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Binance outflows hit $6B as Mazars halts ‘proof of reserves’ work (ft.com)
412 points by marban 9 months ago | hide | past | favorite | 482 comments

"Binance has said it holds more than $60bn in assets, enough to honour withdrawals. The company’s disclosures do not include its liabilities, which makes it difficult to ascertain its financial health."


1) They're insolvent. Liabilities exceed assets. (Like FTX.)

2) Their accounting is so screwed up they can't produce a balance sheet. (Like FTX).

3) They have a large number of interconnected corporate entities and nobody has the big picture. (Like FTX).

4) They have enough assets on the books to look solvent, but many of those assets are overvalued or internal transactions. (Like FTX).

OK, crypto people. Full GAPP audit or we all assume you're broke.

If you have assets in an un-audited exchange, get them out now.

> Full GAAP audit or we all assume you're broke.

FTX passed a GAAP audit and was still broke. Safer just to take custody of your coins while your still can.

2021-08-27: "Both FTX and FTX.US have completed requirements to pass the US Generally Accepted Accounting Principles (GAAP) audit" https://blockworks.co/news/ftx-joins-coinbase-kraken-with-us...

I don't think FTX actually applied or passed GAAP. From the filings it is clear they couldn't have. They barely have records of their liabilities, and definitely not of their assets. I am not even touching co-mingling of different classes of accounts. The statement you are referencing is another lie to customers and investors.

I know they employed a "Decentraland" sketchy "auditor." But that's it. It is like employing me to do your haircut -- you are 100% screwed and not getting a haircut, but some hair will be cut.

My point is not "FTX's books were in good shape"; with the benefit of hindsight they clearly weren't.

Instead, my point is that an exchange saying that they passed a GAAP audit isn't the level of positive signal my parent seems to think it is.

They didn't say that they passed, just that they claimed to "complete requirements" needed to pass. The financial engineering version of lying with facts like "assembled in USA from foreign components".

They claimed to have passed:

2021-07-21 "Yesterday, FTX became the first (?) crypto derivatives exchange to complete a GAAP audit!" -- https://mobile.twitter.com/sbf_ftx/status/142135472191111577...

2021-08 -26: "Both @FTX_Official and @ftx_us have passed US GAAP audits and plan to continue getting audits going forward." --https://twitter.com/SBF_FTX/status/1431087427154849795

He doesn't seem to mention what third party completed the audit, and given what we know about FTX's accounting now that means it was either an internal audit or SBF was lying.

Coindesk seems to have obtained the audited financials and reported on them: https://www.coindesk.com/layer2/2022/11/18/a-complete-failur...

I assume they were counting the FTT tokens as actually holding value when they were propped up

Reading it doesn’t it say they have completed the requirements to pass but haven’t actually passed? Seems like the kind of word play that should send red flags.

> Both FTX and FTX.US have completed requirements to pass the US Generally Accepted Accounting Principles (GAAP) audit

This is legally meaningless. Literally anyone can say they completed requirements to pass, they didn't actually pass

Binance just unverified everyone yet again, it's safe to say they're trying to prevent people from pulling out.

Maybe CZs attempt to take down a competitor by leaking information wasn’t a good idea after all. Sad to see people hurt as it backfires in his face. No amount of public relations or spin will save binance at this point. The run has begun. It will seem slow at first and then all at once.

The only thing that would save it would be a bail out by the Chinese government.

As CZ has said repeatedly, they’re not a Chinese company. If the CCP bails them out, they’ll have an entirely new set of reputation problems.

Frankly, taking a crypto exec at their word has not been a smart move lately.

Probably won’t be a public bailout.

i just checked this and i'm still verified. i'm in europe though.

I'm also still verified. But I also pulled out all my assets. I don't believe Binance to be on the brink of bankruptcy, but better safe than sorry.

First up, best dressed

Take your money out while you still can.

> FTX passed a GAAP audit and was still broke

Not a finance pro, but as I understand it:

A GAAP audit is not a test for whether or not you are broke.

It is also not a test of whether your financials are honest (except in a very limited sense).

It is a test of whether or not your various pieces of financial information are internally consistent given a standard set of definitions of how pieces should relate, and therefore that summary documents like the balance sheet are accurate, assuming the accuracy of underlying records.

While it is an important quality of work check for internal accounting, if you wouldn’t trust a company without a GAAP audit, there are very few scenarios where having the audit should significantly move the needle of trust.

> FTX passed a GAAP audit

Do we have a source mentioning the auditor?

Prager Metis for international, Armanino for US: https://www.coindesk.com/business/2022/11/11/meet-the-metave...

Prager Metis and Armanino worked with FTX, but I can’t find anything showing they completed an audit. (Far from blameless. Both seem riddled with issues [1].)

[1] https://www.ibtimes.com/crypto-auditors-under-fire-ftx-meltd...

"CoinDesk obtained the audited financial statements of West Realm Shires, also known as FTX US, and FTX Trading Ltd., the combined offshore Bahamas-based entity that includes an exchange catering to non-U.S. customers and Alameda, the proprietary trading operation. It’s not clear why FTX commissioned two different audit firms to audit its 2020 and 2021 financial statements. The reports by Armanino LLP, which signed the report for the U.S. operation, and by Prager Metis LLP, which signed the opinion for the offshore operations, were issued at the end of March 2022."


OP quoted "have completed requirements to pass" so that might be the start of the audit, not passing.

> Prager Metis and Armanino worked with FTX, but I can’t find anything showing they completed an audit.

The FTX et al. bankruptcy filing (by the post-SBF CEO) refers to the existence of audited financials for the WRS silo (which includes FTX.US) by Armanino and Dotcom silo (which includes FTX proper) by Prager Metis, with the other silos not having audited financials. This seems to be a fairly strong indication that the audits were completed.

You can have an audit on Monday and a founder transfer all the assets to an affiliate on Tuesday so timing risk makes this stuff irrelevant.

Maybe time to make crypto decentralized?

> Maybe time to make crypto decentralized?

Is there money in that?

If there were money in that I think we'd have seen it by now.

We already have it.

FTX had many parts, did that audit actually cover all of them or was that just for a subset of companies?

People seem to forget that the entire point of shell structures is accounting tricks.

Sure FTX (the audited entity) really did have a piece of paper saying “magic beans company owes FTX $1bn in bitcoin” and all a GAAP audit would do is look at that paper and say “yep, this paper is worth $1bn (with maybe some repayment risk discount).” Maybe a good audit team tries to understand who really owns magic beans corp, but it’s easy to hide things like that.

FTX the audited entity could be totally fine, but then the shells are where the problem lies.

It probably didn't cover all of them: all of the announcements I can find from the time just talk about FTX US and International.

But if you're trying to decide whether to keep your money in another exchange, and they talk about how they have passed a GAAP audit "did the audit actually cover everything I care about" is still a live question.

Basically if you want to keep your money in a regulated institution, don’t use a crypto exchange. You can be your own bank or just sell the crypto and buy some funds where you know some basic facts about where your money is and who can touch it.

I can’t imagine why anyone would risk keeping their assets in binance. Do you know basic facts like which jurisdiction in the world they are even based in? Optimistically it sounds like a 50% chance they are actually fine and 50% chance they’re on the path of FTX. Big risk with no reward other than minor convenience

Coinbase and Gemini are regulated USA exchanges. Gemini had been fined for violating regulations. (Gemini Earn was a third-party fraudulent investment product, enabled by Gemini company.

FTX was a fly-by-night international exchange like Binance.

I don't understand FTX.us . It was US regulated? Did people lose money in FTX.us exchange?

No need to speculate, there were to seperate "audits", which were unrelated from each other, and only covered parts of the enterity of FTX. And Pager Matis' selling point seems to have been a Metaverse HQ...

> FTX had many parts, did that audit actually cover all of them or was that just for a subset of companies?

No; this is covered in detail in the FTX et al. bankruptcy filing.

How did gaap value their magic coins?

Likely marked to market, but it honestly doesn't matter. In a world where wash sales are effectively free from any friction whatsoever, you can set a market value of whatever you want.

I've been a crypto skeptic for all this time especially NFT's exactly because I was at the right age to understand how wash sales drove the dot-com bubble, and looking at the defi space, wash sales could explain how all of these insane valuations kept happening.

Hmm, could wash trading have played some part in the apparent success of Donald Trump's "digital trading cards"?


What's the value of coins if with Binance down, most certainly Bitcoin will be down too as it was propped up with fake printed USDT, which will collapse as well, and with them evaporating, every other coin will follow? If Binance falls, all crypto will vanish. And good riddance.

BTC won’t vanish but most all other ones will revert to their natural state outside of the last few years bubble (zero-ish). I’m sure BTC will still be worth some thousands. And I’m a BTC long term skeptic

At least Tulip bulbs can be planted. Crypto just burns electricity. The value of crypto is actually negative at this point.

People have been making the crypto tulip comparison since when bitcoin was worth less than $100. Not saying you're wrong at this point, but if you're right, you're about as right as a broken clock.

If your argument is that a few years of irrational market pricing is meaningful, then boy do I have some Enron shares to sell you in 2001.

That's definitely true. What - unfortunately in some ways - is also true is that a lot of people cleaned up on both Enron and bitcoin. They did this ultimately at the expense of other people but those people too were trying to do the exact same thing.

It's effectively one group of greedy people feeding off people that are greedy too but a bit later to the musical chairs game. And so they end up without chairs, but if you start such a game you already know that somebody is going to end up without a chair, you just hope it won't be you.

True but I have been making them from the beginning.

I actually think it would be good for people to see crypto as worthless. Maybe then they would spend it instead of holding it and it could actually act as a currency.

> Maybe then they would spend it

Why? Do you want to buy?

Currency shouldnt be “bought” it should be used. Earned and spent.

Forex is a very real very gigantic form of investment.

Not true. Only censorship-resistant asset. Only asset in entire universe that cannot be confiscated.

> If you have assets in an un-audited exchange, get them out now.

This is Mexican standoff. The only "value" crypto assets have comes from exchanges that will trade them for fiat. If crypto holders stop trusting exchanges and pull all their assets that will cause the exchanges to fail and those assets will then be worth nothing. On the other side if exchanges try to earn the trust of holders by becoming "fully transparent" it will be revealed that there's not nearly enough fiat reserves to support the current valuations. (It does no good for Binance to prove they have a reserve of $18B of Tether to back the $18BN BUSD marketcap if turns out Tether is actually mostly backed by Bitcoin that only has a USD value because it can be traded for BUSD...)

True, but the first out that manage to sell them for fiat through some other way even at a substantial discount are going to be off substantially better than the last.

I assume that by "get them out" the parent meant "move your crypto from an exchange to a wallet you control". If your end goal is to be out of crypto altogether it would make far more sense to just sell while the exchanges are still open.

> If crypto holders stop trusting exchanges and pull all their assets that will cause the exchanges to fail and those assets will then be worth nothing.

maybe you havent heard but it's possible to send "crypto" (lol) directly from person to person

Sure, and it's also possible to live off the land and grow all of your own food: it's obviously possible, and people actually do it, but it doesn't scale to any reasonable degree.

Send me 10,000 bitcoins and I'll send you a pizza.

Sure, but only if you'll send me the pizza without waiting for the transaction to be confirmed, I'm too hungry to wait.

”But bitcoin solves the double spending problem”

Yes but slowly

All of the above and:

5) Binance does significant money laundering for Iran and Russia, so any complete picture of their balance sheet would invite sanctions and international retribution.


This is interesting. Do you have any good links for the Russian connection!

For me, it's the ruthlessness of dumping all the FTT tokens they had to crash FTX to buy it (which went pear shape once they saw FTX's books) makes me think that they're probably not in a strong of a position as they say they are. We see this all the time. Exchanges saying they're strong and assets are safe until suddenly a few hours later they're not.

There are some possibilities. Binance could have just done so knowing that FTX's demise would concentrate their own market share. They also could have (sensibly) not wanted toxic assets on their books - FTX's book value was/is deeply negative so holding tokens correlated to a basically insolvent entity and/or buying them is just a bad trade that hurts their financial position.

It's ruthless but I don't think it says anything about their finances. Their play made sense whether they were strong or weak.

I agree with this. There are many reasons why Binance would say they'd buy FTX and there are just as many reasons for why they would back out of the deal. Binance reneging on the deal doesn't say anything about the state of their finances other than that they might not have been in a position to take on 32B in liabilities.

If they were weak, crashing FTX risks crashing themselves.

Is there some other action you can recommend for someone holding FTT tokens other than selling them immediately for the best price you can get?

If you hold tons of something that if you sell them all at the same time the price will drop the standard thing to do is to sell them over a period of time so you get the best price you can. The way Binance did it, they knew they wouldn't get the best price.

A good example of this is Tesla stocks and how Musk is selling them. He's not just dumping out all he wants to at this super high price he is slowly doing it. And it's still affecting share prices.

Well hopefully it’s money you don’t need and can afford to lose. If so, ride it out and hope the Chinese government is propping up Bihance

They have constant income. Their mostly daily gains are coming from liquidating people in futures not matter market crashes or not.

Exactly, and one more: they may have been shuttling money around from account to account to look solvent but aren't.

Someone mentioned the early-banking era wheelbarrow of gold travelling around from bank to bank just in time to make the audit.

That's such a funny mental image, seeing the guys with the wheelbarrow trying to make it to the bank just in time for the auditors to appear and everybody is sitting around like it's perfectly normal and trying not to breathe too hard.

Isn't this exactly what Tether is accused of doing?

It’s “GAAP.” Generally Accepted Accounting Principles.

Generally Accepted Ponzi Principles

Grievously Adultered Prosperity Pilfered

Of course. My bad.

I don't ever entrust any exchange with my crypto. That being said, this episode will be a far better test of Binance's solvency than any audit. The proof is in the pudding. Either they have the reserves to cover the withdrawals or they go belly up.

Any investor who believes any exchange has the assets they say it does deserves to lose their money.

It takes a special kind of ignorant blindness not to see that "reserves" are all based on fake, wash-trade inflated cryptocurrency valuation, and it's all a house of cards. Like FTX. Like all of them.

If you have assets in any* exchange, get them out now. Using regulated exchanges defeats the whole point. Fiat transaction fees are lower / nonexistent compared to CC ones so if you want to gamble on the relative value of something just stick to the stock market, and if you want to send currency on something that is regulated by a government anyways, might as well use Fiat.

The only thing regulated exchanges do is profit by losing you value via fees and then some more via taxes while carrying risks of being rugged or having "your" assets frozen. Just... why?

Exchanges provide a lot of added value, at least ones that aren't run by criminals or idiots.

Wallet keys stored on a phone or laptop, or even a hardware wallet, are generally less safe than the reserve wallets of a major exchange. I can lose the device, it can break or be stolen, etc.

Writing down recovery phrases and stashing them in the sock drawer doesn't feel very safe either.

And if something happens to me, I feel quite sure that my family will get any crypto I have in my Coinbase account, but much less sure that they'll be able to recover any non-custodial wallets.

RE: personally stored keys are less secure ...this is very subjective. You don't "hand" your wallet keys to an exchange: you don't even have them. Meaning "your" CC is a lot like "your" USD in a bank: subject to taxes, send restrictions, asset freezes, IRS audits, and a whole host of other unnecessary and inconvenient crap. Being taxed on CC gains relative to the USD is ultimate hypocrisy. It's like being taxed on swiss francs or yen you hold if the exchange rate changes... except instead of an unlimited write-off for losses like traditional forex, the cap is $3000 to form a one-way YoY tax valve.

Literally nothing about the government's stance on or (severe lack of) understanding of cryptocurrencies makes any sense other than it definitely reminds me of good ole' Reagan: "If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it."

RE: if something happens to you ...that is an excellent point. You wouldn't get this without an exchange, yeah. If subjecting yourself to all of the above to reap this benefit is worth it to you, that's a favorable tradeoff to make and one you definitely should.

Give your keys to your lawyer?

It is telling that a firm like Jump Crypto has pulled hundreds of millions of dollars from Binance. If smart money is getting out, you might want to get out before the doors close: https://www.coindesk.com/markets/2022/12/13/binance-withdraw...

5) they print more tether when needed to handle withdrawals. But such massive tether prints can cause market issues.

Isn’t Tether controlled by bitfinex?

The large exchanges were shown to have a signal chat group to coordinate activities. Total illegal collusion in any other financial institution but hey crypto is the Wild West. Not that outlandish to think they collaborate when necessary.

Oh there's a lot more to it than chat groups.

Bitfinex loaned money to Tether. On the loan contract, three people, we'll call them AB, CD, and EF, signed the contract on Bitfinex's behalf.

On the other side of the contract, Tether signed the contract for the loan. The three people on the loan signatories page for Tether? AB, CD, and EF.

They also have the potentially very dangerous BNB. If some of their assets are in that company coin to smooth the waves then they could have a crash very similar to FTT

Is Coinbase audited?

Coinbase is going out of business the old fashioned way: losing a lot of money.

Lame. Where’s the innovation.

Whataboutists have arrived to protect China-owned Binance

Even though I'm crypto agnostic, I'm diversified. I have some funds in Coinbase, but I don't really want to go to the trouble of maintaining a hardware wallet.

I'm way more likely to lose a wallet or mismanage it than not. As an anecdote, I had several million dogecoin from 2014 or so as a joke, which I think amounted to several hundred thousand dollars just a few years back. I couldn't find, figure out, or be bothered with moving it to an exchange before that blew over.

As for Binance, I had funds in it too before they closed their core operations in the US, and getting it back out was an extreme hassle.

As far as the substance of your comment, you'll find that my comment history is pro-Democracy, pro-Capitalism, so I'm not sure what you're on about.

You could split between Gemini and Coinbase if you are dead-set against a hw wallet.

Or simply use a software wallet. Write down the seed phrases, then delete the software wallet. Recover it from seed phrases at your leisure.

Holy cow, you had hundreds of thousands of dollars of assets and couldn’t be bothered to figure out how to cash out before they lost value? You are on a different planet of financial management than most of us.

There was so much going on during the pandemic. My early employee stock and the rest of my portfolio was booming, and I'd just made my yearly TC on GME. The dogecoin gains were smaller and kind of an afterthought.

To top it off, the hard drive with the dogecoin was back at my mom's place or in storage, and it would have taken a lot of time to go back and find it.

Since it was easy to leave the computer where it was, I lazily made the incorrect decision to go long on DOGE as a gamble and as a further means of diversification. I incorrectly thought maybe it would sink then come back even higher. I didn't have to do anything to make that choice. It was very much a wrong move and missed opportunity, but everything was making me money back then, and I was making all sorts of other bets, so this one didn't seem too unreasonable.

I should have known it was a larger macro bubble, but this was my first rodeo. I didn't experience 2008 or 2000 with my own assets, and the COVID dip was my only taste of losses. My biggest regret in all of this was not selling all of my employee stock options last summer when it was near peak. I got stuck between two trading windows and thought that the losses would end of reverse.

I'm still in a good spot, but I could have "FAT FIRE"-d, fully retired (into working on my own thing), and bought half a dozen homes - a beach house, mountain getaway, Manhattan townhome... I thought about that a lot.

I did manage to purchase a historic penthouse in Atlanta with city views though, so I'm happy with that. And I've quit working to focus 100% on my own startup.

If anything, these experiences are good lessons and just give me more drive.

I think your degree of resilience in dealing with such setbacks is something to strive for, at the same time please be more careful in the future, the price of such setbacks tends to go up as you get older and even though you managed to get through this one in relatively good shape (if not financially, then at least mentally) the next time around you may not be so lucky.

What's this trend of telling others to please do something? I've seen it all over HN this year and it's so condescending.

It can be condescending but that’s not the only option. There’s been a lot of upset recently and older posters who remember 2000 and 2008 are trying to spare people the pain a lot of us either experienced personally or saw friends encounter. Based on his years of posting, I’m sure Jacques is in the latter category.

A friend of mine was in a similar position. I’m he knew he had a wallet holding about $300k of dodge coin. He just didn’t know if he had the key.

Long story short: he spend a big amount of time trying to recover the wallet key and failed. I’d understand someone not wanting to try something like that. It must be pretty demoralizing.

I have dogecoin wallets worth thousands from 2014 and such when we were joke mining before it had value - it isn’t that hard to fathom if you’ve operated in this space for a decade.

is any exchange audited?

Coinbase is public and audited by a big 4 accountant every year (quarter?)

For some reason I just had WireCard cross my mind.

Audited? Isn't that what TradFi and Fiat Currency companies do?

Ewww, gross!

> 3) They have a large number of interconnected corporate entities and nobody has the big picture. (Like FTX).

This isn't true, is it? FTX had <5 corporate entities, right?

The issue was more with (1) and (2).

FTX had more than 100 entities. You can find the org chart in the bankruptcy filing or here:


Oof. The preliminary corporate outline in Appendixes B of the filing is a lot.

I guess presumably you'd want to compartmentalize risk via corporate structures in as sprawling of a business as FTX was (especially if you were aware you had terrible internal controls), but it does beg the question of what nature of business each of these entities was engaged in.

I.e. if they conducting actual business and so their existence helped firewall other FTX entities, or if they simply existed on paper for accounting fraud

It wasn't a "as sprawling of a business as FTX was". It was a shell game.

FTX (in total) was an entity that operated in most countries in the world, under their regulatory regimes (if existent), across four(+?) major, different lines of business.

That's not a "one corporate entity + a few international ones" type of endeavor.

5) Like tether they are solvent despite all the people screaming for an audit

> Like tether they are solvent

Right, but tether isn’t solvent either

If you believe that you must be using all that corporate paper to smoke something.

That doesn't explain why they just cancelled their audit.

Getting downvoted for suggesting a company might be solvent.

The idea that Tether is solvent is the problem.

> downvoted for suggesting a company might be solvent

The comment said they are solvent. Not that they might be. Given the present facts and circumstances, that’s unfounded. (EDIT: Never mind.)

No they didn't. The "5)" was indicating a further option. That is very much a suggestion and not a statement of fact.

Fair enough. It’s a remote possibility for a company with literally no known legal structure and under criminal investigation in multiple jurisdictions, but sometimes unicorns fart rainbows.

> Possibilities:

The comment said the fifth possibility is that they are solvent.

The comment said that Tether is solvent.

I do not believe this is sufficiently well-proven to be something we can take as a given.

Even an audited exchange like Coinbase that is trying to do everything right is still self reporting loses like $430M in quarter 1 of 2022 just by operating their business correctly.

Not your keys, not your crypto. Anyone storing their crypto on any exchange has this risk.

For many users of these exchanges their entire interest in crypto is speculation/trading, which requires them to store their crypto with an exchange so they can trade it because the costs associated with transferring to and from the exchange repeatedly would be prohibitive.

You are so close

All current crypto"currencies" which use transaction fees (which is practically all of them) are negative sum games and thus are scams.

This is so simple and people waste billions on not understanding it.

Money in general has transaction costs - even cash decays every time it changes hands. Is it all a negative sum game? It seems that in order to make that claim, you need to make some comparison between the value produced and the costs incurred. IMO, crypto is pretty scammy but there is some value (note that crypto is most popular in countries with unstable economies and corrupt governments). A crypto that’s optimized for lower transaction fees could be net positive.

Money in general are traded for productive goods and services, not other kinds of money. That's why it's not negative sum. If you had a bunch of people trading between USD and GBP amd EUR and doing nothing else, that would be negative sum and look an awful like what people do with cryptocurrency.

> If you had a bunch of people trading between USD and GBP amd EUR and doing nothing else, that would be negative sum and look an awful like what people do with cryptocurrency.

That does happen. About a decade ago I dug into FX flows. The trade in USD was eighty times trade flows.

FX is a nasty business, huge profits to be made, profits that can be multiplied by the slightest bit of undetectable (now the traders know how to cover their communication traces) fraud.

Cryptocurrency is pure scam, true. But, in my educated opinion, the international financial system is dominated at the highest levels by out and out crooks.

The state of international finance, how it works against its consumers and saps the life out of the very economic activity it fosters (economic activity at the level we have would not be possible without sophisticated financial systems) is a huge incentive for developing crypto.

I just wish that there was a better solution (even a viable solution) than crypto

Complex social and economic problems do not have simple easy answers.


Michael Milken even got a presidential pardon,

I'm probably missing some critical part in my comparison, but crypto trading sounds awful lot like trading in stock markets.

The difference is that stock, at its core, represents a claim on a portion of the future profits of a business. The business is out there building widgets, supplying people with a service, extracting raw materials, whatever. Most coins are just hollow marketing gimmicks designed to move money around.

Basically all the DeFi ecosystem boils down to trading one coin for another coin, there is no productive work at the core generating value.

This is a textbook distinction, but when I look at my nasdaq and crypto candles, they all have the same 3-year profile, crypto just feels like it’s 1.5x leverage but that’s it. If stock market is all about production and long-term investment, then it shouldn’t bounce up and down with fear waves. The sibling commenter is right, just from the charts it seems at least 66% of “investors” are short-term players and no forward-looking company will (to my limited understanding) build a long-term strategy around these volumes. I mean, they will, but that only confirms the idea?

Of course stocks should jump around a lot too.

The stock price represents likelihood of future earnings. That's going to be influenced by a bunch of things not in financial reporting.

> The difference is that stock, at its core, represents a claim on a portion of the future profits of a business.

Wow, that's so real, concrete and down-to-earth :-)

> The business is out there building widgets supplying people with a service

Or perhaps not doing these things, but making performative presentations on how its groundbreaking unproven innovation is certain to bring in a lot of money in the future. Or a mix of the former and the latter.

> Most coins are just hollow marketing gimmicks designed to move money around.

One could argue that some, or many, publicly-traded companies - when one considers the listed trade value of their stock - are 10% real business and 90% hollow marketing gimmicks serving as parking space for speculators' money.

> missing some critical part in my comparison

Companies can sell stock to fund useful activity.

The past decade companies have sold debt to raise funds to repurchase stock to drive up stock price so senior management can meet their KPI and get a larger bonus.

This is useful activity for society because senior management deserves more money and they work really hard to earn it. /s

Stocks give you share of ownership over the cashflow that a company generates from its business. Theoretically, that is where the value of stock comes from. Crypto does not generate any cashflows (due to selling no goods or services). So crypto is not like stocks. If anything, it is more like commodities than stocks.

You are missing the fact that stocks pays dividends, because stocks represent a piece of ownership of companies that generate profits.

Most currency exchange is to facilitate an international transaction of goods or services so there is actually value in enabling commerce.

No it is not

> cash decays every time it changes hands. Is it all a negative sum game

Currency trading is negative sum. (Zero sum less friction.) So are most derivatives.

One must encapsulate broader effects to find a net gain. Incorporating crypto’s benefit to the poor is such an attempt.

>Incorporating crypto’s benefit to the poor is such an attempt.

What benefit is that? Not speculative, maybe in the future benefit, but current, concrete, demonstrable benefit.

> What benefit is that?

I don’t see one, but that’s a separate discussion. The narrow one is that every crypto-trader’s gain comes at another’s loss. Cash in and out of the system is entirely conserved across all timelines.

> note that crypto is most popular in countries with unstable economies and corrupt governments

"Possibly marginally less bad than an unstable fiat currency propped up by a corrupt regime" is not high praise.

Easy to say that when you have a luxury of a relatively stable fiat currency by a less corrupt regime to fall back to.

If they’re negative sum then so are traditional payment processors that charge transaction fees, which is not an argument I’d be prepared to make. Unless you see something fundamentally different about the nature of those fees in crypto?

It's because you can transfer money without paying fees, those fees are for convenience. You can not transfer crypto without paying fees.

Also, notably most banks will do SEPA transfers for free. There's nothing inherent in money which would make the action of moving it force giving a fraction of it to some other entity.

Indeed, the only disagreement I am aware of is whether the scam being run by multiple entities ("miners") is a significant difference to a Ponzi and so it's a new kind of scam (suggested name: "Nakamoto scheme") or the difference is aking to an LCD vs CRT TV, nothing significant and it's just a Ponzi. But the fact it is a scam is an indisputable and rather simple mathematical fact.

To quote Preston Byrne who coined the phrase Nakamoto scheme:

> The Nakamoto Scheme is an automated hybrid of a Ponzi scheme and a pyramid scheme which has, from the perspective of operating a criminal enterprise, the strengths of both and (currently) the weaknesses of neither.

Someone clearly has to pay to keep to SEPA infrastructure going, be it the banks crosssubsizing from profit on lending or taxes funding organisations in EU level.

Crypto fees are just much more straightforward. You pay a small amount to use the network and there are no strings attached, no hidden subsidy. In theory at least that is because most networks are still funded by inflationary payouts. But no one is forcing you to hold anything more than you need to pay for fees in the crypto currency at any moment in time.

Just like with most things crypto has been widely oversold and 99% of coins are basically scammy penny stocks. No one disputes this. But as someone who has moved internationally quite a bit I would LOVE for all my ETFs and bank accounts to live on an open Blockchain so I don't have to worry about migrating everything when I move to a new country. Even if I don't fully custody them, moving USDC through Ethereum or Solana is just 100x better than any international wire transfer. Stocks are basically stuck in whatever country you bought them in, I don't even want to know how difficult it would be to move my depot from one country to another. You'd have to sell everything.

>so I don't have to worry about migrating everything when I move to a new country.

Not sure what you mean. It's not significantly more difficult that it would be (and maybe easier) to be constantly transferring blockchain assets to local currencies/equities etc. ACATS makes the process pretty straightforward and handles most common financial instruments like stocks, cash, bonds, ETF's, and more. Then you're done, your entire portfolio transferred in a few days. Just choose a good brokerage firm in the first place: ACATS participation should be a prime criteria if you might move country at any point, ever.

Similarly, USDC/Ehtereum/Solana only seem superior to a wire transfer until you have to use them in a local economy. Then converting them to something compatible with the local economy isn't significantly better.

If you're imagining a future where local economies accept these things directly then I think that future is, at best, possible but mostly theoretical at this point. Crypto is not a major threat to sovereign-dictated monetary policy at the moment, and I suspect that the second it appears it might be then there will be rapid action to cut off that potential.

I don't see a way that crypto can bootstrap fast enough around such things when a government can, pretty much overnight, make every business own and retail cashier who accepts a crypto payment into a criminal if they so choose. Gray and black markets might still prosper, but it would make any vision of mainstream use, much less institutional use for things like inter-country investment portfolio transfers completely impossible.

You said:

> But the fact it is a scam is an indisputable and rather simple mathematical fact.


> negative sum games and thus are scams

I don't think you know what the word "scam" means.

Merriam Webster defines it as "a fraudulent or deceptive act or operation". I don't think either Satoshi or Vitalik did anything deceptive or fraudulent.

Whether or not something is a scam is not a matter of "simple mathematical fact", but rather of intent.

Whether the operators of mining farms have mens rea is a matter for criminal courts. No one tried to sue them yet, perhaps no one will. Perhaps some aspiring DA will try. Who knows.

That doesn't change the fact they run the scam.

I wrote this up before but here it comes: if there's an empty room and a few people come, play a few rounds of a card game and then leave and the room is empty then it is obvious the sum of their money couldn't change. Some won, some lost but the sum is the same. This is called a zero sum game. If they decide to use plastic chips during the game and only use real money in the beginning and the end, nothing has changed.

However, if someone takes a cut every time the chips are being moved around then that person is guaranteed to win and the players in total are guaranteed to lose and a game where we know who wins without knowing anything about the game is quite obviously a scam.

Your only way to win is to hype up the game and sell your chips to an outsider who will now sit on an even bigger loss. Might not be realized yet but it is there.

You know ACH transfers, have transaction fees right? They are just hidden to the public.

That assumes that at the end of the game your bitcoins etc do not have a market value which does not accord with reality. For better or worse people value them like collectibles.

Email does not have transaction fees, so there is enormous spam. Paying for a service means the service has value.

Junk mail via the postal service has entered the conversation…

You hit the nail on the head here. That's the main crux of the matter.

If they are in just for speculating/trading, they could trade ETFs denominated in BTC or ETH on regulated banks.

Why not go all the way and have cash-settled futures that track random numbers?

> Why not go all the way and have cash-settled futures that track random numbers?

Ha, this is becoming my go-to definition of the lottery.

Regulated banks don't let you trade ETFs of various shitcoins.

With high leverage, too.

Those don’t track well.

AMMs have solved this. The competition is amongst AMMs solving this better than they currently do. The need of custodial exchanges for trading is done. They can be just fiat onramps now as long as liquidity improves on AMMs.

I don't know any pro traders who use Binance but there might be some. Binance is popular with crypto kiddies, small time traders and they're also very strong in less developed countries that aren't served by any other major exchanges. People buying cryptocurrencies to escape high inflation or political risk. Basically a lot of newbies who aren't too aware that Binance is shady despite its size. But it's a diverse user base, they're not all active traders.

Trading requires this, but pure long-$coin speculation does not.

You can speculate fine on decentralized exchanges.

For now at least with Coinbase it is the investors funds at risk, not the customers funds. And that example shows how hard it is to run such a business profitably.

> ... with Coinbase it is the investors funds at risk, not the customers funds

Oh boy are you in for a surprise:

"In its quarterly report, Coinbase added a risk disclosure: if the company were to file for bankruptcy, the court might treat customer assets that the exchange is custodian for -- their Bitcoin, Dogecoin or whatever -- as Coinbase’s assets. And they’d be at the back of the line for repayment, forcing normal people, unaccustomed to the ins and outs of federal bankruptcy court, to claw back their money along with everybody else owed money by the exchange."

From Bloomberg: https://www.bloomberg.com/news/articles/2022-05-11/coinbase-...

Here's the un-editorialized full text from their SEC filing:

> Moreover, because custodially held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings and such customers could be treated as our general unsecured creditors. This may result in customers finding our custodial services more risky and less attractive and any failure to increase our customer base, discontinuation or reduction in use of our platform and products by existing customers as a result could adversely impact our business, operating results, and financial condition.

> Further, we place great importance on safeguarding crypto assets we custody and keeping them bankruptcy remote from our general creditors, and in June 2022 we updated our Retail User Agreement to clarify the applicability of UCC Article 8 to custodied crypto asset — the same legal protection that our institutional custody and prime broker clients also rely upon. UCC Article 8 provides that financial assets held by Coinbase are not property of Coinbase and not subject to the claims of its general creditors. In light of UCC Article 8, we believe that a court would not treat custodied crypto assets as part of our general estate; however, due to the novelty of crypto assets, courts have not yet considered this type of treatment for custodied crypto assets

Source: page 96: https://s27.q4cdn.com/397450999/files/doc_financials/2022/q3...

You call it uneditorialized, but it is simply editorialized in a different direction.

Everything is literally editorialized (first by your brain, then by institutions). A charitable interpretation of the parent comment is that it is not editorialized relative to the original source.

I fail to see what this contributes.

I'll expand: it is in the interest of the writer of this "uneditorialized" document to downplay the risk.

Ouch. Thanks for that. I wonder why the normal customer funds segregation rules do not apply to crypto assets.

See the full text from the SEC filing: "due to the novelty of crypto assets, courts have not yet considered this type of treatment for custodied crypto assets"

Basically, there's no legal precedent. It's anyone's best guess.

> Basically, there's no legal precedent.

We’re about to find out soon.

Go read FTX's statement to Congress from a few months back on why crypto exchanges should not be hobbled by all those old rules about separation of functions.

There's nothing prohibiting a crypto exchange from having a separate company to hold customer's assets. In a bankruptcy, the custody company should still be solvent. That's required in Japan.[1] Customers of FTX Japan still have their assets.

[1] https://www.coinfirm.com/blog/japan-crypto-asset-regulations...

I work a lot with trustees that hold third party funds, there isn't a single one of them that would ever commingle funds to the degree that these exchanges do (or even any degree at all other than to separately invoice customers for work and fees), and all of the rules around such third-party monies should be mandatory for any exchange. But as was pointed out elsewhere in this thread even that may not be enough if an exchange goes bankrupt.

Japan had the first real test of this with Mt. Gox. Regulations are written in blood, unfortunately

Basically, because cryptocurrencies aren't considered "money", and what they are is still kind of up in the air...and because, as so many of its proponents are so proud of (despite it being extremely obviously a temporary state of affairs), cryptocurrency is not yet subject to very many laws and regulations.

You can't have the protections of "money" without the regulations of "money". As long as everything was going fine and government was still dragging its feet catching up to technology, the people who got in early got to pretend there was something special about cryptocurrency that made it possible to have their cake and eat it too.

Now, they're starting to find out why that's not the case.

It may not hold up in court. But at that point, you’re trying to claim assets back from a bankrupt entity.

The disclosure isn’t a statement of what Coinbase would want to happen, but rather what a bankruptcy court might do. Bankruptcy law is very pro-debtor. An entity in bankruptcy court is like a Hoover, aggressively sucking any nearby assets into the bankruptcy estate.

For all brokers, margin accounts can be rehypothecated if broker fails. This is as true for Fidelity as for Coinbase.

This isn’t true in the case of bankruptcy. Note that in early 2022, Coinbase updated it’s disclosures to include that customer coins could be used as collateral to pay debts. That would leave customers as unsecured creditors (ie, stuck at the back of the bankruptcy line).


Yes, Polygamous_bat below made the same observation, I wasn't aware of this at all.

So what does that tell about the exchanges that are managed in an unauditable way...

Essentially that they are most likely dipping in to support either their operations or other projects from the customer funds. That's not proof, but I would not at all be surprised if there isn't a single one of them that is clean.

I mean, being the custodian of funds actually costs money, one should wonder about the motives of the exchanges offering custody for the funds.

There are many banks in europe that will not open accounts for people who just moged there, unless they bring along plenty of money.

This simply means that having your coins on an exchange is the same a forfeiting them unless otherwise proven.

But the crypto exchanges double down on that, they speculate like the banks do, but with zero risk managment and oversight, the biggest accounting firms do not want to offer their services to them.

They have also leveled up their exit strategies, instead of the plain old run away, they run the business while they can extract money and then later they seek legal cover under the umbrella of bankruptcy laws.

There is also the possibility that they have too many assets due to participating in money laundering or tax evasion.

There really aren't a lot of good possibilities here, how did these exchanges get so large before anyone thought of audits?

> how did these exchanges get so large before anyone thought of audits?

Who said no one thought of this? There was simply no one to enforce this.

Look at Coinbase. They made a point of being “regulated in the US”. They’re audited. They’re legit (most likely. I’m not the auditor). They’re complying with disclosure laws as a publicly traded company.

Look at Patio11, he’s been publicly making claims about tether and the crypto ecosystem for years. If it all blows up and his speculation /research was right, then who is to blame? We’ll have years of boy crying wolf and we thought it was a sheep.

Even if you have the keys, it’s not your store of value, as people will find out when this implodes.

What are your keys worth if the price of Bitcoin is close to zero?

Bitcoin has already reached 50% of the 27 year lifespan of the average fiat currency.


That article doesn’t “debunk” anything. Did you read it?

Their argument is that a currency being “replaced” for “political, economic, and cultural reasons” isn’t a currency failing. What?

If they’ve “debunked” the 27 year figure, then what is the correct average lifespan of fiat currencies?

> If they’ve “debunked” the 27 year figure, then what is the correct average lifespan of fiat currencies?

The question is kind of ill-formed in the first place. Take the current US dollar. How long has it been around? Per Wikipedia, it was established by Congress in 1792, which gives it a sedate 230 years of existence. But given that the original analysis is by a gold bug, I suspect the intent is to limit it only to the 51 years that have passed since the end of the gold standard in 1971.

If the goal of the question is to work out how long a fiat currency not backed by gold will last before it's hyperinflated into nothingness, then it stands to reason that the metric which best reaches that conclusion would be in fact the earlier date: the Nixon Shock wasn't an episode of hyperinflation (inflation reached a measly 10-20% annualized). Events like the creation of the euro are even more starkly not relevant to answering that question.

There's also severe methodological issues with completely omitting currencies that haven't failed yet, which ought to be patently obvious. There's another severe bias in terms of the inclusion of currencies on the list, since there's going to be several currencies for which is there is likely insufficient data to establish the lifespan correctly, because records tend not to preserve very well after several centuries.

To attempt to answer your question, I don't have any hard data in front of me. But I would be shocked if the mean lifespan of a currency were substantially less than a century--there are several currencies that lasted several centuries during the Medieval period, such as the ducat lasting ~730 years.

I do broadly agree, the "27 years" figure is a rhetorical number that doesn't mean anything in itself. That said...

> If the goal of the question is to work out how long a fiat currency not backed by gold will last before it's hyperinflated into nothingness

That isn't completely fair. The ducat lasted ~730 years and preserved a reasonably consistent amount of value all through that time. Someone holding a dollar in 1971 has effectively lost 95% the value that they expected it to have vs gold. Even as demand for gold has presumably plummeted now that it is no longer officially involved int he monetary system.

Just because they are destroying the value of the currency on purpose doesn't change the fact that the value will be destroyed. It doesn't need to be an unexpected event like a hyperinflation - normal inflation is also enough.

> The ducat lasted ~730 years and preserved a reasonably consistent amount of value all through that time.

Not really. Inflation long predates modern times, there's a reason that the terminology is called "debasement" (adding base metal to gold coins). I don't have hard numbers on the value of the ducat (because that pretty much requires trawling historian journals I don't have access to), but judging from other coins that pop up, the annual inflation rate would have averaged perhaps 0.5% for the Medieval and Early Modern.

Why should a steady 2-5% inflation rate in modern times be considered destructive to value, but not the steady 0.2-1% of earlier periods?

> Why should a steady 2-5% inflation rate in modern times be considered destructive to value, but not the steady 0.2-1% of earlier periods?

Because they are different by an order of magnitude. Over a 70 year lifetime, at 0.2% inflation a coin is worth 90% of its value at the start of the life. At 2%, it is worth a hair less than 25% (at 5%, it would be effectively worthless because the coin has lost 97% of its initial value). That is quite a different outcome - one of those rates I could save using coins and not do too terribly in real terms.

> argument is that a currency being “replaced” for “political, economic, and cultural reasons” isn’t a currency failing. What?

Did the Deutsche Mark fail when it was replaced by the Euro? Come on.

Did the Reichsmark and Rentenmark fail when they were replaced 10:1 for Deutschmarks, losing 90% of their face value?


You are cherry picking by choosing the Euro. The point is that valuation loss to currency printing is currency failure. The vast majority of currency “replacements” are just abrupt failures, and generally coincide with a country being overthrown by a new authority.

> Did the Reichsmark and Rentenmark fail when they were replaced 10:1 for Deutschmarks

Straw man. Nobody argued fiat never fails.

> vast majority of currency “replacements” are just abrupt failure

What is your source? You posted a statistic. A comment found it was based on B.S. You disagreed. I clarified the debunking argument. Now you’re throwing out straw men and a new unsourced claim.

Not a "straw man". It's one step back in history from YOUR example of the Deutsche Mark!

Again, the broader point is that measuring a "failure" as a total collapse vs. a replacement with a possible devaluation is the strawman.

Abrupt "failures" (or "replacements"... choose your euphemism) are noticed, but modern fiat currencies are constantly failing. It is easy to measure. The metric is currency debasement, what you would call "inflation" and what I would call "state sanctioned counterfeiting".

Prices also fell by 90% and everyone kept their savings with the Reichsmark, so I'd say no. Also, the Reichsmark collapsed because of the fall of Nazi Germany, it had nothing to do with the currency itself.

The Rentenmark was legitimately an absolute debacle, one of the worst of all time right up there with the Zimbabwean dollar

I suppose that makes the case that Bitcoin is a fiat currency. I have yet to see strong indicators of that.

Can you point to any indicator that it's anything else?

EDIT: https://en.wikipedia.org/wiki/Fiat_money

Yes, I totally can.

Bitcoin and other crypto is definitely not fiat currency, because virtually nobody will sell me a pack of cigarettes or a croissant for crypto currency.

Buuuut I bet there is an NFT of a croissant smoking a cigarette

It's neither controlled by government fiat, nor is it commonly used to buy 99.99% of the things people use real currencies for.

Is there a central bank that can print or sell Bitcoin to stabilize its price? Is there a central bank that can set rates for BTC credits and deposits?

If not, in what way is BTC a fiat currency?

"Fiat" means it didn't exist until somebody said "this is money".


Hah ... nice. Interesting. So Bitcoin was a fiat currency all along.

That's not exactly true, since representative money work in a similar way.

Also, coins eith a fixed possible supply, such as Bitcoin, act more like commodities than fiat money.

Doesn’t a network that allows money transfer world-wide constitute ‘use value’?

How do you lose so much money when your business it to charge fees? You'd have to do something really stupid to not make money.

Well for starters they have over a thousand employees, plus office leases, plus I'm sure cloud provider fees, marketing, and more. There are expenses for sure.

It's definitely strange. Binance did $40 billion in volume in the last 24 hours. Even if their effective fee is only 1/100 of a percent that's $4 million. If we assume they do half that volume every day on average that's 730 million in revenue per year. Surely costs can't be that high?

> Binance did $40 billion in volume in the last 24 hours.

It didn't

> Even if their effective fee is only 1/100 of a percent that's $4 million.

It's not.

The reason? They "traded" fictitious currencies whose "value" is pure speculation and nonsense. Their fees are also denominated in these fictitious currencies.

However, neither the offices they rent nor the people they employ have any interest in these, because rent and salaries are paid in something that actually has value: the dollar.

Now, where does the actual money come from is a good question, but I'm too lazy to read their SEC filing.

> because rent and salaries are paid in something that actually has value: the dollar.

In 2018, 90% of employees received their salaries in BNB


Those employees have to eat and pay rent. None of that is in BNB.

Given their "grossly inaccurate filings" I wouldn't trust random tweets https://www.ft.com/content/3fb2f6cf-e132-43f4-9d6a-34fd13eb8...

Wow company scrip is back

Gonna be tough motivating the troops !

If there is enough volume in these trades to make appreciable fees then there is enough to continuously sell it.


They had $365mm in revenue from transactions. They has $1.1b in expenses. $550mm is employee/r&d.

I have calculated salary costs alone to be 30m a month at least. Could also be up to 80m, though, I have used the most conservative calculation I could reasonably come up with.

Then comes office infrastructure, if any and cloud assets.

They publicly disclose this info ;)

They have >4k employees. Assuming they make US minimum wage, they would cost almost 240,000,000/yr. It’s almost certainly MUCH higher.

They spend $550b a quarter on R/D. That’s likely mostly salary.


> They spend $550b a quarter on R/D. That’s likely mostly salary.

What does b stand for again…


And how many quarters in a year? 550 billion * 4 quarters = 2.2 trillion dollars in R&D each year...

Depends on how extravagant they are with executive bonuses, employee perks, fancy offices and cloud resources.

It's easy. If you give me custody of a billion dollars, I will immediately fly to Vegas and put it all on red.

If I win, I keep the money. If I lose... You'll have a problem a few years down the road, when you try to withdraw.

Every one of the allergic-to-sunlight exchanges has a huge incentive to do what I described.

Everything you hold a position in translates into risk on the books. If some of those positions (or even a majority of them) ends up losing you will need to make up the difference.

On top of that KYC and other operational costs really add up, and without another revenue stream than the transactions themselves it may simply not be enough of a slice to be viable.

Coinbase is like an empty casino with lots of employees, a solid vault, and no one at the table games. Binance is like a packed casino with few employees and about as transparent as mud.

They’re spending a lot on R&D and staff

They were making money with the current amount of spending but then crypto flipped

They probably will have to lay off more people and give up on their current pace of development. Tickets will take 5 months to complete instead of 2

It's really weird, because "typical" exchanges (NYSE, NASDAQ, CME, etc) typically charge like, what, a few basis points to trade? Coinbase is charging .60%, an order of magnitude of higher fees, and yet they're still somehow losing money?

Volume has been sucked out of the markets throughout 2022. Prop trading firms are suffering in the stock market for the same reason

How do you make that big of a loss just running a matching engine and a bit of regulatory overhead...

Hiring a ton of silicon valley employees to make it really inefficient.

Seriously, though, the NASDAQ matching engine runs on a 1U server, and I doubt coinbase needs anywhere near that amount of processing power. Clouds just make it really hard to run a fair matching engine.

They had almost 5000(!) employees before the layoffs. I honestly can’t fathom what 90% do day to day

> not your keys, not your crypto

what % of BTC is held in binance / crypto.com / coinbase?

if one of them fails/has an issue, how much more can BTC fall and then never recover?

what are the % chances something good happens to one of those exchanges and crypto value/demand goes up?

what are the % chances the inverse/opposite happens and crypto goes even lower?

reporting loses like $430M in quarter 1 of 2022 just by operating their business correctly

Coinbase stock is going to zero.

Whataboutists have arrived to protect China-owned Binance

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