200. I sell it back for $3, now the market cap is $300.

Do I now actually have $300 in wealth? No, because it's illiquid, and the bid for it more broadly is likely $0, I have to apply a large liquidity discount. It seems like many communities behind these coins have been doing something similar to the internal trading I've been describing here, and hyping them to find outside people willing to trade some of their real dollars for these worthless coins, and those few trades have been used to establish the broader market caps of these things.

All illiquid and somewhat illiquid have this property to varying degrees, ranging from startup stock (no, selling 20% for $1M to a VC doesn't mean your company is actually worth $5M, unless you could find a buyer for all the stock for that much) all the way up to Amazon, Tesla, Apple, etc, because there's no buyer waiting to absorb all the outstanding stock at the current bid. There would be a buyer willing to absorb all of it at some level, but it's likely at a level far lower than the current market cap.


Indeed. It's no different than if I kept a hand written ledger in a paper notebook and sold entries onto that ledger for USD. In this case, people would see its a piece of paper and scoff at the idea that having their name written onto this paper is worth any money, even if someone else paid money to put their name on the ledger, but doing the exact same thing with cryptocurrencies fools people because the fake spot price and fake market cap is broadcast across the internet as if it were real, obscuring the fact that each of these coins is just the digital version of someone's personal notebook.


There are a lot of people willing to lend you money on the back of less-liquid-than-cash assets, though.

It may not be "real wealth" but it certainly is spending power and psychological cushion, which means different spending choices, which means inflationary pressure.

I had a lot of coworkers who listed crypto holdings on their mortgage application in the past few years. They wouldn't have been bidding as high if the perceived value of those wasn't there.


Yeah, when money's cheap and easy, banks make bad loans. Don't depend on the ability to get asset-backed loans to get you through a downturn, though, banks tend to get tightfisted real fast.


> There would be a buyer willing to absorb all of it at some level, but it's likely at a level far lower than the current market cap.

For crypto, no one would want to buy the entirety of bitcoin, because it basically has no value if it isn't traded, so it's effectively worth $0 if someone owns all of it.

For companies, this isn't necessarily true. When acquisitions happen, the current market cap is usually the floor, not the ceiling. I agree with your overall point though.


This is precisely how I explained NFTs to my "How can NFTs possibly be bad?" friend.

- You start the day with $200,000. You create an NFT and sell it to yourself for $200,000.

- Now you have $200,000 and a $200,000 NFT, meaning you've doubled your wealth to $400,000.

- If you can convince someone to buy that arbitrary NFT at 95% discount, you end up having $210,000 in cash by the EOD.


> You create an NFT and sell it to yourself for $200,000. > Now you have $200,000 and a $200,000 NFT

But you now also have a liability of $200,000. Your total asset is still $200,000 , not $400,000.

> If you can convince someone to buy that arbitrary NFT at 95% discount

so you just sold the NFT for $10,000. If somebody else got tricked into thinking they got a 95% discount - that's on them. A fashion store often marks up their clothing by 100%, and have "sales" of 50%!


>But you now also have a liability of $200,000. Your total asset is still $200,000 , not $400,000.

Assets are not liabilities, so you'll need to explain why you think it is a liability.

Fashion brands and their physical goods are definitely not the same as NFTs, insomuch as they at least have intrinsic value. NFTs only intrinsic value is they good for ripping off greater fools.


The described foobar coin was illiquid and couldn't be sold. But that's not true for BTC, ETH, and even a lot of the shitcoins that had some decent volume om multiple exchanges.

So in that sense, it _was_ wealth for the holders.


Twitter is a counter example for your tech stock scenario. However, you could argue that its hyper-inflated Tesla stock trading for hyper-inflated Twitter stock, much like a BTC millionare, trading BTC for ETH.


Right, if a company finds a buyer, then its market cap is suddenly realized. The liquidity discount is meant to reflect the uncertainty of that given no current bidder for all the stock, and the discount is lower for public companies with demonstrated interest than for private companies. And you can see the downward pressure that Musk’s selling Tesla shares has had on its price.


He was talking about money and you wealth.

I trust money more than wealth. Unsold stock should not be quantified until the moment it is sold.

It's getting tiring to hear about "so and so billionaire lost X billion". No, they didn't lose anything that they didn't have to begin with. Having more stock than the trade volume of that stock means all of that "wealth" is mostly theoretical.


If you didn't count the "theoretical" wealth you wouldn't call them billionaires in the first place.

That "theoretical" wealth clearly has a massive impact on the real world, so it's silly to pretend it does not exist. For example, Elon didn't buy Twitter with a giant bag of gold coins -- he borrowed against his wealth, which is mostly in stock.


And his "wealth" shrunk far more than what he had to liquidate and pay twitter for.

Because no sane organization will lend out real cash over the same amount of collateral TSLA stock, and leveraged lending opens TSLA to extremely high risk as value dropping would means Musk will be forced to sell to cover/and or stake more TSLA. This is exactly how FTX failed - they counted their own token as their "asset". Spoiler: it didn't work.

Does this wealth have a high impact on the world? Of course it does. But does it has the same impact as same volume of cash? Absolutely not.


Also Zuck lost $100,000,000,000 in wealth when Facebook tanked. Counting beans in hand is not how wealth is calculated.


I totally agree... crazy times in the past few years. I have heard that some people were able to borrow against their "wealth" (stock holdings, crypto holdings, vested ownership shares) for homes, cars, boats and more since Covid. If their "wealth" suddenly evaporates in the form of losses, they find themselves on the wrong side of the trade. Super duper risky and the appetite for these "products" was immense from what I understand.


Many people have a net worth greater than the number of circulating dollars. Also, dollars are not risk-free. They target a few percent annual loss, after all!


He was talking about money, but I think meant wealth based on the context of his response to the OP. They are almost interchangeable, but not in this context.

> Unsold stock should not be quantified until the moment it is sold.

I don't know Elon Musk's finances, but I imagine that he's got a bunch of stock, (let's say) an amount of cash in the tens or even hundreds of millions and debts well above the amount of cash he has on hand. If you don't count unsold stock, then Elon Musk is poorer than most college students.

I agree the numbers are misleading (e.g. Bill Gates money is very diversified and he has already paid many of the capital gains on microsoft stock sales, so comparing his wealth to Elon Musk's with a single number is quite misleading). But you have to count unsold stock for something.


The "market cap" for crypto is just an illusion. There never was enough liquidity. The money was lost the moment you exchanged it to crypto. Some of it is in hands of other people. Some of it was spent to keep the show going (mining, employees for all the crypto businesses etc.).

You and every individual investor could have cashed out but that is as saying that Madoff customers could have cashed out. It's just an illusion. Most of the money disappeared once you deposited and Madoff, SBF, or some other scammer spent it on a new boat or house on an island.


> I had a net worth of 64k No you didn’t. You had a potential net worth of 64k, but you didn’t take advantage. You can’t just compare to peak, your wealth loss/gain comes from comparing to the price you bought it.


What's a potential net worth? "Net worth" is already "how much money would you have if you sold all your assets and settled all your debts". Since for most people most of their wealth is in assets, it's totally normal for net worth to swing up and down as the market value of household goods/land/buildings/companies/bitcoins changes.


The catch is that even if your net worth is a certain amount on paper, you can't necessarily realize that as cash.

Take Elon Musk, for example. A lot of his wealth is in Tesla stock. But he can't sell that stock without also affecting its price. If he decided to sell all of it tomorrow, the price would plummet and he would only receive a fraction of what it's worth today.

This is what a lot of these companies are doing. I can create 100 tokens and sell you one for $1. In theory, my "net worth" is now $99, since I have 99 tokens that are worth $1 each. In reality, if I tried to sell all 99 of them, I'd quickly find that people are actually not willing to buy all of them for that amount.


How else would you understand wealth? Are people who have loans against massive stock portfolios but relatively little cash (spent on houses, cars, trips, etc)... poor? Obviously not.

OP was worth at least 64k at some point and now is worth at least 16k. The value and total amount of wealth (in US Dollars) has gone down.


Agree 100%

What's happening is not great for crypto investors, but it's beneficial for people who want inflation to go down (nearly all of us.)


> The coin has no intrinsic value

This is pretty debatable. Bitcoin does have some intrinsic value as a medium of exchange and store of value.


I would say that bitcoin has extrinsic value. The value it has is because people agree it has value. Imagine I started a blockchain using the exact same code as bitcoin and called it Bitcoin9890812894. It would have the same functionality as bitcoin but a value of $0 since virtually no one else would agree that it has any value.

On the opposite end, a can of Cambell's soup has intrinsic value, because it's worth something to someone regardless of what anyone else thinks. The can of soup that Andy Warhol as the basic for his famous paintings has a mixture of both types of value (surely someone will pay significantly more for that can over any other identical can).


> The value it has is because people agree it has value. Imagine I started a blockchain using the exact same code as bitcoin and called it Bitcoin9890812894. It would have the same functionality as bitcoin but a value of $0 since virtually no one else would agree that it has any value.

That doesn’t seem like a contradiction at all, right? If your fork somehow became well known and replaced the original, then yeah, your fork would have some intrinsic value as a medium of exchange and a store of value.


> If your fork somehow became well known and replaced the original, then yeah, your fork would have some intrinsic value as a medium of exchange and a store of value.

Intrinsic value is a value outside of perceived value. A can of soup is calories, which we need to survive, as long as it is edible, it will always be worth something to a human. Farm land has intrinsic value because it can produce food. Diesel has intrinsic value because farmers need this to produce food. Bitcoin9890812895, my fork of Bitcoin9890812894 has no intrinsic value to anyone.


> Intrinsic value is a value outside of perceived value.

Yes, and we're not talking about perceived value. We're talking about intrinsic value from a peer-to-peer network that's used by many people.


It has value only from being accepted by a network of people. That’s not intrinsic value. That’s the very definition of perceived value.


No, I'm not saying that the current market price of bitcoin is the same as its intrinsic value. I'm saying that you can calculate a value of bitcoin using objective measures rather than the current market price of bitcoin. Those objective measures can include things like the capabilities of the bitcoin network, the number of types of people using it, etc.


The value of Bitcoin is the sum of its intrinsic and perceived value.

Consider a hypothetical Bitcoin, without the objective measures you describe. Without the capabilities of the network, people willing to accept it as payment for goods/services —- it is a coin that nobody has a use or want for, i.e. an unadopted shitcoin.

The value of unadopted shitcoins approaches zero as fewer and fewer people use it. Therefore, the value of Bitcoin is entirely comprised of perceived, and not intrinsic value.

Another way:

Compare a Bitcoin with a banknote. A banknote has perceived value (it represents one, or several, dollars, which have a stable value and are accepted universally) and intrinsic value (it is piece of paper that you could burn to provide a small amount of heat, in a pinch). The Bitcoin doesn’t even have that tiny amount of intrinsic value that the banknote has.

During the Weimar Republic, people burned paper money because it was cheaper than wood. In that situation hyperinflation led to the perceived value falling so low that it was below the paper money’s intrinsic value. If everyone stopped accepting Bitcoin and its perceived value evaporated, that Bitcoin would not even have the intrinsic value remaining, of heat from a single burning banknote.


But you're using a far too narrow definition of "intrinsic value" that is not at all the definition used in economics in finance. It doesn't just mean something like "the value it would have to me if I were the only person alive on Earth." Computer networks, protocols, and other technological systems can still have intrinsic value even when they require many people to use them.


I'll debate that- the intrinsic value from exchange is less than the cost to pay the miners to run the network, therefore a negative net present value -- bitcoin is not a store of value, but fundamentally destroys value and relies on greater fools to buy for any price increase.


About the amount of work to make a toy banking system. I never tried, but there are some download and next next finish coin generators, right? So the bitcoin system is worth about a buck or so. (.. if I want to be very generous, we can add the value of the bitcoin brand, and that el salvador accepts it, some apps already can handle it, but really that's it. It's still negligible.)


With all of the options these days, I'd wonder about the characterization of 'intrensic'.


What can you do with the bits that make up your Bitcoin, other than trade them for something else?


You can prove you actually own how much you want to prove you actually own, without leaking any other information on your identity or current wealth. You can sign documents. You can mount complex escrow processes with it. You can send it worldwide to anybody without even knowing where they live (phone numbers fail), or what their bank is (IBANs fail) or what their email is (gift cards fail) or whether they are allowed by someone else to receive money (paypal fails). You can pool it with friends and set up conditions for safe withdrawal reliant on multiple people agreeing at the same time. And you can receive money from anyone, anywhere around the world, without anyone else's permission.


Yes, but how many coins fulfill those basic requirements? Why is btc special? Why would any of these coins be worth anything besides some fee to convert-to from fiat and convert-from to fiat?


Só if you send it to someone, what can they do with it?


You can pay Bitcoin (and only Bitcoin) to embed messages, typically transaction messages, in the global Bitcoin blockchain.

I was hoping years back that all of this would have taken off for payments rather than silliness. I was wondering if we'd see a (low) Bitcoin value determined by the need to pay BTC transaction fees and those fees being effectively locked up until the next block comes


Recommended reading on the topic of wealth destruction by fraud, John Kay "The Bezzle Years." An introductory quote to give you an idea:

More than a half-century ago, John Kenneth Galbraith presented a definitive depiction of the Wall Street Crash of 1929 in a slim, elegantly written volume. Embezzlement, Galbraith observed, has the property that “weeks, months, or years elapse between the commission of the crime and its discovery. This is the period, incidentally, when the embezzler has his gain and the man who has been embezzled feels no loss. There is a net increase in psychic wealth.” Galbraith described that increase in wealth as “the bezzle.”

Link: https://www.johnkay.com/2021/09/08/the-bezzle-years/


Very coincidentally, I also just came across a very nice write-up on the bezzle, written around a similar timeframe: https://carnegieendowment.org/chinafinancialmarkets/85179


Actually the wealth is gone. Not because bitcoin was a ponzi scheme (that doesn't destroy wealth or money, that indeed just redistributes it) but because a common way to get bitcoin or other cryptocoins is to destroy equivalent amount of wealth, burn gas, energy, make ASIC silicone to mine, etc. What a madness, really.


This is not wrong, physical wealth was indeed destroyed to make tokens of negligible* value to humans, but the meaning of OP's "wealth" is claims on real goods or services -- as in the houses bought by insiders a few weeks ago. Destroying the remainder of such claims is a real benefit to the world economy, reducing inflation of all legit currencies.

*negligible not zero, because some tiny slice of crypto transactions actually are done by useful workers in order to shield wages from kleptocratic regimes.


That's incorrect. When asset prices fall, wealth is indeed gone. It's not transferred to someone else, it just vanishes.

It's true no matter if you're talking about falling stocks or falling crypto.


Not sure what you mean. If I buy some cryptocurrency coin for $10 somebody received $10 from me. If now the value of the crypto goes $0, I have lost $10 but the who I gave $10 to still has that money. It has not magically disappeared. Or do you mean something else?


> If I buy some cryptocurrency coin for $10 somebody received $10 from me. If now the value of the crypto goes $0, I have lost $10 but the who I gave $10 to still has that money

Here's an example of how this works:

FTX "minted" their own cryptocurrency. They minted billions of dollars of it.

When people purchased a tiny fraction of it, that established a price for one coin.

Once that happened, FTX could say "we're worth billions of dollars."

But keep in mind:

* the cryptocurrency was created out of thin air

* the value of the crypto crashed by over 90% in the past month

On top of all that, there was a "multiplier effect" when the "assets" were used as collateral on loans to counterparties.

The net effect is that the "assets" were worth billions at some point, but that value has evaporated. And loans were made on those "assets" which may have multiplied the actual impact several fold.

It's a banal comparison, but this is a lot like Beanie Babies in the 1990s. At one point the market was worth millions of dollars, and then it evaporated overnight.

That's deflationary, and if there's one thing the world needs right now, it's deflation.


If you buy one coin for $10 crypto considers that the value of all of the millions of coins. https://en.wikipedia.org/wiki/Wash_trade

Yes, the $10 exists, but that $10 trade may have inflated the value ("market cap") of the coin by billions.


Exactly. That's the fundamental reason that FTX is just the tip of the iceberg.


This is just a demonstration that this is a naive way of estimating value.


But this is exactly how all assets are priced and that price signal is good enough to take loans out against the asset collateral and create even more money supply.


Gosh. Is this one of those tiktok quizzes?

At start you had 10 bucks and he had 10 bucks worth of crypto for total assets of 20

Now you have crypto with value of 0 and he has 10 bucks for total assets of 10

Overall 10 bucks is gone and yes there are winners and losers

Edit: TikTok quiz abbreviated: you buy for 50, sell for 60, buy again for 80, sell for 90. How much did you win / lose? ... the confusion for some people being created since they sold at 60 to buy back at 80


When you buy $10 of crypto you are passing that $10 to another person, so the amount of money is unchanged. You receive a promise for $10 for some point in the future essentially. If that goes up, you now have a promise for $12, for example. If there is $1 trillion in crypto that suddenly goes up to $2 trillion then an extra trillion in promises were created that would put extra pressure on the existing amount of dollars in existence if they were all redeemed at once (inflation). If the money supply remains unchanged and crypto prices change, then it can increase/decrease the demand for dollars.


You're changing value stores in this scenario, which mitigates the loss but doesn't eliminate it. WHat makes you think that $10 accurately represents some set of physical goods for which it can be exchanged? What about when you start exchanging like-for-like at different agreed rates? If we equate wealth to money, and money is largely based on shared faith and acceptance, then when that agreement shifts wealth most certainly is created and disappears out of and into thin air.


Yes, $10 has "magically" disappeared. Consider this case. I buy a used car from you for $10000. You now have $10,000 and I have a car worth $10,000 (let's assume that i got a fair price and would be able to resell it for that amount too).

A day later the Russian army hits my car with a mortar. You have $10,000. I have some scrap metal. Rather than $20,000 worth of stuff, there's now $10,000 (plus some scrap metal) total.


Hasn't total wealth gone down by $10 in your scenario?


It's more like we have discovered that our estimation that $20 of wealth existed was incorrect, and only $10 existed. Someone speculated incorrectly.

It's like a gold mine being revealed as barren. Whether you say wealth was destroyed or wasn't there to begin with is... distinction without a difference.


Actually… and here’s the really fun part… the wealth was always a social construct. It doesn’t exist physically, only in ideas. It is whatever we collectively say it is. When we think something is worth $20, it is! When we decide it’s worth $10, it is! Things are worth what people will pay for them. The money is all paper anyway.


I think you highlight the problem with crypto speculation, it does not produce any revenue, so the price appreciation is only governed by new speculators bet that a greater fool will buy it. When you trade there must be a seller and buyer, the value of the untraded part is only a potential value and not real value, as soon as you put it for sale, there will be more supply than demand and the price plummet, as it happened with FTT. The total supply may have been valued at billions of dollars even thought only few millions have been bought, so the collapse just transfered the wealth to the ones who sold above the real money that was put into it. I think it is a zero sum game as there is no revenue, only speculation.


E.g. The last people to buy who haven't sold are left holding the bag.


Both are true, it depends on the value those services provided and crypto provide now


While technically correct, I will point out that during "the crash" many with access to capital are able to secure a net long position either by way of savings or via real options -- LLC is an example of a real option where the capitalist only loses the investment value making the financial leverage an attractive and useful tool.

People losing jobs and thinking about their next steps are usually too late with not enough skin in the game to jump on the decade-long bandwagon. That's the "wealth" some of the commenters here seem to be pointing to. Essentially, inequality.


Crypto tokens are in one pocket and US Dollars are in someone else's pocket.

Which one retains value in a market crash? My money is on US Dollars, but you are free to disagree with me.


Sam Bankman Fried marked his 1 billion Serum (a dex on Solana) tokens at $2.1B on his balance sheet.

The last time Serum was worth $2.1+ per token, it was Jan 2022. At current market prices, that same stake is worth less than $250M (given liquidity conditions).

Serum was also a dex that SBF's company, Alameda, pretty much made in-house, and then allocated themselves 1 billion tokens.

So this "wealth" was created out of thin air. And disappeared into thin air.

Ergo, it was not real. It wasn't lost. It never really existed in the first place.


If a digital coin goes from $1/per to $0.01/per, the value is destroyed. Where did it go? In this instance: Poof.

Burn baby burn.


Nah, even then someone has the money, you just have less.


Not when the money never existed in the first place.

These shitcoins with billion dollar market caps never actually took a billion dollars into any accounts. The volume is fake, the activity is fake, the price is fake.


That's silly. If a real coin, in your hand, goes from being worth $1 to 1¢, who made money?


Technically, Jerome Powell did. Currency valuation is complex because it is relative so the lens of perspective becomes everything. The primary nuance in your example is that currency devaluation through inflation is not the same as currency devaluation through a decrease of adoption (and therefore overall buying power): this is very clearly reinforced by the IMF's criteria for what a currency requires to become the global reserve. Any modicum of "objective" value can only be reached through multiple relative comparisons. For example:

- How many Dollars does a bitcoin buy?

- How many Bitcoins does a Dollar buy?

- When the exchange rate varies, what does that say about the relative value of each currency?

- How many Potatoes can a Dollar buy?

- How many Potatoes can a Bitcoin buy?

- How many Drugs can a Dollar buy?

- How many Drugs can a Bitcoin buy?

The above is extremely oversimplified but much like a global foreign exchange relies on shifting exchange rates, so does the value of all currency in terms of relative buying power. In terms of absolute buying power - my personal highly subjective bid is that a currency's "value" is a compound of its' exchange rate as well as the amount of people willing to exchange it, and the amount of it in circulation as well as the breadth of people willing to accept it in exchange for goods and services.


The person who sold it to you for $1 (or, possibly, the person who sold it to them, recursively).

If A mints a coin for free and sells it to B for $0.25, B sells it to C for $0.50, C sells it to D for $0.75, and D sells it to E for $1.00, at which point it crashes to zero, A, B, C and D have all made $0.25 each, and E has lost $1.00, but nothing of value was created or destroyed.

E incorrectly believed that the coin was worth $1.00 and thus that more wealth existed in the world than was actually the case, but that doesn’t mean wealth was ever destroyed, just that his incorrect estimate was updated.


How can a real physical coin lose 99% of its value? That's inflation

How can a crypto coin lose 99% of its value? It was worth nothing to begin with. No wealth created, no wealth destroyed. Plain transference.


Better example with coins:

If I convince one person to pay $10 for a quarter, are all quarters worth $10?

If you answered "yes", you can run https://coinmarketcap.com/.


Yeah, but the "money" is irrelevant. 99% of their buying power (which in a simple sense is what people usually mean when they say wealth) went away.


You can only make that determination when that "someone" utilizes the asset in some manner or converts it back to the original currency.


What you say is only true in a liquid and transparent market.


Isn’t that generally the case?


Maybe. Unfortunately I think a lot of Americans do have crypto holdings and a lot of investment firms as well. Also, crypto tycoons are heavy contributors to political parties.


They will use this to capture all crypto and regulate it. Problem, Reaction, Solution. I think FTX was only caught because Binance exposed them too early before SBF could bring regulation to the exchange and insulate himself. Him, his family and GF all have ties to people that could have made this happen.

Now no matter what the end game is regulation, either by someone like SBF to make it happen or knowing full well it was going to blow up. With regulation they can protect the fox in the hen house like they do with the stock market and keep all the control.

If you don't think so, read in depth what Bernie Madoff did and how connected he was. The best part is, stock market still allows PFOF which he invented to help with his Ponzi scheme.

Just my take on it all...


> before SBF could bring regulation to the exchange and insulate himself.

If that was his endgame he would've had better record keeping and books. Regulation and paperwork go hand in hand, he was not set up for existing in a regulatory environment.


I don't think that it'll be that long until Binance suffer the same fate. Probably about 6 months.


The market value of Super Mario 3 cartridges and similar collector items surely takes a hit from the ponzis coming down?


Crypto is a tiny, tiny fraction of global ponzi markets like government bonds or real estate. There is not nearly enough liquidity in crypto to make a difference in those.


Yes exactly. The “real economy” stopped producing new things since 2008. Growth has been in ephemeral attention economy output to keep the public distracted and not off building local communities that serve the public, but focused on acting as missionaries for the greatness of US capitalism; how amazing is this free market! SBF lost his customers money and is chilling in the Bahamas playing video games! Freedom.


What I don't understand is why the New York Times is saying that the guy who created and ran this scheme is a great guy. They wrote an extremely flattering article about him and are even hosting an event where he's a prestigious speaker.

He seems like a grifter and responsible for presiding over the loss of a boatload of money for investors.

https://www.nytimes.com/2022/11/14/technology/ftx-sam-bankma...

https://www.nytimes.com/events/dealbook-summit#speakers


I know for example SEC has, in the past, used a crypto summit in New York to serve a subpoena to another crypto grifter. [0] I would not be surprised if there is government pressure on NYT to pretend everything is fine to lure Sam Bankman-Fried out of his safe haven in the Bahamas.

[0] https://nymag.com/intelligencer/2021/09/crypto-conference-jo...


Wasn't he like the second largest democrat donor in the US this year? $39.7 million to federal races. The soft-glove treatment from the NYT is the least he could expect. Maybe he knew what was coming.

https://www.nbcnews.com/meet-the-press/meetthepressblog/sam-...


Both co-CEOs of FTX were large donors, one to each party. Neat trick.

https://www.bloomberg.com/news/articles/2022-11-08/ftx-crypt...

> Bankman-Fried, known as SBF, threw more money at Democrats this cycle than anyone but George Soros, according to OpenSecrets data. One of his top lieutenants, Ryan Salame, has been bankrolling Republicans at almost the same pace as Steve Schwarzman and Peter Thiel.

There's a good chart of how the company distributed things at https://www.ft.com/content/428c7800-c72d-4c59-9940-4376fea6e...

None of those politicians are gonna stay bought; no more money is coming. There's no reason to think FTX can exert further lobbying pressure; they're cooked.


Not sure why this was downvoted. Yes, he donated 2/3 to Dems and 1/3 to Republicans. Assumption is for protection, and regulatory direction.

He was only behind Soros in terms of total dollars to Dems.

His mother started a couple of Dem PACs just 13 days before her son became CEO of FTX (imagine the coincidence!). Her money, as far as it is traceable is also very significant.

... This was I suppose part of his "effective altruism" (if you can say that with a straight face). Instead of downvotes, imagine the comments and rage if he had donated to Trump instead.


I'd rather imagine a world where Citizens United was decided differently and this donation wasn't legal in the first place.


You're assuming the money wouldn't have gotten there anyway, which I'm not sure is a good assumption.

Also, remember Citizens United was about publishing a movie critical of a political candidate just before the election. I'm not sure a world where the government forbids publishing about political candidates is a great alternate reality, either.


that's a very incomplete view of Citizens United - the specific issue was not that it was published before an election - it was that paid for by a non-profit organization (Citizens United is a PAC). individuals are allowed to publish a movie, or view on their own w/o prohibition. Corporations and non-profits were not granted that right. Citizens United reversed that law, allowing corporations and non-profits (mostly PACs) to be able to express more political views. It's not crazy to think that organizations are not a person and therefore shouldn't be afforded rights that were intended for actual individual human beings.


That world isn't imaginary: it exists in plenty of other democracies and they are doing fine. (Candidates in France for example are publicly funded and there are rules about how much can be spent to promote particular candidates).


> Instead of downvotes, imagine the comments and rage if he had donated to Trump instead.

That's what his co-CEO was for; he played the same role with Republicans. $15M to a PAC he controlled (https://www.fec.gov/data/receipts/?committee_id=C00809020&tw...) that donated exclusively to Republican campaigns.


Yes. Thank you. That is the 1/3 (but actually less since his mother’s the PAC money for Dems and Biden directly is not counted) that I mentioned.

This is also the company that had a round 7 million on their excel sheet for a fund called TRUMPLOSE.

All I’m asking is for your honesty that some people who are looking the other way on this would be appalled. If you aren’t saying that some people would be associating Trump himself to these fraud-derived donations, you just aren’t being honest.


> This is also the company that had a round 7 million on their excel sheet for a fund called TRUMPLOSE.

https://www.coindesk.com/markets/2022/11/15/analysis-ftxs-tr...

"For those looking for a shadowy tale that involves crypto in the halls of power in D.C., TRUMPLOSE is going to disappoint. It’s not a new world order talisman that shows FTX and Sam Bankman-Fried are complicit in laundering money to the Democratic party through Ukraine donations. Rather, it’s one part of FTX’s prediction market it ran during the 2020 U.S. election."


> that shows FTX and Sam Bankman-Fried are complicit in laundering money to the Democratic party through Ukraine donations

No one mentioned that. But you’re right. It’s irrelevant that FTX donated to Democrats, Democrats have spent as much on Ukraine since this summer than any full year for the entire US military operation in Afghanistan, and that Zelensky used non-combat US aid funds to invest in FTX.

There is literally nothing there, it’s all true, but it’s not what any conspiracy theorists think it is. I’m glad we have same voices that are here to help us know what to think.


Where do they say he's a great guy? The article is quite factual, citing his words and actions and providing context without injecting much in terms of emotion.

He also hasn't been charged with any crimes yet.


I don’t see a real issue with the article, but it is worth pointing out the article completely ignores the many victims of SBF. If I were a victim of SBF, the article would be a bit insulting.


Yea, I don’t find it flattering at all. In fact, it lays out a bunch of pretty ugly details about the arrangement with Alameda.


The NYT often has an editorial bent which makes them write flatly false articles. It's been rather odd, and a clear point of divergence from other US newspapers.

For example, the NYT was very pro the Iraq USD argument

More recently, they kept going on about Clinton's emails, while ignoring much larger security breaches from Trump's side

More recently than that, they kept saying coronavirus reinfections would be impossible

They also have been producing an endless string of anti-tech articles, but pro-crypto articles

In each case they had some clear editorial directive: "Bush good", "Clinton emails bad", "Coronavirus immunity persists (whether natural or vax)" "tech bad" "SBF good, crypto exciting"

You might agree or disagree with these positions and so that effects your reading of what I'm writing. But the point is they had an inflexible position on these issues. By contrast, a paper like the FT or the WSJ or the Washington Post generally tends not to have a monolithic party line on the points above, and would reports points on the issues above with nuance, mentioning evidence in favour or against the positions as it came out.

NYT does have some great articles but they're utterly unreliable if you don't have enough background knowledge of an issue to parse their party line.


I'm not going ask you to back up your assertions but that really hasn't been my impression of NYT's editorial positions.


Edward Bernays, pioneer of PR, wrote about how half of NYT's frontpage articles were literal propaganda. In 1928.

I think we would be naive to assume anything has improved in the past century.


> I think we would be naive to assume anything has improved in the past century.

What a naive assumption.


Okay, I'll bite. What has materially improved with regards to corruption and transparency in journalism in the past century?


Can you find any contemporary articles from the periods discussed which show facts contradictory to those positions in the NYT?

For example, an article in 2003 pre-invasion skeptical of the WMD claim

An article in 2016 putting the email server in context or comparing it to Trump's own level of scandal

An article this year critical of Sam Bankman Fried

A single article positive on tech in past few years since their editorial position change?

An article from 2020 suggesting immunity might not be permanent for most?

Matt Yglesias deleted his tweet, but he basically said the NYT had a well known inside journalism policy of "never say anything positive about big tech co's": https://twitter.com/kelseytuoc/status/1588231892792328192

Edit: here's some background on the Iraq war stuff: https://en.wikipedia.org/wiki/Judith_Miller#The_Iraq_War

And here's some context on the NYT and Clinton's emails. It's a letter to the editor which cites a comprehensive Columbia Journalism review critique of the NYT on that point: https://www.nytimes.com/2019/10/24/opinion/letters/clinton-e...


https://archive.ph/8Kzmy - this references many articles skeptical of WMD that ran in the relevant timeframe. The paper clearly had a bias that rose to the level of scandal, but even here it wasn't a lockstep situation. I doubt any of your other examples are/were either.


This was the print era. The honest stories were buried or delayed. This is what you’re referencing/

“ Some of The Times's coverage in the months leading up to the invasion of Iraq was credulous; much of it was inappropriately italicized by lavish front-page display and heavy-breathing headlines; and several fine articles by David Johnston, James Risen and others that provided perspective or challenged information in the faulty stories were played as quietly as a lullaby. Especially notable among these was Risen's ''C.I.A. Aides Feel Pressure in Preparing Iraqi Reports,'' which was completed several days before the invasion and unaccountably held for a week. It didn't appear until three days after the war's start, and even then was interred on Page B10.‘

Nowadays you can link any story but back then position mattered enormously.

Timing too. A key report after the war matters much less


You're moving the goalposts though - you said to cite any articles at all, which I did, and now you're complaining about their positioning in the paper. As I said in my original comment the coverage was slanted to the point that it was scandalous (look at the link!) but there was still a lot of content that wasn't "on message". The NYT fucked up but it wasn't pure propaganda.


Fair enough, I intentionally was a little hyperbolic to see what the strongest evidence against my position was.

>but there was still a lot of content that wasn't "on message".

I do not, however, think this is true in the case of the Iraq War. Once we get into quantity rather than mere existence, we have to consider positioning in the case of the print paper. It may as well not have existed given the positioning and delay. The editorial team buried their reporters' work when it didn't agree with their slant


They arranged those speakers long before the collapse. I doubt he'll voluntarily set foot in the US until he figures out whether or not he'll be immediately sent to jail.


They're not actually. That story broke one of the most damning pieces of information in the whole ordeal, and just casually snuck it in without further commentary. The whole thing was a hit piece disguised as a puff piece.

https://twitter.com/WClementeIII/status/1592289824542949376


Many people would not consider NYT a high quality news source, starting from many years ago.

In any case, I would suggest to never trust any news source nowadays and always supplement with your own research.


What exactly did the investors invest in?


At this point the story is ongoing, entertaining and the victims are mainly cryptobros. SBF is talking and helping sell newspapers. While I am more empathetic to the victims, I understand the NYTimes strategy here, especially considering he is still talking and saying strange things that he is unaware make him look like a sociopath.

Edit: His own psychiatrist is giving interviews with the times. This story is so juicy.

https://www.nytimes.com/2022/11/15/technology/ftx-sam-bankma...


This seems like an ideologically driven comment, since the NYT is reporting on the FTX bankruptcy in a v clear way:

https://www.nytimes.com/2022/11/17/business/ftx-bankruptcy.h...


I don't have any ideology driving my opinion, or at least I don't think so, I read these pages by the NYT and was surprised that he is being treated so nicely given what happened and compared to similar situations historically.

I mean, in the speakers panel he is listed along side Mark Zuckerberg, Volodymyr Zelensky, Janet Yellen, etc. Comparing what he did with what he others in the speakers panel have done I get some cognitive dissonance.


OK. There have been about a dozen pieces written about FTX on the NYT in just the last few days. Most have not been soft balls like the interview-based piece. I apologize for accusing you of being driven by ideology. I didn't understand why you would choose those two links when the coverage is much broader and more critical:

https://www.nytimes.com/search?query=FTX


What if it wasn't a scam? What if he had actually innovated some way to monetize crypto? Wouldn't that be impressive; the next Gates or Jobs or the like? He certainly seemed aware of how to press those buttons. Perhaps the NYTimes was as caught up in crypto nonsense as anyone else; they saw it as technological magic that they didn't understand, but identified Bankman-Fried as a wizard who did understand that magic and had harnessed it.


>Perhaps the NYTimes was as caught up in crypto nonsense as anyone else

The article about his was written AFTER he lost all his investors' money (a few days ago). The prestigious conference where he is speaking is happening in 13 days from now.

Everyone knows this guy was a grifter, he created and ran an exchange from the Bahamas, he didn't invent the iPhone of crypto or something. I see 0 evidence of any Steve Jobs level innovation.


If everyone knows he was a grifter, then why did people give him money?


People put money in PonziCoin. https://news.ycombinator.com/item?id=16225383

Everyone knows he's a grifter now. Some probably suspected earlier. Some of those probably invested anyways on the idea that they could get out before the collapse.


they're talking about now not before FTX collapsed

nobody is giving him money these days


The "investors" didn't invest in technological magic. They just wanted to double their coins. Just ask any crypto investor what was supposed to be the end product out of his investment. Lotteries are a tax on stupidity and the whole crypto mania is just a big lottery run by various individuals!


This is when I get to say “I told you so”. Excerpt from my 9 month old comment [1]

A whole bunch of these startups have sprung up; which take up real money (USDT or even USD, INR etc.,) promising very attractive guaranteed returns without locking up customers' fund. Look at these[1] for examples. Anyone who knows anything about banking in the traditional world knows how ridiculous it is. And indeed some of these are beginning to unravel[2]. In Anchor's case there are way more lenders than borrowers so Anchor is resorting to pay those high yields from their reserves. It's cutting close to being a Ponzi scheme at the moment. In a traditional banking world businesses take a loan either to cover for a short-term cashflow crunch (example an invoice that's delayed by their client) or for longer term investment. That money usually goes into economic activities which are expected (hoped?) to bear fruit to repay the loan. In the crypto world however such loans are taken only to be put back into the crypto world; to be swapped into some hot new coin to be staked and what not. The music has got to stop at some point.

[1] https://news.ycombinator.com/item?id=30335625


I can't understand the mentality of anyone who buys crypto...and stores it in a centralized exchange.

What's the point of holding USDT or USDC if you're going to keep it in a quasi-bank? Isn't the whole point of crypto NOT to trust governments and centralized authorities?


I would never do it but I understand why people do. They're speculators and daytraders. And it's extremely inconvenient (and expensive) to move money out of wallets and into exchanges and back in order to make a trade. So people take short-cuts and just leave their money in the exchange accounts.

The problem with crypto evangelists is that they keep forgetting it's humans who use it.


The funny part is that the highest risk, most speculative trading strategies and instruments are available only on-chain (meme coins, high APR token farms, even decentralized margin trading platforms).

These people took on risk, but not enough to warrant being on-chain, and in the process, lost it all. Weird place to be in - risky enough to lose it all, not risky enough to be completely speculative. Really in no man's land.


> Isn't the whole point of crypto NOT to trust governments and centralized authorities?

Perhaps originally, but now it is simply a bunch of get-rich-quick schemes, or maybe more accurately wallstreetbets-style gambling. I.e. even if people know it's going to all go to shit, try to play the game long enough and get out before someone pulls out the Jenga piece below you.


Really sad how crypto devolved into a bunch of "wagmi" nonsense. It was originally meant to be a more serious counterweight to the excess of central bank monetary policies. Now it's just grifters and scammers.

Oh well.


Idealistic solutions are vulnerable to this.

Decentralized solutions are vulnerable to this.

Idealistic decentralized solutions...


What's ironic is that the meltdown of crypto and crypto culture came right when central bank excesses are at the peak - at least for the vast majority of people alive.


> What's ironic is that the meltdown of crypto and crypto culture came right when central bank excesses are at the peak - at least for the vast majority of people alive.

I don't understand. Central banks are finally raising rates after 2 decades of ultra-low rates. If anything, central bank excesses are well below their peak now.


Totally agree

How do you even know the exchange spent the money on crypto if you dont see the keys, you may have just handed over $$ for a positive transaction on a virtual spreadsheet


The point of crypto for the vast majority of people is to not be the one left holding the bag. It's just a ponzi scheme that's open for anyone to participate in.


> real money (USDT

Not really...


You're still wrong. The issue here isn't crypto, it's centralized entities which act similar to banks.

It also failed because user money was stolen and mismanaged by hugely incompetent 20 year olds, not because it was invested in crypto.

It's like someone saying the whole stock market is a scam because of Bernie Madoff.


I'd say the difference with the stock market is that that the bottom of it is composed of companies that produce and sell actual, tangible products: cars, planes, oil, computer software, construction materials, etc. All financial instruments (legitimate or not) are built on top of this. You buy into some index fund under the assumption that, on some level, you're putting money into the production of goods and services.

Meanwhile, the "crypto market" deals only in hype all the way down. There are no goods and services produced (unless you count "hype"), only dollars going in one end and coming out the other. If I put my dollars in some "crypto investment", it's only so that some early adopter with 50000 btc can get some dollars out. The rest is misdirection.


> It also failed because user money was stolen and mismanaged by hugely incompetent 20 year olds, not because it was invested in crypto.

Ah, but you repeat yourself! Almost every actor in crypto is an incompetent 20-something, or an intentionally criminal 20-something.

Exchanges like Coinbase might be the "good guys" but when the assets they let you exchange are inherently worthless magic beans and many of them are intentional scams, it's hard to justify the stock market analogy.


The incomparable Molly White has put together a contagion flow chart, which she is updating regularly:

https://www.mollywhite.net/etc/ftx-contagion

See also her explanatory newsletter

https://newsletter.mollywhite.net/


I can't believe I missed the news the big corporate Gemini also halted withdrawals on their APY product

If its not completely clear by now: no, these companies can't promise you 8% APY without essentially running a ponzi scheme. I'm sure even Madoff had some good years during bull runs. The only other semi-possible option is burning VC money with those APY's, which is maybe what Coinbase is doing


This has all been done before (P2P lending) with exactly the same outcome, in the very recent past (last ten years).

It's hard to have empathy for these people when they've been so obnoxious up until now to anyone trying to help them with learned experience.

Assuming you're not running an outright Ponzi scheme, then when you increase interest rates, you lower your borrower quality by the same amount, meaning your risk increases by at least the same ratio (or more).

By taking 8% interest or more, during a period of historically low interest rates, you were lending to the least reliable borrowers in existence - those borrowers that absolutely everyone lending money at lower rates said no to or, even worse, shady gamblers who can't legitimately draw finance from the traditional financial system without raising alarm bells.

There's no surprise in this outcome to anyone with even a basic understanding of maths and/or economics. It's sad, but utterly predictable.


> This has all been done before (P2P lending) with exactly the same outcome, in the very recent past (last ten years).

Amen. I burned a couple grand in Prosper in the mid 00s, primarily because I'm an idiot. I think a lesson there also applies here:

1. If you are a borrower, and had decent credit, you'd just go to a normal bank, because you could get much lower rates.

2. So the only people borrowing on Prosper were people with horrible credit (and for good reason), who basically got free money on Prosper and then promptly defaulted, sometimes after like a month or 2 of payments.

Same thing goes with crypto. If you're earning 8-10% interest, it means someone else is paying slightly more than that to borrow, which they would only do because they can't get cheaper rates.


Prosper! That's the name of the place that took my poor money.

This reminds me, I think the exchanges also used that borrowed money to allow others to borrow against it to hedge or speculate on big moves. Those people were for sure paying much higher rates. They would of course pay those higher rates because they were assuming a big move in the price.


I got crushed percentage wise but only stuck a few hundred dollars in to P2P lending in the early 2000's before my state & many others made it illegal. I could understand the risk in that situation though.

With Crypto, I'm not sure if I do. To my understanding, you deposit money into a cryptocurrency, like ETH for example, in an exchange. The exchange then uses it as liquidity to allow other people to convert one cryptocurrency to another. Am I understanding this right? If so, it was my assumption that they were making 10% on transaction fees & rewarding you with 8% or something lower than 10%.

In that case, my risk/reward assumption was that many of them would raise/lower their rates based on the amount of transactions being done & how valuable the liquidity was to them. I saw that some exchanges did this in terms of months & others were constantly changing their rates.

Am I wrong in thinking that this is something that should be feasible to do without be a ponzi scheme? Of course there is extra risk based on how long the interest rate is fixed for if the market were to go down fast. I would assume banks are similar in the sense that you might buy a Certificate of Deposit (CD) or type of a bond and you get a fixed rate for a period of time. Your country's currency could drastically change or inflation could change. For most countries this isn't near as volatile though.


I'm not a crypto user, but charging 10% to swap one set of bits for another doesn't seem like a viable business model.


The numbers are all over the place. Just an FYI, 10% in this context is APY or the return after letting it sit for a year. It's not 10% each transaction. I believe each cryptocurrency has their own fees & they're all very different. I think many are fixed fees, so the percentage varies depending on how large of a transaction you're doing.


Why would an exchange need to borrow money from you to allow transactions?

Both parties of the transaction send their money to the exchange before the transaction takes place. That means the exchange actually has excess (working) capital.


The reasoning I understood was to provide liquidity of currencies, not money in general.

So if I want to sell my ABC token for XYZ token, they are borrowing your XYZ token that you have gaining interest to make the transaction work. They are then taking the ABC token I sold to credit an ABC token they had borrowed from someone else.

I may be completely wrong on this but that was my understanding of why this worked. Of course it doesn't work when everyone wants to take their money out. I would assume a responsible entity would use the money earned from fees to help provide liquidity.

I would also assume a responsible entity would want to stop transactions of ABC token if there was no longer enough liquidity to support the above borrowing & trading.


8%? Nexo's was promising 16% APR as recently as Nov 11 according to Google's cache (https://webcache.googleusercontent.com/search?q=cache:eN2KEV...). The page redirects to the home page now.

I've seen "bonus" APRs as high as 40% offered.

https://crypto.com/us/earn is still offering 14.5% APR, and 8.5% on stablecoins, after accidentally sending $400M to a competitor.


Crypto.com advertises massively inflated APRs, to achieve those you need to hold a limited amount of the asset and a huge amount of CRO

e.g. to hit the headline rate of 14.5% APR, you need to hold no more than $3,000 of DOT and at least $40,000 of CRO (their own token)

the reason it's so high for DOT is that DOT is currently paying 15% APR to validators.

It's extremely shady what crypto.com are doing but not necessarily unsustainable, because they're basically lying about what APR you can get


So what you're saying is that it's just a garden variety Ponzi scheme, and not anything original. If you put 12 times the capital, they'll pay you "14.5%" yield on the principal. The moment they run out of fools to put this massive amounts of cash on the pyramid, it will go down as all Ponzis do. Crypto must die at this point, it's the only solution to this mess.


Crypto like Bitcoin is fine. Exchanges that are stealing money are the problem. Confusing the two is a mistake IMO


Exchanges are a crucial part of the bitcoin economy. Miners need to sell the bitcoins that they earn in order to pay the bills.


You can sell and transfer bitcoin directly without any need for an exchange.


Sure and you can buy groceries directly from the farmer. It's just not practical at any meaningful scale.


cough FTT cough

Holding 40k in CRO would be extremely unwise right now no?


https://nexo.io/earn-crypto is still up and promises 16% APR - I think they are the last ones standing now. I'm sure your money is safe with them, they proudly talk about their excellent Trustpilot rating /s


That page redirects me to the home page, as well. Either it's because I'm in the US or they're taking things down.


Probably geofenced, it works for me (Germany) and shows the offer

> Earn 16% on Crypto

> Make your idle digital assets work for you with Nexo. Start earning up to 16% APR, paid out daily.


"Up to". Aren't all of those high yielding services strictly in some crazy token that is bound to constantly deprecate?


They are. The highest 16% is offered for the Polkadot shitcoin. Without even touching Nexo, you can get 12% just by regular Polkadot staking. To get the 16% that Nexo offers, you need to have 10% of your portfolio in Nexo's own shitcoin and thus you're moved to the "Platinum" level, which is eligible for higher yields. Of course, as you say, Nexo's shitcoin is bound to depreciate.


Isn't that what BitConnect was?


can you grab a screenshot?


https://archive.ph/Dzojr this is what it currently shows to me


I'm in the US and it is sending me to a home page that offers 16%



> If its not completely clear by now: no, these companies can't promise you 8% APY without essentially running a ponzi scheme. I'm sure even Madoff had some good years during bull runs

It's almost impossible to beat the market after fees. Anyone who promises to do so, consistently, is full of it. French (2008) and a whole body of literature before and after.


Which market? I own some bonds that yields 8%.


Yield to maturity is far different that yearly yield.

though it is possible to find some bonds that have an annual yield of 8%. Though no one would expect them all to make it maturity without any credit issues.


You can find a very few. But they are limited in some way, and almost always government-funded.

https://treasurydirect.gov/savings-bonds/i-bonds/i-bonds-int...

iBonds hit above 8% return in a year if you bought at just the right time this year, IIRC.

Of course, if you calculate real return then you will have a sad.


There’s also a very real counterparty risk in bonds that need to give 8%.

Inflation bonds are kind of an exception there, since if inflation is 8% the market should be doing much better than that on average.


Are they Venezuela or Zimbabwe?


US federal funds rate hit 19.39 percent in April 1980. As a result long-term state bond did very well for their owners as inflation came down. My mom told stories about "Massachusetts Nines" with legendary 9% yields.

Utilities and co-ops issued ~15% paper which also did extremely well for those who purchased it in the early 80s.


Know offhand what the 30-year yielded back in '80?

For reference, the 30 is now at about 100bp less than shorter treasuries:

https://www.marketwatch.com/market-data/rates



Sure, back then. But I’m guessing these are not 50+ year maturities still paying out.


> It's almost impossible to beat the market after fees. Anyone who promises to do so, consistently, is full of it. French (2008) and a whole body of literature before and after.

Not this dead horse again. Yes, academics have written a lot of papers claiming things that turned out to be false. See Renaissance Medallion Fund and Berkshire Hathaway for references.


I'm not sure Berkshire Hathaway is comparable to anything in the crypto sphere.


Parent was referring to French (2008). Bitcoin was created in 2009, so the whole crypto sphere didn't exist in 2008. The reference was in relation to stock markets (and also to some extent derivative markets and bond markets etc.). Berkshire Hathaway is a good example of how stock markets are not efficient.


What exactly turned out to be false?


Efficient markets hypothesis in the context of stock and derivatives markets.


Has it been disproven? As far as I know the best performing model of stock returns is the Fama-French 5-factor model which assumes efficient markets.


You can look at the consistently outsized returns of Renaissance's Medallion fund and Buffet's Berkshire Hathaway. Those returns aren't explainable with "1000 monkeys and a typewriter". (Or, they are if you add a sigma every few years.)


There are anomalies that we don't know how to fully explain yet, the question is: is the efficient market hypothesis more consistent with what we observe than the alternative hypothesis? And the answer is yes.


You have a theory that says "black sheep don't exist". I show you 2 black sheep. Your counter is that "There are anomalies that we don't know how to fully explain yet" and that you'll keep holding onto your belief that black sheep don't exist. Because it's "more consistent with what we observe", despite the fact that you just observed 2 black sheep, you know, existing.


1. The Medallion Fund went insider-only 17+ years ago. The best explanation for their performance - assuming it's legitimate, since the fund itself isn't audited - is that they use an extreme amount of leverage to multiply "safe" returns. Of course, it's much more likely that the information being leaked to WSJ is a marketing ploy to keep investors in Renaissance's two publicly available funds, both of which greatly underperform the S&P 500

2. BRK is dead even with the S&P 500 over the last decade. This is despite the fact that BRK has access to cheap/nearly free leverage

There are better examples out there if you want to critique EMH.

The original point still stands. The vast, vast majority of professional investors (let alone retail investors) underperform the market. Almost everyone who promises safe alpha is full of it.


> There are better examples out there if you want to critique EMH.

I'm curious. Can you give some links, please?

> The original point still stands. The vast, vast majority of professional investors (let alone retail investors) underperform the market. Almost everyone who promises safe alpha is full of it.

EMH claims that nobody can consistently beat the market in terms of risk-adjusted returns. Yes, almost everybody who promises safe alpha is wrong. That's self-evident from the fact that the stock markets are mainly professionals trading against other professionals. If one professional makes money with a good trade, there is (most often) another professional at the other end of that trade. Obviously you can't have a negative-sum game and then have the majority of players making positive returns - it wouldn't be negative-sum in the first place if that were possible!


The theory doesn't say beating the market is impossible. It says is should be relatively rare.


Wikipedia top-line sentence disagrees with you regarding what the theory says:

> The efficient-market hypothesis (EMH) is a hypothesis in financial economics that states that asset prices reflect all available information. A direct implication is that it is impossible to "beat the market" consistently on a risk-adjusted basis since market prices should only react to new information.

But anyway, it sounds like we agree on the main point: relatively few individuals are able to consistently beat the market.


Yup. Any company offering that will rugpull you in the future, even if that may not have been their original intention. Therefore you should regard them as radioactive and pull all your money from them - and any "institution", contract etc that does invest in them.


We should be clear about that Gemini and Coinbase aren't running those schemes.

You buy some sort of tokens on their marketplace with which you can partake in (what very much looks like) ponzi schemes. It's far from clear what their role is in all of this, even if I would think we all would be better off if they distanced themselves from it.

There is probably a lot of customer demand here too. We've seen even the staunchest opponents give in one after another, and offer marketplaces for these tokens.


Coinbase doesn't have any lending products. Aside from one that will give you USD as a loan for holding your BTC as collateral which isn't the same thing.

They do offer staking but that's the not the same either. Return is generated from the networks themselves - like with ETH they are offering 4% APY after a 25% cut. That seems completely fine.


Funny, just saw a comment a few days ago on HN advocating Gemini over Tether and I was wondering why he thought 5-8% yields weren't a scam. https://news.ycombinator.com/item?id=33568884


> these companies can't promise you 8% APY without essentially running a ponzi scheme

It doesn't mean its a ponzi, but certainly an 8% yield isn't a safe investment, there will be some liquidity/market/credit risk. Hopefully its just liquidity.


I didn't think Madoff actually invested in anything. I thought he just used new funds to pay withdrawals.


Saint madoff (in comparison) also was ready to turn himself in when the gig was up


> If its not completely clear by now: no, these companies can't promise you 8% APY without essentially running a ponzi scheme.

If you look into protocols like Polkadot you will find that inflation is built-in and staking is a mechanism used to secure the protocol. In turn, you get a nice APY, but the coin dilutes over time.


She also runs https://web3isgoinggreat.com which is helpful for staying just-enough up to date with all the crazy things going on in the crypto space if you don't want to sign up for her newsletter!


How does Binance fit into this chart? I understand them to be the biggest remaining exchange


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