It's the same dynamics, though, and "bank run" is the historical term used for these dynamics, i.e. institution takes depositors funds, institution loans out funds to other parties (the difference in the crypto case is that it appears this was done illegally, while in banking it's the underpinning for our financial system), and then there is a crisis of confidence where people run to take their money out, with the fear that you don't want to be last in line when the run starts.
ii) that's not how these exchanges work. if they are non-fraudulent, they'd have to hold cryptocurrency and cash on behalf of their clients. they'd never have a problem meeting withdrawal requests (the critical element of bank runs)
iii) crypto exchanges, if they are non-fraudulent, would be an equivalent to stock brokers, not banks
That absolutely is how banks work. Yes, there are fundamentally complexities under the covers, but banks take deposits and make loans - that is their fundamental purpose.
Your points about "that's not how these exchanges work" is just a rephrasing of the point I made where the assets were loaned out illegally.
Have you even had a look at the article that I linked? You are making a claim without providing any backup whatsoever for your position, after it's already been pointed out to you with a scholarly reference that your belief is wrong.
Suggestion: if you're trying to make a point, state it. Linking to 40 page article about the theory behind monetary creation in the modern world is not exactly a good way to make your argument against the statement that "banks take deposits and make loans".
I honestly don't know how one can argue against that, it is simply true to anyone who has used a bank. I did not make any larger statement about the mechanics of modern-day money creation.
It's in the abstract already: money creation is a result of bank's loan creation - the two are connected. Banks don't take deposits that they then lend out, they instead create those deposits ex nihilo when they make a loan.
The difference is still useless pedantry for the purposes of a discussion about bank runs.
If a bank makes a lot loans, and those loans go bad, and then depositors are fearful for their money and make a run on the bank, it is the depositors who are still shit out of luck unless their deposits are insured. You can argue all you want that the traditional model of fractional reserve banking isn't how today's money creation works, but at the end of the day there is a direct line between the quality of a bank's assets (its loans) and the ability for it to service its liabilities (its deposits).
Considering that FTX is a fraudulent exchange and the rate at which fraud has been perpetuated by crypto exchanges historically, I don't know that this is any more than theoretical pedantry.
For all practical purposes at this point in time, if you don't assume your exchange is lying about their reserves and at high risk of a run you're in for a massive loss.
I am heavily against crypto, but I will be the first to point out the decentralization purists were right: not your keys, not your coins. If you're going to play this game, putting complete trust in mostly unregulated entities who have conflicting self-interests from you...yikes.
> For all practical purposes at this point in time, if you don't assume your exchange is lying about their reserves and at high risk of a run you're in for a massive loss.
I'm a cryptocurrency advocate and I agree. This is why users should 1) never put more funds at risk in an exchange than they are willing to lose (at least, not at the same time), and 2) should demand Merkle-tree based proofs of crypto reserves, like the Kraken exchange has done out of their own initiative, or some other kind of proof of crypto reserves by cryptographic signature and 3) should demand periodic financial audits of their exchanges from reputable financial auditing firms (not the clown show that FTX's financial auditor was, which had offices... IN THE METAVERSE).
Points 2) and 3) are not infallible (especially because exchanges can get hacked) which is why point 1) is so important.
I also think that crypto exchanges should require new customers to pass a relatively strict test about crypto, investment and trading basics, before they could start operating with cryptocurrencies or with any other such trading products. Especially since crypto exchanges are the most common onboarding vector for new crypto users.
Because it's obvious that many crypto users do not know what they're getting into and all the risks that they are taking.
> I am heavily against crypto, but I will be the first to point out the decentralization purists were right: not your keys, not your coins. If you're going to play this game, putting complete trust in mostly unregulated entities who have conflicting self-interests from you...yikes.
Agreed, although I would nitpick in that by itself, regulation is hardly a guarantee that the risks have been eliminated. In fact, many bank failures and financial crisis, for example, have happened despite massive regulations. Also, many regulations are pointless burocracies or even have massively detrimental and/or have unintended consequences in many ways, such as limiting competition unnecessarily, promoting inequality and unfairness by preventing savvy investors (with non-massive amounts of funds) from being able to invest, etc, etc, etc.
But yes, in general I agree with you and I think more transparency for crypto exchanges is definitely needed and maybe should even be required by regulation, given that most exchanges are not doing it themselves out of their own initiative (even though it would be in their collective best interests in the long term).
These aren't anything though, they're made up by the founders. They don't behave like any typical financial institution. These things are just implementations of functionality, the fact that they are trusted with large amounts of money by random people on the internet is really good marketing and promises of riches.
Well maybe we should find a new term, because atleast in the US, bank runs on actual banks aren't possible anymore due to the fed mandated reserve requirement being 0% and banks being able to print new $
These events are the closest we can get to bank runs today
FTX is just one input. Seeing that Crypto.com has 20% of their reserves stored in a pointless sh-tcoin (SHIB) is just further proof that people running cryptocurrency exchanges are idiots or greedy fools.
One or another variation of this story has played out many times already. Then the whole sand castle crumbles, and a lot of fake money gets wiped away.
The entire cryptocurrency space is just an unregulated gambling arena. There may be some solid, well-intentioned efforts within it, but they are completely overshadowed (and overcapitalized) by the purely insane gambling ones.
Indeed, my assumption was probably wrong. In one of the two articles I read, I didn't see the quote about it being 1:1 analysis against customer holdings. I believed it included general hedging assets of the exchange.
As long as the exchange is not loaning or collateralizing against these SHIB holdings, then it's nothing of concern. It does still paint a pretty bad picture of the exchange or its customers based on the huge percentage of "value" stored in a coin which has absolutely no point in even existing (but that's beside the point of my original inaccurate post).
> It does still paint a pretty bad picture of the exchange or its customers
It just paints a bad picture of the customers. If that is what CDC users wanna buy, then the exchange needs to have enough to support the liquidity needs of their customers. CDC might be doing a lot wrong, but that probably isn't one. Wish you would edit your comment now that you understood the context of your assumption.
Crypto.com has 20% of their reserves in SHIB since that’s what their users own 1:1. That’s the correct approach; you would prefer they gamble with their customer’s assets by swapping a portion to more blue chip crypto like ETH?
You are correct that the reserves SHOULD just reflect customer holding but what are the odds that customers of what is the 5th or 6th largest exchange in existence are in aggregate holding 20% of their crypto portfolio in SHIB?
I'm sure the article means attempted outflows from Exchanges. They have a funny knack of pausing outflows in times like these because of system issues, aside the outflows through the also coincidental hacks.
Anything aside from BTC and ETH is worthless. It'll be interesting to see what happens to their prices. I suppose it will depend a lot on interest rates.
144 mil on an ICO off the bat is not ridiculous? Whatever its technical merits are, if Polkadot skyrocketed more than other altcoins (10x in 15 months) the reason was probably due to the cult of personality around Gavin Wood. If you're "a co-founder of Ethereum" in a crypto boom, you're probably riding the wave at the top.
Just saying that Polkadot actually works, true it could be super centralised that way I’m not sure about it’s history. But the Kusama / Polkadot combo has delivered, its not a memecoin with no utility.
And of course there’s always Tezos, which has imo the only organic NFT market out there.
People mistakenly believe that the two option you have are valuable or zero. Instead it is a scale from positive to negative value.
For example a legislation to have bitcoin
"pay for" the environment damage could lead to it having a negative value.
Working with and spending effort on a coin that goes to zero is a loss of productivity and opportunity of not doing something useful. Again the real cost is non-zero.
> For example a legislation to have bitcoin "pay for" the environment damage could lead to it having a negative value.
I'll bite. So basically, owner would have to pay more than they would get to sell their Bitcoin? I'm sure nobody would do that, so the price is effectively capped at zero and can't go lower.
It's a perfectly sensible statement. Bitcoin provides value in the form of moving money from A to B, which is a service people are happy to pay some amount for, and (arguably) being a store of value. Bitcoin's value, derived from its utility, is quantifiable, most easily by comparison to other items that provide the same utility.
Bitcoin has a cost, as well. The undercover economist might tell you that it fails to charge for an externality, namely its climate impact.
It's entirely possible that, were that exernality priced in, the cost to operate bitcoin might exceed the value it provides relative to other providers, which would give it net negative value.
The value wouldn't be zero, the transaction rate would head to zero. The value would be stuck at whatever it last traded at, so it'd become very volatile.
Correct. In the case that it stops transacting, the value of bitcoin as a system would be zero.
In the case where the costs are larger than the value produced, but are not paid by the bitcoin system (external, you might say), then it would still have net negative value, but continue to operate.
I agree in general. Crypto winter is here and appears to be getting worse. But I also am a frequent listener of Darknet Diaries podcast and basically every shady exchange of money online is facilitated in crypto. So it has a non-zero value.
But for whom? What how much is that utility really worth? And what kind of utility? That is what keeps shifting and what all the pro-contra propaganda is about.
In fact the bitcoin could even have negative utility, where getting someone stuck holding bitcoin is good for someone else.
Imagine that ... not just that bitcoin goes to zero, but could go into negative even!
The net present value of Bitcoin is likely negative, as there's substantial cost (billions of dollars per year depending on the current price of BTC) in maintaining the mining infrastructure that makes the network happen.
How? You can't change them for dollars/euro's/.. without an exchange?
I guess you could sell them to a private person but then it wouldn't effect the BTC/USD rate.
You can exchange BTC all you want, but if you exchange (verb) it then it’s no longer BTC. Likewise, if it’s sitting on an exchange (noun) then it’s not BTC.
Normally I would have sympathy but if you post on HN then I have trouble taking it seriously that you can’t figure this out. How could it possibly be any more obvious?
> .. if it’s sitting on an exchange (noun) then it’s not BTC.
I'm sorry but you lost me here. If I stall my BTC's in a wallet on an exchange, they remain BTC's?
Also I have a feeling that you're not getting my point. It is the selling/buying of BTC's for USD at the BTC exchanges that determines the official BTC/USD rate.
Sure you can also exchange them for something else (if the exchange lets you), but this will not affect the BTC/USD rate.
So if on an your exchange you're unable to withdraw your BTC's, you can't sell them, which means you're unable to affect the BTC/USD rate: I.E. BTC price will not go down.
The ultimate goal of bitcoin is to be the off-ramp, not need an off-ramp.
There is a huge subset of bitcoin TrueBelievers™ who regularly buy bitcoin with their local fiat with no intent of ever selling it back for fiat, but instead wait and invest elsewhere in expanding the network of people and institutions who will accept it directly for goods and services, e.g. El Salvador.
Most of these people are ready for a very long winter and a longer game on the order of decades.
How do you withdraw Bitcoin for something you can actually use? A fund means a sum of money. Bitcoin isn’t money in the normal sense. It never got to that point.
If everyone kept their own wallets, bitcoins value would tank to pre-2017 numbers.
Not the parent, but I think they meant "for purchases under $200 in value I use the lightning network, for larger transactions I do a direct transaction". The $200 was not talking about transaction fees AFAIK.
Either you are living in a completely different world or exaggerating the number of transactions by a lot. I do dozens of transaction per day from grocery to digital items to service to bill payment to repair and so much more. I am pretty sure almost no one in that group accepts crypto.
It's getting even crazier.
Some researchers are thinking hedge funds used FTX wrapped securities to fake stock locates for collateral. If this is true... everything is about to blow up.
What does "FTX wrapped securities" even mean? Everything I've read says they invested in crypto-related stuff, not publicly traded stocks in unrelated industries.
> The exchange will provide no-fee brokerage accounts and commission-free trading. CEO of FTX, Sam Bankman-Fried, recently acquired a 7.6% stake in Robinhood, which also provides fee- and commission-free brokerage services.
Sounds like it was to allow people to move funds from crypto into US stocks. If that was the case and that business also went bankrupt then I think people lose whatever stocks they "bought" via FTX Stocks because they likely just tracked prices and made it look like people "owned" a security by updating a record that says they bought it.
If there were huge numbers of purchases of stocks through FTX by their customers but then FTX didn't actually purchase those stocks (like the recent findings that they didn't actually purchase the crypto) then I don't see how this makes any bit of difference to whatever stocks are in question. Its not like they were ever actually purchased and FTX is in bankruptcy so any FTX customers are left with legal avenues to get money back but it appears there's no money to get.
Whatever your opinion of crypto (disclaimer: I think it solves no problem and probably never will) you cannot deny that the FTX collapse has done massive damage to the integrity of the ecosystem. It is so large it may well take years to recover. What's interesting is that trust and confidence here is just as important as it is for TradFi. Regulation is not just important. It is required.
SBF & his polycule cohorts are probably going to spend decades in prison.
What astounds me is the lack of oversight from investors (regulation can be slow to catch up). The company literally has no CFO [1] and its books are prepared by a Metaverse accounting firm [2]. While I have sympathy for the customers who will bear huge losses from this. I have absolutely none fodr the investors.
international remunerations and payment censorship avoidance in tyrannical regimes are two obvious and virtually unarguable problems a genuine cryptocurrency solves
This falls under the banner of "breaking the law", which is the only use case people foresaw in the last decade.
Now you might consider that ethical (eg in totalitarian regimes). I make no judgement about that. But the fact remains the use case is avoiding the law and that has negative implications too (eg ransomware, funding various illegal activities).
international remunerations does not fall under 'breaking the law'
and there are plenty of failings of the security of various centralized information storage and processing systems as we have seen; they can become vulnerable to attacks by bad actors. some of those bad actors are trying to target specific people to harass, stalk, or otherwise harm them. you're not going to convince me that blanket surveillance of all financial activity is remotely optimal from a safety standpoint. and we have obvious human rights questions about mandated surveillance of financial activity. so, no, just because someone is in government does not mean i trust them not to abuse the immense power they've legislated for themselves. i can be doing absolutely nothing illegal and argue for the legitimacy of taxation and AML controls while still holding the above views about human rights, and for good reason.
It depends; part of their appeal is they can get you significant savings by taking longer.
But that’s not because of transmission times (updating a database is faster than a blockchain), it’s because they get a better price for currency by batching you up with other people.
Calculator on the front page should say. It depends on the currency pair, but sending from the US is usually as fast as any other ACH transfer, between instant and overnight for me.
oh, ok; most interesting. that means it's a solution then, well, aside from things like (a) privacy concerns and the associated (b) ability for them to arbitrarily censor, delay, hold etc transactions which we have certainly see e.g. paypal do.
This kind of cascading failiures are great to see, it's making the whole space move towards defi and makes it more resillent. We can only imagine if anything in the legacy financial sector was allowed to fail this hard, how much better we would be in the long run if we werent forced to bail out banks.
you seem to think crypto is going away, but that isn't ever going to happen, the question is will it be completely centralized and made into a distopian nightmare fuel by states and corporations, or can we make good tools for people to resist this path
Well, the financial crash of 1929, while resulting in some good financial regulations being enacted, also created such levels of misery and want that people ended up thinking it to be a good idea to engage in the deadliest conflict in the history of mankind. Those who survived were left scarred for the rest of their lives. I think we should be wary of trying something like that again.
Any attempt at BTC going higher is quickly sold off. I think we're a loong way from any hope of recovery. When one considers that every asset class has failed, combined with high inflation, 2022 has been probably the worst year ever for investors, possibly worse than 2008. 2008 had a deeper bear market, but bonds and gold did well and inflation was low.
Is there a correlation between the knock-on effects of the recent collapses and an increasing in exchange hacking? Is the idea that hackers would prioritize these targets while there are still those fractional reserves left?
I think the italics indicate that these hacks are premedititated and engineered by the founders to look real when in fact they are a clever way of explaining away a liquidity trap.
Oh interesting, yeah I missed that subtlety. It certainly creates a way to buy time to try to plug a hole on the balance sheet while they are "investigating."
I still don’t understand why people keep their crypto in Exchanges… Is it that difficult to have a secure private address where you keep your crypto?
I get it that if you want to exchange and play with the markets you need to have your crypto in a shared wallet, but why for f** shake would you put all your money there?
That’s the whole point with crypto, you don’t need a bank (exchange) to store them for you. Not your keys, not your coins :-)
to trade it? You cannot trade or convert to cash unless you use some sort of exchange. If you want to go from something like BTC to Shibu you need an exchange. There are some decentlrized alternatives but the volume is tiny. BISQ still has absolute shit volume and hard to use. It's not intended for trading or cashing out large sums.
Sure, I get that. But why on earth keep all of it there? You can keep the majority of your crypto in a private address (hardware wallet, cold storage, metal plates…whatever) and only transfer/use as much as you’re willing to play/trade/convert.
Because crypto in cold storage doesn't earn interest and can't be used as collateral for a margin loan.
Crypto is full of people looking for to get rich quick with interest rates that are obvious ponzi schemes and/or by taking on insane leverage. They don't want to just put tokens in an offline wallet and watch the market prices.
They haven’t actually, I thought there was a relationship but in researching more I was wrong. Even more of a reason retail would opt for an exchange then.
So you're telling me that all these people exchanges currencies non-stop 24/7? Why can't they have coins in their offline wallet and transfer them to the exchange only before the transaction?
On a similar (sort of) principle, I do not keep 100% savings on the bank account to which my ATM card is attached, I have a separate account where I keep most of my savings and move money between them once a month or when i need to buy something very expensive.
probably day traders. These are people who trade crypto daily, sometimes many times/day. depositing and withdrawing may take a long time, so easier to keep it on the exchange and accept the risk.
Because on-chain transactions are expensive and exchanges offer cheap off-chain transactions. If you could transact on-chain as cheaply as you can move money between a checking and savings account of course people would do that.
For what chain? As far as I can tell, this is only true for ETH, and you can mitigate this by switching to a true L2, although not many of them are up to par yet.
Yeah the second paragraph makes sense. I do the same thing. I have a lot of bank accounts because of a side hustle (think dozens). I don’t connect my main savings bank account with any of these. Just in case something goes wrong, it’s easier if everything public goes through one or two banks with low amounts of money and I only carry a lower balance debit card with me.
How often for stocks purchased via a broker do you go and reregister them to direct registration so the certificates are in your name?
At this point I’m beginning to think the “not your keys” group is arguing in bad faith every time an exchange fails for failing to see why a retail investor would prefer an exchange.
I'm far from a crypto pusher but I've been around it for years...
The issue is that exchanges are pretty much guaranteed to be frauds, by market dynamics. There are only a few routes to profit, 1) charge users or 2) use user's funds to trade, or 3) trade against the user but with more knowledge. One of those is limited to maybe $20 per year, the other two are crimes. Every single crypto exchange picked one or both of the crime strategies because it was the way to make an exchange wildly profitable.
People who did use exchanges are people who were doing things they were warned were not a good idea, and were doing it for the obviously unrealistic gains and imho would have simply mailed their money to a Ponzi scam if that was all that was available.
Everything has some weakness and crypto is like cash here - if you let someone hold onto it for even a second they can refuse to return it.
I don't think you can blame a community of honest developers who described and detailed the risks for intentionally self-deluding investors. A 100%+ yearly return is a better indicator of something wrong than of a great untapped opportunity and these investors tried betting against people who they were assured were scammers and when that failed they blame the currency. It's like trying to win a rigged game against a carnie and then blaming the bus driver who gave you a ride to the carnival.
This is the 3rd wave of crypto enthusiasm that I've observed. In the first wave it was exclusively technical people who understood the details of blockchain, and where fascinated with the tech and perhaps a bit naively enthusiastic about the social component.
Then the second wave was technical adjacent people. Most of the "investors" I knew they were less technical people but still in the startup scene. Most of them didn't really understand how cryptocurrencies worked, but weren't completely clueless. They still had to figure out how to create a wallet, acquire coins etc but could only give you a hand wavy understanding of how various currencies actually worked.
This current wave was the naive retail wave, where large masses of people who fundamentally do not understand the underlying technology started getting involved. Most of these people in earnest do not understand what a "wallet" is, have no idea how to use crypto currencies outside of a central exchange. All they know is "a lot of people seem to be making easy money off this".
This is precisely why so many of the loudest critics in this current wave where crypto enthusiasts in the first wave. It became increasingly clear to anyone with technical understanding of the topic that the only explanation for what we're seeing is a lot of the very financial corruption and scams they were hoping to fight in the first wave.
That's an interesting observation and I agree with you (I'm a first-wave crypto advocate myself).
I've said this before here on HN, but I think crypto exchanges should require new customers to pass a relatively strict test about crypto, investment and trading basics before they could start operating with cryptocurrencies or other such trading products.
I think crypto exchanges are an ideal platform to do this because they're usually the onboarding ramp for most new crypto users, especially the ones losing massive amounts of money recently.
I believe this would be in the best interest of the whole crypto industry and could be a massive improvement in the reputation and usage of crypto in the long term, even if it could have some detrimental effects in the short run (due to being an entry barrier for new users).
Because it's obvious to anyone not asleep at the wheel that many new crypto users do not know what they're getting into, or rather, all the risks that they are undertaking when they get their money into crypto exchanges, cryptocurrencies and/or crypto-related... thingies.
People don’t even trust themselves to host their photos. they rely on cloud providers for that. How do you expect them to become their own digital bank. It makes absolutely no sense.
If i had to operate at the lowest common denominator in every realm, it would be a miserable experience. Just because certain people are incompetent doesnt mean that the option should not exist.
I don't think he's saying the option shouldn't exist, just that it's not sensible to yell at the people using exchanges like what they're doing doesn't make sense. You have the option of buying a vault and not using banks in fiat, too, though I very much doubt you do that.
What we're experiencing seems to be the reversal of an overly optimist neo-futurist trend that started in full force in the wake of the Subprime crisis.
It can be dangerous when it happens, alas the accumulation of greed/bullshit and delusions is calling for it.
Winter is coming.
For some reason I tend to rejoice when I see bullshit finally exposed, but I sincerely hope this one won't last too long.
You rejoice because of schadenfreude. It's painful to watch a bunch of lemmings make 200x their original investment while you are lucky to squeeze out 8% per year.
You realize much of the billions of crypto at these exchanges belong to market makers and quanty hedge funds at this point right?
Their capital is there because they use instantaneous electronic trading venues to make money.
Most of them would rather trade on swap than have to settle in cash. And they couldnt give a shit if they're trading Bitcoin or magic beans. They don't care about the Blockchain.
Then they might lose a ton of money, because they didn't understand what they were buying.
Want to buy a Ferrari? Buy a Ferrari. Not a photo of one, not an "NFT", not red paint and some axles, and not a promise that someone has it in their garage - the real thing.
IOUs are the entire problem cryptocurrencies aim to solve. You can trade without giving a third party full access to your funds.
You seem to be missing the point. If you want to trade crypto in a 10 microsecond window then the exchange, or a trusted broker, needs to be a custodian of your crypto.
What you're suggesting just doesn't fly.
This is why the regulated markets brokers have to stump up collateral and we have clearing houses. You can buy Facebook shares in a microsecond but it takes days to settle and become yours. During that time, you're at risk. Likewise with crypto, even if you settled every few hours on the Blockchain (hideously expensive), there is still a risk window.
Treating crypto like a high velocity stock exchange gets you exactly the same thing that you get from a high velocity stock exchange; aka a system that just generally screws little guys.
It's actually a system that screws (some of) the big guys.
The "little guy" enjoys very low commissions and market orders with bid/ask spreads less than they ever were. Market makers are happy to give cheap liquidity to "uninformed" traders whose trades don't move markets. (People on Robinhood get very good access if they want to trade sensibly; I wouldn't blame the market makers primarily that many of them use stock trading as a substitute for sports betting.)
If you like trading limit orders on the theory that odds are very good you can set a limit 1% below the current price and get a fill thanks to Brownian motion, they are going to outtrade you because they've got answers to the risk that a limit order sometimes fills not because of Brownian motion but because the market is moving sharply in one direction and you don't.
Market makers do not want to trade with large traders who know something that not everybody knows and whose trades may be a harbinger of market moves that will go against the market makers. Market makers want to make those traders pay through the nose for liquidity and that is why large trainers are always complaining that "the prices I see aren't for real."
Absolutely, I was mentioning the whole thing in a summary kind of way. I'm definitely aware that power can shift greatly -- but it does seem to, on balance, extract money from little guys to big guys, even if the identity of the big guys sometimes changes.
Yes, you cannot, in the general case, securely trade cryptocurrencies with 10 microsecond timing without accepting huge counterparty risk.
If you want to park your car on the side of a free flowing motorway you are at risk. You can do it, but it's dangerous. People get hit all of the time. It might be more convenient to check your map. It might be faster. But you really probably should get off at the next exit or find a rest area and take that theoretical efficiency hit, cause it works most of the time until it doesn't.
This is a demonstration of that risk. It's not the first, likely it isn't even the 100th.
I sent a decent chunk earlier for (allegedly) only $0.75. I agree with your timeframe argument, but the price of these transactions aren’t always that bad.
They understand what they’re doing. They are trading a “security”. They aren’t trying to buy a Ferrari. They are trying to make as much money as possible in whatever “security” is available to make money on.
Going with your analogy, big crypto players are trading lots of Ferraris each day. Withdrawing and depositing cash for each Ferrari purchase would take significantly longer than the trade itself. If only there was some financial engineering that could make this easier...
Yes but it's also got serious "this is the year of the Linux desktop" vibes. If there's one thing exchanges and this collapse have proven it's that normies could not care less about managing their own keys because, and this is true, managing your own keys at home is risky and sucks - intentionally.
Saying that everyone should have a birdbath with a Ledger under it is tantamount to admitting this whole model is only for a few anarchocaptialist libertarian nutbags, los narcostrafficantes and folks trying to make ransomware payments - while the normies should just stick to tradfi.
I'm confident that's true, but there's a reason it enjoys 2.5% market share. [1] That's kind of my point. The things that make it attractive to you make it a non-starter to the normies.
Billions of dollars?
I don’t believe that so many real dollars are left in the ecosystem. And who is buying one bitcoin for $15,000 at the moment so that another guy can withdraw his money?
Lots of automated trading by firms is still happening. There could be enough people trying to buy the dip. Or doing manual day trading/active trading. Crypto communities still have a huge number of believers.
Or take a look at the EA community and their cognitive dissonance over SBF and the general issue of bootlicking billionaires when it comes to altruism. Not everything is rational now.
Or you’re right and it’s wash trading keeping the price afloat.
It is striking to me that the crypto community is re-enacting a classical bank run in a "decentralized" system where such a thing wasn't supposed to happen.
What's even more impressive is how quickly the crypto community is speed-running the history of financial fraud from penny stocks to bank runs. From Wikipedia,
> Several leading Wall Street bankers met to find a solution to the panic and chaos on the trading floor.[14] The meeting included Thomas W. Lamont, acting head of Morgan Bank; Albert Wiggin, head of the Chase National Bank; and Charles E. Mitchell, president of the National City Bank of New York.[15] They chose Richard Whitney, vice president of the Exchange, to act on their behalf.[citation needed]
> With the bankers' financial resources behind him, Whitney placed a bid to purchase 25,000 shares of U.S. Steel at $205 per share, a price well above the current market.[16] As traders watched, Whitney then placed similar bids on other "blue chip" stocks.
> On October 28, "Black Monday",[17] more investors facing margin calls decided to get out of the market, and the slide continued with a record loss in the Dow for the day of 38.33 points, or 12.82%.[12]
> On October 29, 1929, "Black Tuesday" hit Wall Street as investors traded some 16 million shares on the New York Stock Exchange in a single day. Billions of dollars were lost, wiping out thousands of investors. The panic selling reached its peak with some stocks having no buyers at any price.[18] The Dow lost an additional 30.57 points, or 11.73%, for a total drop of 68.90 points, or 23.05% in two days.[19][20][21][22]
...
> Many people blamed the crash on commercial banks that were too eager to put deposits at risk on the stock market.[49]
> In 1930, 1,352 banks held more than $853 million in deposits; in 1931, one year later, 2,294 banks failed with nearly $1.7 billion in deposits
Stick to protocols that have been around for even a year and you'll do much better than those listed in that article. How much has been lost via hacks from Uniswap, Aave or MakerDAO?
Most of those examples you linked are bridges that aren't considered Defi or half-baked protocols that scream "scam".
And yet decentralized exchanges exist that have been operating successfully for years. Survival of the fittest is a good thing in this case. I would trust a defi exchange that's had people trying to break it constantly for years much more than I would trust, for example, the security of my money in a local bank. People get their money stolen in confidence scams and other exploits every day and that money is just as gone.
I think that depends on the flavor of robustness. spectacular failures occur with systems that have high interdependence of parts, high centrality, and recursive effects. There's also a relationship between cascading failure modes and complexity.
Systems that are robust due to being simple, flexible, highly independent tend to peter out over the long haul, as their failure is often an effect of a changing environment rather than some internal fracture.
Anything that's made "robust" artificially (like propping up a bridge with a loose piece of lumber, or injecting bailout money to maintain bank's solvency) is now completely dependant on that artificial prop. if the bridge is allowed to carry more traffic after being propped up this way, you can expect a catastrophe equal to the one you averted + everything that's been added since.
> The decentralized aspects of crypto ("defi") has been operating just fine through this entire shit-show.
There's a reason that exchanges like FTX are central to "crypto" as a practical matter, regardless of the technical underpinnings of crypto itself. These things are required to facilitate speculation and attract users who otherwise would be capable of interacting with the actual distributed stuff.
Without the much needed fiat currency of this class of users, the pyramids couldn't have been built nearly so high.
To most people defi = blockchain-ized ponzi schemes. Programs that have you deposit assets in exchange for unsustainable 'yield' drawn from other deposits, collateralize by illiquid magic beans.
There were massive 'defi' failures earlier this year. FTX itself appears to have been primarily invested in varrious defi schemes while being short Bitcoin, resulting in the current insolvency.
> It is striking to me that the crypto community is re-enacting a classical bank run in a "decentralized" system where such a thing wasn't supposed to happen.
A bank run can only happen with fractional reserve system. An exchange that keeps a 1:1 ratio of assets is not exposed to a bank run. Fiat banks on the other hand are by definition exposed to it.
I think FTX acted fraudulently rather than breaking a securities or banking law. They told users they were 1:1 and didn’t gamble with user deposits but did it anyway.
What does this have to do with centralization? Decentralization doesn't preclude panic selling. Maybe it wouldn't be a "bank run" because everything would be marked-to-market all the time, but you could presumably still see your account become worthless in the blink of an eye, no?
Is it intrinsic to digital currency that it be in an exchange, and convertible to dollars?
But it didn't go that way. If you want to trade/spend something that is in increments of tens of thousands of dollars, you have to have an exchange. Where all of the fraud, panic and crime happened. Because it was decentralized (no supervisory authority)
> >In 1930, 1,352 banks held more than $853 million in deposits; in 1931, one year later, 2,294 banks failed with nearly $1.7 billion in deposits
> Does any of this sound familiar?
Why did you remove the "citation needed" part of that latter quote? There is no source for that claim, and you removed that piece of information.
This [1] (with ample sources) claims there were over 24,000 banks at the start, 8000 in the Federal Reserve System, 16,000 not in.
This [2] claims total losses from banks, over a wider period than your list (and including two sets of bank runs [1] and [3]), were $1.3B (again with decent sources).
There's a reason things get tagged on Wikipedia as "citation needed". It's important not to delete those from a quote.
These things come in waves. Every cycle is the same: People come in for the gains and pump and dumps, then they get wrecked when the tide goes out. Some of them learn their lesson and move from a trading model to a savings model. They withdraw and hold for the long term in a wallet they control.
I hadn't heard of FTX before it started imploding. I think a lot of people are overestimating the impact of this.
Sketchy foreign crypto companies explode all the time. This one is more exciting and salacious because it seems like prominent investors, US regulators and politicians bought the lie (and the whole c-level polycule thing). The rest of the crypto ecosystem will continue marching on.
I think it's likely this is the cycle bottom: doom and gloom feels like its probably a local maximum. I predict history will repeat itself: BTC price will be boring for another two years until the run-up to block halving in 2024.
If you want to own crypto, now's probably a good time to set up DCA. My personal advice to friends is to DCA (buy fixed dollar value each ~month) on Coinbase (least sketchy exchange) until 1% of your net worth is in BTC and ETH (2:1 ratio). Pull any accumulated funds off the exchange to coldwallet quarterly. DCA out when it exceeds 5%.
You admit that you were completely oblivious to a Top-3 CEX, and then proceed to prognosticate about crypto cycles and investment timing...? Respectfully: doesn't inspire much confidence.
it had a Superbowl ad and a stadium in Miami named for itself for a year and a half now. It's been making such an obscene amount of hype that saying "i personally have never heard of them so this must be overblown" is not a very convincing argument.
This isn't just about how far the contagion has spread via counterparty risk. And that is a significant factor. Leverage is widespread and undocumented. This is also about an awakening to the risks associated with hosting your "wealth" in custodial wallets controlled by completely unregulated entities. Entities that have continually failed to achieve even a modicum of transparency (all stablecoins, most exchanges). Entities that in some cases refuse to identify a headquarters (Binance). In other words, this is an ongoing macro trust rug.
The early adopters who were in the space pre-2018 or pre-2020 are a small minority of count of crypto participants today. (Not to mention the fact that all of this has happened many, many times throughout financial history for hundreds of years.)
But for the majority of participants today (aka dumb money retail), this is their first experience in getting rekt. Many of them will likely wash their hands of the entire space.
I mean, seriously, who didn't see this coming? Hope and hype aren't the same thing. Can you really expect to trust any entity who you can't sue/call on the phone/read reviews on?
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[ 3.0 ms ] story [ 217 ms ] threadii) that's not how these exchanges work. if they are non-fraudulent, they'd have to hold cryptocurrency and cash on behalf of their clients. they'd never have a problem meeting withdrawal requests (the critical element of bank runs)
iii) crypto exchanges, if they are non-fraudulent, would be an equivalent to stock brokers, not banks
[0] https://www.imf.org/en/Publications/WP/Issues/2019/12/20/Mon...
Your points about "that's not how these exchanges work" is just a rephrasing of the point I made where the assets were loaned out illegally.
I honestly don't know how one can argue against that, it is simply true to anyone who has used a bank. I did not make any larger statement about the mechanics of modern-day money creation.
If a bank makes a lot loans, and those loans go bad, and then depositors are fearful for their money and make a run on the bank, it is the depositors who are still shit out of luck unless their deposits are insured. You can argue all you want that the traditional model of fractional reserve banking isn't how today's money creation works, but at the end of the day there is a direct line between the quality of a bank's assets (its loans) and the ability for it to service its liabilities (its deposits).
Considering that FTX is a fraudulent exchange and the rate at which fraud has been perpetuated by crypto exchanges historically, I don't know that this is any more than theoretical pedantry.
For all practical purposes at this point in time, if you don't assume your exchange is lying about their reserves and at high risk of a run you're in for a massive loss.
I am heavily against crypto, but I will be the first to point out the decentralization purists were right: not your keys, not your coins. If you're going to play this game, putting complete trust in mostly unregulated entities who have conflicting self-interests from you...yikes.
I'm a cryptocurrency advocate and I agree. This is why users should 1) never put more funds at risk in an exchange than they are willing to lose (at least, not at the same time), and 2) should demand Merkle-tree based proofs of crypto reserves, like the Kraken exchange has done out of their own initiative, or some other kind of proof of crypto reserves by cryptographic signature and 3) should demand periodic financial audits of their exchanges from reputable financial auditing firms (not the clown show that FTX's financial auditor was, which had offices... IN THE METAVERSE).
Points 2) and 3) are not infallible (especially because exchanges can get hacked) which is why point 1) is so important.
I also think that crypto exchanges should require new customers to pass a relatively strict test about crypto, investment and trading basics, before they could start operating with cryptocurrencies or with any other such trading products. Especially since crypto exchanges are the most common onboarding vector for new crypto users.
Because it's obvious that many crypto users do not know what they're getting into and all the risks that they are taking.
> I am heavily against crypto, but I will be the first to point out the decentralization purists were right: not your keys, not your coins. If you're going to play this game, putting complete trust in mostly unregulated entities who have conflicting self-interests from you...yikes.
Agreed, although I would nitpick in that by itself, regulation is hardly a guarantee that the risks have been eliminated. In fact, many bank failures and financial crisis, for example, have happened despite massive regulations. Also, many regulations are pointless burocracies or even have massively detrimental and/or have unintended consequences in many ways, such as limiting competition unnecessarily, promoting inequality and unfairness by preventing savvy investors (with non-massive amounts of funds) from being able to invest, etc, etc, etc.
But yes, in general I agree with you and I think more transparency for crypto exchanges is definitely needed and maybe should even be required by regulation, given that most exchanges are not doing it themselves out of their own initiative (even though it would be in their collective best interests in the long term).
These aren't anything though, they're made up by the founders. They don't behave like any typical financial institution. These things are just implementations of functionality, the fact that they are trusted with large amounts of money by random people on the internet is really good marketing and promises of riches.
These events are the closest we can get to bank runs today
https://cryptobriefing.com/metamask-opensea-blocks-expose-ce...
One or another variation of this story has played out many times already. Then the whole sand castle crumbles, and a lot of fake money gets wiped away.
The entire cryptocurrency space is just an unregulated gambling arena. There may be some solid, well-intentioned efforts within it, but they are completely overshadowed (and overcapitalized) by the purely insane gambling ones.
As long as the exchange is not loaning or collateralizing against these SHIB holdings, then it's nothing of concern. It does still paint a pretty bad picture of the exchange or its customers based on the huge percentage of "value" stored in a coin which has absolutely no point in even existing (but that's beside the point of my original inaccurate post).
It just paints a bad picture of the customers. If that is what CDC users wanna buy, then the exchange needs to have enough to support the liquidity needs of their customers. CDC might be doing a lot wrong, but that probably isn't one. Wish you would edit your comment now that you understood the context of your assumption.
If you have any money on the exchanges now is the time to get out.
144 mil on an ICO off the bat is not ridiculous? Whatever its technical merits are, if Polkadot skyrocketed more than other altcoins (10x in 15 months) the reason was probably due to the cult of personality around Gavin Wood. If you're "a co-founder of Ethereum" in a crypto boom, you're probably riding the wave at the top.
Just saying that Polkadot actually works, true it could be super centralised that way I’m not sure about it’s history. But the Kusama / Polkadot combo has delivered, its not a memecoin with no utility.
And of course there’s always Tezos, which has imo the only organic NFT market out there.
People mistakenly believe that the two option you have are valuable or zero. Instead it is a scale from positive to negative value.
For example a legislation to have bitcoin "pay for" the environment damage could lead to it having a negative value.
Working with and spending effort on a coin that goes to zero is a loss of productivity and opportunity of not doing something useful. Again the real cost is non-zero.
I'll bite. So basically, owner would have to pay more than they would get to sell their Bitcoin? I'm sure nobody would do that, so the price is effectively capped at zero and can't go lower.
Lol this is beyond absurd.
Bitcoin has a cost, as well. The undercover economist might tell you that it fails to charge for an externality, namely its climate impact.
It's entirely possible that, were that exernality priced in, the cost to operate bitcoin might exceed the value it provides relative to other providers, which would give it net negative value.
In the case where the costs are larger than the value produced, but are not paid by the bitcoin system (external, you might say), then it would still have net negative value, but continue to operate.
But for whom? What how much is that utility really worth? And what kind of utility? That is what keeps shifting and what all the pro-contra propaganda is about.
In fact the bitcoin could even have negative utility, where getting someone stuck holding bitcoin is good for someone else.
Imagine that ... not just that bitcoin goes to zero, but could go into negative even!
1. Mine a bunch of new hashes.
2. Fake liquidity by selling to yourself - bonus points if you make it appear that the price is rising by selling/buying for more $.
3. When naive folks shout "it's raising to the moon!" and buy the crap - drop all what you have from the step one.
4. Profit - Lambo is yours!
Normally I would have sympathy but if you post on HN then I have trouble taking it seriously that you can’t figure this out. How could it possibly be any more obvious?
I'm sorry but you lost me here. If I stall my BTC's in a wallet on an exchange, they remain BTC's?
Also I have a feeling that you're not getting my point. It is the selling/buying of BTC's for USD at the BTC exchanges that determines the official BTC/USD rate. Sure you can also exchange them for something else (if the exchange lets you), but this will not affect the BTC/USD rate.
So if on an your exchange you're unable to withdraw your BTC's, you can't sell them, which means you're unable to affect the BTC/USD rate: I.E. BTC price will not go down.
There is a huge subset of bitcoin TrueBelievers™ who regularly buy bitcoin with their local fiat with no intent of ever selling it back for fiat, but instead wait and invest elsewhere in expanding the network of people and institutions who will accept it directly for goods and services, e.g. El Salvador.
Most of these people are ready for a very long winter and a longer game on the order of decades.
If everyone kept their own wallets, bitcoins value would tank to pre-2017 numbers.
The point is, I never need to buy fiat (what you call withdrawing)
And where are you that most counterparties accept BTC? El Salvador?
No, last week was the time to get out. By the time everyone knows it's time to get out, it's already to late.
I don't know anything about how it worked or who used it, etc. I wonder if it relates somehow to this idea of wrapped securities though.
Sounds like it was to allow people to move funds from crypto into US stocks. If that was the case and that business also went bankrupt then I think people lose whatever stocks they "bought" via FTX Stocks because they likely just tracked prices and made it look like people "owned" a security by updating a record that says they bought it.
If there were huge numbers of purchases of stocks through FTX by their customers but then FTX didn't actually purchase those stocks (like the recent findings that they didn't actually purchase the crypto) then I don't see how this makes any bit of difference to whatever stocks are in question. Its not like they were ever actually purchased and FTX is in bankruptcy so any FTX customers are left with legal avenues to get money back but it appears there's no money to get.
Compushare got yall so hard, lmao.
There is a lot of wealth and money being destroyed. These assets were pledged. People made spending and savings decisions with them in mind [1].
In a farcical way, crypto is doing a good deal to alleviating the pain of monetary tightening by concentrating it on its holders.
[1] https://en.wikipedia.org/wiki/Wealth_effect
SBF & his polycule cohorts are probably going to spend decades in prison.
What astounds me is the lack of oversight from investors (regulation can be slow to catch up). The company literally has no CFO [1] and its books are prepared by a Metaverse accounting firm [2]. While I have sympathy for the customers who will bear huge losses from this. I have absolutely none fodr the investors.
[1]: https://www.ledgerinsights.com/ftx-warning-signs-no-cfo/
[2]: https://www.coindesk.com/business/2022/11/11/meet-the-metave...
Now you might consider that ethical (eg in totalitarian regimes). I make no judgement about that. But the fact remains the use case is avoiding the law and that has negative implications too (eg ransomware, funding various illegal activities).
and there are plenty of failings of the security of various centralized information storage and processing systems as we have seen; they can become vulnerable to attacks by bad actors. some of those bad actors are trying to target specific people to harass, stalk, or otherwise harm them. you're not going to convince me that blanket surveillance of all financial activity is remotely optimal from a safety standpoint. and we have obvious human rights questions about mandated surveillance of financial activity. so, no, just because someone is in government does not mean i trust them not to abuse the immense power they've legislated for themselves. i can be doing absolutely nothing illegal and argue for the legitimacy of taxation and AML controls while still holding the above views about human rights, and for good reason.
For legal money transfers you'll have a hard time beating that. For illegal ones you're, well, illegal.
But that’s not because of transmission times (updating a database is faster than a blockchain), it’s because they get a better price for currency by batching you up with other people.
I am not sure if most people will have enough patience though!
I get it that if you want to exchange and play with the markets you need to have your crypto in a shared wallet, but why for f** shake would you put all your money there?
That’s the whole point with crypto, you don’t need a bank (exchange) to store them for you. Not your keys, not your coins :-)
Crypto is full of people looking for to get rich quick with interest rates that are obvious ponzi schemes and/or by taking on insane leverage. They don't want to just put tokens in an offline wallet and watch the market prices.
On a similar (sort of) principle, I do not keep 100% savings on the bank account to which my ATM card is attached, I have a separate account where I keep most of my savings and move money between them once a month or when i need to buy something very expensive.
For what chain? As far as I can tell, this is only true for ETH, and you can mitigate this by switching to a true L2, although not many of them are up to par yet.
https://twitter.com/haydenzadams/status/1592188164218707969?...
How often for stocks purchased via a broker do you go and reregister them to direct registration so the certificates are in your name?
At this point I’m beginning to think the “not your keys” group is arguing in bad faith every time an exchange fails for failing to see why a retail investor would prefer an exchange.
The issue is that exchanges are pretty much guaranteed to be frauds, by market dynamics. There are only a few routes to profit, 1) charge users or 2) use user's funds to trade, or 3) trade against the user but with more knowledge. One of those is limited to maybe $20 per year, the other two are crimes. Every single crypto exchange picked one or both of the crime strategies because it was the way to make an exchange wildly profitable.
People who did use exchanges are people who were doing things they were warned were not a good idea, and were doing it for the obviously unrealistic gains and imho would have simply mailed their money to a Ponzi scam if that was all that was available.
Everything has some weakness and crypto is like cash here - if you let someone hold onto it for even a second they can refuse to return it.
I don't think you can blame a community of honest developers who described and detailed the risks for intentionally self-deluding investors. A 100%+ yearly return is a better indicator of something wrong than of a great untapped opportunity and these investors tried betting against people who they were assured were scammers and when that failed they blame the currency. It's like trying to win a rigged game against a carnie and then blaming the bus driver who gave you a ride to the carnival.
If all you’ve done is reinvent the existing monetary system minus all regulation, oversight and value, you’ve invented absolutely nothing at all.
Except, perhaps, a novel new way to convince rubes to give you their money.
Should have been a red flag on reflection
Then the second wave was technical adjacent people. Most of the "investors" I knew they were less technical people but still in the startup scene. Most of them didn't really understand how cryptocurrencies worked, but weren't completely clueless. They still had to figure out how to create a wallet, acquire coins etc but could only give you a hand wavy understanding of how various currencies actually worked.
This current wave was the naive retail wave, where large masses of people who fundamentally do not understand the underlying technology started getting involved. Most of these people in earnest do not understand what a "wallet" is, have no idea how to use crypto currencies outside of a central exchange. All they know is "a lot of people seem to be making easy money off this".
This is precisely why so many of the loudest critics in this current wave where crypto enthusiasts in the first wave. It became increasingly clear to anyone with technical understanding of the topic that the only explanation for what we're seeing is a lot of the very financial corruption and scams they were hoping to fight in the first wave.
I've said this before here on HN, but I think crypto exchanges should require new customers to pass a relatively strict test about crypto, investment and trading basics before they could start operating with cryptocurrencies or other such trading products.
I think crypto exchanges are an ideal platform to do this because they're usually the onboarding ramp for most new crypto users, especially the ones losing massive amounts of money recently.
I believe this would be in the best interest of the whole crypto industry and could be a massive improvement in the reputation and usage of crypto in the long term, even if it could have some detrimental effects in the short run (due to being an entry barrier for new users).
Because it's obvious to anyone not asleep at the wheel that many new crypto users do not know what they're getting into, or rather, all the risks that they are undertaking when they get their money into crypto exchanges, cryptocurrencies and/or crypto-related... thingies.
It can be dangerous when it happens, alas the accumulation of greed/bullshit and delusions is calling for it.
Winter is coming.
For some reason I tend to rejoice when I see bullshit finally exposed, but I sincerely hope this one won't last too long.
You should not keep cryptocurrencies on an exchange.
We have been saying this since the early 2010s. Ten years, minimum.
This is exactly the point of cryptocurrency.
If you're not doing that, you're messing about with IOUs.
Their capital is there because they use instantaneous electronic trading venues to make money.
Most of them would rather trade on swap than have to settle in cash. And they couldnt give a shit if they're trading Bitcoin or magic beans. They don't care about the Blockchain.
Want to buy a Ferrari? Buy a Ferrari. Not a photo of one, not an "NFT", not red paint and some axles, and not a promise that someone has it in their garage - the real thing.
IOUs are the entire problem cryptocurrencies aim to solve. You can trade without giving a third party full access to your funds.
Hedge funds should _demand_ this.
What you're suggesting just doesn't fly.
This is why the regulated markets brokers have to stump up collateral and we have clearing houses. You can buy Facebook shares in a microsecond but it takes days to settle and become yours. During that time, you're at risk. Likewise with crypto, even if you settled every few hours on the Blockchain (hideously expensive), there is still a risk window.
Treating crypto like a high velocity stock exchange gets you exactly the same thing that you get from a high velocity stock exchange; aka a system that just generally screws little guys.
The "little guy" enjoys very low commissions and market orders with bid/ask spreads less than they ever were. Market makers are happy to give cheap liquidity to "uninformed" traders whose trades don't move markets. (People on Robinhood get very good access if they want to trade sensibly; I wouldn't blame the market makers primarily that many of them use stock trading as a substitute for sports betting.)
If you like trading limit orders on the theory that odds are very good you can set a limit 1% below the current price and get a fill thanks to Brownian motion, they are going to outtrade you because they've got answers to the risk that a limit order sometimes fills not because of Brownian motion but because the market is moving sharply in one direction and you don't.
Market makers do not want to trade with large traders who know something that not everybody knows and whose trades may be a harbinger of market moves that will go against the market makers. Market makers want to make those traders pay through the nose for liquidity and that is why large trainers are always complaining that "the prices I see aren't for real."
If you want to park your car on the side of a free flowing motorway you are at risk. You can do it, but it's dangerous. People get hit all of the time. It might be more convenient to check your map. It might be faster. But you really probably should get off at the next exit or find a rest area and take that theoretical efficiency hit, cause it works most of the time until it doesn't.
This is a demonstration of that risk. It's not the first, likely it isn't even the 100th.
You can't trade anything with 10 microsecond timing without accepting counterparty risk.
Crypto is not special here, except that it's full of fraudsters or people that think they're smarter than they are.
In their mind crypto should be the antidote to counterparty risk and they are willing to give up liquidity to achieve that.
I sent a decent chunk earlier for (allegedly) only $0.75. I agree with your timeframe argument, but the price of these transactions aren’t always that bad.
Yes but it's also got serious "this is the year of the Linux desktop" vibes. If there's one thing exchanges and this collapse have proven it's that normies could not care less about managing their own keys because, and this is true, managing your own keys at home is risky and sucks - intentionally.
Saying that everyone should have a birdbath with a Ledger under it is tantamount to admitting this whole model is only for a few anarchocaptialist libertarian nutbags, los narcostrafficantes and folks trying to make ransomware payments - while the normies should just stick to tradfi.
If it somehow became more like Windows I would use an alternative.
[1] https://en.wikipedia.org/wiki/Usage_share_of_operating_syste...
This is not the point for a lot of users for which crypto is synonymous with trading tokens on an exchange.
Or take a look at the EA community and their cognitive dissonance over SBF and the general issue of bootlicking billionaires when it comes to altruism. Not everything is rational now.
Or you’re right and it’s wash trading keeping the price afloat.
What's even more impressive is how quickly the crypto community is speed-running the history of financial fraud from penny stocks to bank runs. From Wikipedia,
> Several leading Wall Street bankers met to find a solution to the panic and chaos on the trading floor.[14] The meeting included Thomas W. Lamont, acting head of Morgan Bank; Albert Wiggin, head of the Chase National Bank; and Charles E. Mitchell, president of the National City Bank of New York.[15] They chose Richard Whitney, vice president of the Exchange, to act on their behalf.[citation needed]
> With the bankers' financial resources behind him, Whitney placed a bid to purchase 25,000 shares of U.S. Steel at $205 per share, a price well above the current market.[16] As traders watched, Whitney then placed similar bids on other "blue chip" stocks.
> On October 28, "Black Monday",[17] more investors facing margin calls decided to get out of the market, and the slide continued with a record loss in the Dow for the day of 38.33 points, or 12.82%.[12]
> On October 29, 1929, "Black Tuesday" hit Wall Street as investors traded some 16 million shares on the New York Stock Exchange in a single day. Billions of dollars were lost, wiping out thousands of investors. The panic selling reached its peak with some stocks having no buyers at any price.[18] The Dow lost an additional 30.57 points, or 11.73%, for a total drop of 68.90 points, or 23.05% in two days.[19][20][21][22]
...
> Many people blamed the crash on commercial banks that were too eager to put deposits at risk on the stock market.[49]
> In 1930, 1,352 banks held more than $853 million in deposits; in 1931, one year later, 2,294 banks failed with nearly $1.7 billion in deposits
Does any of this sound familiar?
The decentralized aspects of crypto ("defi") has been operating just fine through this entire shit-show.
https://beincrypto.com/top-ten-defi-hacks-2022-hackers-darin...
Most of those examples you linked are bridges that aren't considered Defi or half-baked protocols that scream "scam".
Systems that are robust due to being simple, flexible, highly independent tend to peter out over the long haul, as their failure is often an effect of a changing environment rather than some internal fracture.
Anything that's made "robust" artificially (like propping up a bridge with a loose piece of lumber, or injecting bailout money to maintain bank's solvency) is now completely dependant on that artificial prop. if the bridge is allowed to carry more traffic after being propped up this way, you can expect a catastrophe equal to the one you averted + everything that's been added since.
There's a reason that exchanges like FTX are central to "crypto" as a practical matter, regardless of the technical underpinnings of crypto itself. These things are required to facilitate speculation and attract users who otherwise would be capable of interacting with the actual distributed stuff.
Without the much needed fiat currency of this class of users, the pyramids couldn't have been built nearly so high.
There were massive 'defi' failures earlier this year. FTX itself appears to have been primarily invested in varrious defi schemes while being short Bitcoin, resulting in the current insolvency.
A bank run can only happen with fractional reserve system. An exchange that keeps a 1:1 ratio of assets is not exposed to a bank run. Fiat banks on the other hand are by definition exposed to it.
Is it intrinsic to digital currency that it be in an exchange, and convertible to dollars?
But it didn't go that way. If you want to trade/spend something that is in increments of tens of thousands of dollars, you have to have an exchange. Where all of the fraud, panic and crime happened. Because it was decentralized (no supervisory authority)
> Does any of this sound familiar?
Why did you remove the "citation needed" part of that latter quote? There is no source for that claim, and you removed that piece of information.
This [1] (with ample sources) claims there were over 24,000 banks at the start, 8000 in the Federal Reserve System, 16,000 not in.
This [2] claims total losses from banks, over a wider period than your list (and including two sets of bank runs [1] and [3]), were $1.3B (again with decent sources).
There's a reason things get tagged on Wikipedia as "citation needed". It's important not to delete those from a quote.
[1] https://www.federalreservehistory.org/essays/banking-panics-...
[2] https://www.fdic.gov/about/history/timeline/1930s.html
[3] https://www.federalreservehistory.org/essays/banking-panics-...
Then we start again with a new generation.
Sketchy foreign crypto companies explode all the time. This one is more exciting and salacious because it seems like prominent investors, US regulators and politicians bought the lie (and the whole c-level polycule thing). The rest of the crypto ecosystem will continue marching on.
I think it's likely this is the cycle bottom: doom and gloom feels like its probably a local maximum. I predict history will repeat itself: BTC price will be boring for another two years until the run-up to block halving in 2024.
If you want to own crypto, now's probably a good time to set up DCA. My personal advice to friends is to DCA (buy fixed dollar value each ~month) on Coinbase (least sketchy exchange) until 1% of your net worth is in BTC and ETH (2:1 ratio). Pull any accumulated funds off the exchange to coldwallet quarterly. DCA out when it exceeds 5%.
This isn't just about how far the contagion has spread via counterparty risk. And that is a significant factor. Leverage is widespread and undocumented. This is also about an awakening to the risks associated with hosting your "wealth" in custodial wallets controlled by completely unregulated entities. Entities that have continually failed to achieve even a modicum of transparency (all stablecoins, most exchanges). Entities that in some cases refuse to identify a headquarters (Binance). In other words, this is an ongoing macro trust rug.
If you're being "awakened" now, you've not just been asleep, you've been sedated...
But for the majority of participants today (aka dumb money retail), this is their first experience in getting rekt. Many of them will likely wash their hands of the entire space.