I keep reading this but I haven't seen any signs of more major drops that would be indicative of forced liquidations since the initial FTX news. That's not to say it's necessarily false, but I just haven't seen any evidence yet of a larger market contagion.
For two: BlockFi and Gemini Earn both have stopped withdrawing. This means a lot of people have a lot of crypto that they may or may not ever get back.
I suspect it will take some time, but at the ecosystem level, contagion is already here. Time will tell if it spreads beyond to the markets (but it feels inevitable at some level).
Is it really billions or is that some people bought some worthless tokens at a low price then later a crowd valued those tokens at a high price. Then when the tokens are devalued the original people claim that they lost 'billions'. Of course some people who bought at a middle price lost real money but did that add up to billions?
Actual billions were invested, but the crypto market cap reached $3 trillion during the heady days of exactly one year ago. That's already shrunk to $800B and will keep doing so for quite a while.
How does a financial panic happen behind closed doors when I can see the prices of every token? How are people losing their shirts if the asset prices aren't dropping? This isn't a scenario with illiquid assets and murky pricing.
They are the pioneers of Web3 and crypto adoption as long as they're paying unreasonable APY in a 0% interest rate regime, and a more or less tradfi company as soon as they are exposed to be a ponzi scheme. Because we all know crypto is perfect and can't fail.
Interest rates aren't 0% anymore. Of course, this only makes things even harder for crypto Ponzis, because they have to offer even more unsustainable rates to keep up.
Or, more indirectly all crypto 'market cap' in general: $1050B -> $825B. Ok, so market cap is pretty ephemeral, but chances are, if you held any crypto prior to FTX collapsing, its theoretical value has dropped because of it. DeFi doesn't make you immune.
Yes, more accurately referred to as CeFi. It's no different than a bank going belly up. It has no bearing on the underlying assets. But HN loves to call crypto a scam so they'll refrain from acknowledging the difference.
I can't believe I missed the news the big corporate Gemini also halted withdrawals on their APY product
If its not completely clear by now: no, these companies can't promise you 8% APY without essentially running a ponzi scheme. I'm sure even Madoff had some good years during bull runs. The only other semi-possible option is burning VC money with those APY's, which is maybe what Coinbase is doing
> If its not completely clear by now: no, these companies can't promise you 8% APY without essentially running a ponzi scheme. I'm sure even Madoff had some good years during bull runs
It's almost impossible to beat the market after fees. Anyone who promises to do so, consistently, is full of it. French (2008) and a whole body of literature before and after.
Yield to maturity is far different that yearly yield.
though it is possible to find some bonds that have an annual yield of 8%. Though no one would expect them all to make it maturity without any credit issues.
US federal funds rate hit 19.39 percent in April 1980. As a result long-term state bond did very well for their owners as inflation came down. My mom told stories about "Massachusetts Nines" with legendary 9% yields.
Utilities and co-ops issued ~15% paper which also did extremely well for those who purchased it in the early 80s.
> It's almost impossible to beat the market after fees. Anyone who promises to do so, consistently, is full of it. French (2008) and a whole body of literature before and after.
Not this dead horse again. Yes, academics have written a lot of papers claiming things that turned out to be false. See Renaissance Medallion Fund and Berkshire Hathaway for references.
Parent was referring to French (2008). Bitcoin was created in 2009, so the whole crypto sphere didn't exist in 2008. The reference was in relation to stock markets (and also to some extent derivative markets and bond markets etc.). Berkshire Hathaway is a good example of how stock markets are not efficient.
You can look at the consistently outsized returns of Renaissance's Medallion fund and Buffet's Berkshire Hathaway. Those returns aren't explainable with "1000 monkeys and a typewriter". (Or, they are if you add a sigma every few years.)
There are anomalies that we don't know how to fully explain yet, the question is: is the efficient market hypothesis more consistent with what we observe than the alternative hypothesis? And the answer is yes.
You have a theory that says "black sheep don't exist". I show you 2 black sheep. Your counter is that "There are anomalies that we don't know how to fully explain yet" and that you'll keep holding onto your belief that black sheep don't exist. Because it's "more consistent with what we observe", despite the fact that you just observed 2 black sheep, you know, existing.
Wikipedia top-line sentence disagrees with you regarding what the theory says:
> The efficient-market hypothesis (EMH) is a hypothesis in financial economics that states that asset prices reflect all available information. A direct implication is that it is impossible to "beat the market" consistently on a risk-adjusted basis since market prices should only react to new information.
But anyway, it sounds like we agree on the main point: relatively few individuals are able to consistently beat the market.
1. The Medallion Fund went insider-only 17+ years ago. The best explanation for their performance - assuming it's legitimate, since the fund itself isn't audited - is that they use an extreme amount of leverage to multiply "safe" returns. Of course, it's much more likely that the information being leaked to WSJ is a marketing ploy to keep investors in Renaissance's two publicly available funds, both of which greatly underperform the S&P 500
2. BRK is dead even with the S&P 500 over the last decade. This is despite the fact that BRK has access to cheap/nearly free leverage
There are better examples out there if you want to critique EMH.
The original point still stands. The vast, vast majority of professional investors (let alone retail investors) underperform the market. Almost everyone who promises safe alpha is full of it.
> There are better examples out there if you want to critique EMH.
I'm curious. Can you give some links, please?
> The original point still stands. The vast, vast majority of professional investors (let alone retail investors) underperform the market. Almost everyone who promises safe alpha is full of it.
EMH claims that nobody can consistently beat the market in terms of risk-adjusted returns. Yes, almost everybody who promises safe alpha is wrong. That's self-evident from the fact that the stock markets are mainly professionals trading against other professionals. If one professional makes money with a good trade, there is (most often) another professional at the other end of that trade. Obviously you can't have a negative-sum game and then have the majority of players making positive returns - it wouldn't be negative-sum in the first place if that were possible!
https://nexo.io/earn-crypto is still up and promises 16% APR - I think they are the last ones standing now. I'm sure your money is safe with them, they proudly talk about their excellent Trustpilot rating /s
They are. The highest 16% is offered for the Polkadot shitcoin. Without even touching Nexo, you can get 12% just by regular Polkadot staking. To get the 16% that Nexo offers, you need to have 10% of your portfolio in Nexo's own shitcoin and thus you're moved to the "Platinum" level, which is eligible for higher yields. Of course, as you say, Nexo's shitcoin is bound to depreciate.
So what you're saying is that it's just a garden variety Ponzi scheme, and not anything original. If you put 12 times the capital, they'll pay you "14.5%" yield on the principal. The moment they run out of fools to put this massive amounts of cash on the pyramid, it will go down as all Ponzis do. Crypto must die at this point, it's the only solution to this mess.
Yup. Any company offering that will rugpull you in the future, even if that may not have been their original intention. Therefore you should regard them as radioactive and pull all your money from them - and any "institution", contract etc that does invest in them.
This has all been done before (P2P lending) with exactly the same outcome, in the very recent past (last ten years).
It's hard to have empathy for these people when they've been so obnoxious up until now to anyone trying to help them with learned experience.
Assuming you're not running an outright Ponzi scheme, then when you increase interest rates, you lower your borrower quality by the same amount, meaning your risk increases by at least the same ratio (or more).
By taking 8% interest or more, during a period of historically low interest rates, you were lending to the least reliable borrowers in existence - those borrowers that absolutely everyone lending money at lower rates said no to or, even worse, shady gamblers who can't legitimately draw finance from the traditional financial system without raising alarm bells.
There's no surprise in this outcome to anyone with even a basic understanding of maths and/or economics. It's sad, but utterly predictable.
I got crushed percentage wise but only stuck a few hundred dollars in to P2P lending in the early 2000's before my state & many others made it illegal. I could understand the risk in that situation though.
With Crypto, I'm not sure if I do. To my understanding, you deposit money into a cryptocurrency, like ETH for example, in an exchange. The exchange then uses it as liquidity to allow other people to convert one cryptocurrency to another. Am I understanding this right? If so, it was my assumption that they were making 10% on transaction fees & rewarding you with 8% or something lower than 10%.
In that case, my risk/reward assumption was that many of them would raise/lower their rates based on the amount of transactions being done & how valuable the liquidity was to them. I saw that some exchanges did this in terms of months & others were constantly changing their rates.
Am I wrong in thinking that this is something that should be feasible to do without be a ponzi scheme? Of course there is extra risk based on how long the interest rate is fixed for if the market were to go down fast. I would assume banks are similar in the sense that you might buy a Certificate of Deposit (CD) or type of a bond and you get a fixed rate for a period of time. Your country's currency could drastically change or inflation could change. For most countries this isn't near as volatile though.
The numbers are all over the place. Just an FYI, 10% in this context is APY or the return after letting it sit for a year. It's not 10% each transaction. I believe each cryptocurrency has their own fees & they're all very different. I think many are fixed fees, so the percentage varies depending on how large of a transaction you're doing.
Why would an exchange need to borrow money from you to allow transactions?
Both parties of the transaction send their money to the exchange before the transaction takes place. That means the exchange actually has excess (working) capital.
The reasoning I understood was to provide liquidity of currencies, not money in general.
So if I want to sell my ABC token for XYZ token, they are borrowing your XYZ token that you have gaining interest to make the transaction work. They are then taking the ABC token I sold to credit an ABC token they had borrowed from someone else.
I may be completely wrong on this but that was my understanding of why this worked. Of course it doesn't work when everyone wants to take their money out. I would assume a responsible entity would use the money earned from fees to help provide liquidity.
I would also assume a responsible entity would want to stop transactions of ABC token if there was no longer enough liquidity to support the above borrowing & trading.
> This has all been done before (P2P lending) with exactly the same outcome, in the very recent past (last ten years).
Amen. I burned a couple grand in Prosper in the mid 00s, primarily because I'm an idiot. I think a lesson there also applies here:
1. If you are a borrower, and had decent credit, you'd just go to a normal bank, because you could get much lower rates.
2. So the only people borrowing on Prosper were people with horrible credit (and for good reason), who basically got free money on Prosper and then promptly defaulted, sometimes after like a month or 2 of payments.
Same thing goes with crypto. If you're earning 8-10% interest, it means someone else is paying slightly more than that to borrow, which they would only do because they can't get cheaper rates.
Prosper! That's the name of the place that took my poor money.
This reminds me, I think the exchanges also used that borrowed money to allow others to borrow against it to hedge or speculate on big moves. Those people were for sure paying much higher rates. They would of course pay those higher rates because they were assuming a big move in the price.
We should be clear about that Gemini and Coinbase aren't running those schemes.
You buy some sort of tokens on their marketplace with which you can partake in (what very much looks like) ponzi schemes. It's far from clear what their role is in all of this, even if I would think we all would be better off if they distanced themselves from it.
There is probably a lot of customer demand here too. We've seen even the staunchest opponents give in one after another, and offer marketplaces for these tokens.
> If its not completely clear by now: no, these companies can't promise you 8% APY without essentially running a ponzi scheme.
If you look into protocols like Polkadot you will find that inflation is built-in and staking is a mechanism used to secure the protocol. In turn, you get a nice APY, but the coin dilutes over time.
> these companies can't promise you 8% APY without essentially running a ponzi scheme
It doesn't mean its a ponzi, but certainly an 8% yield isn't a safe investment, there will be some liquidity/market/credit risk. Hopefully its just liquidity.
Coinbase doesn't have any lending products. Aside from one that will give you USD as a loan for holding your BTC as collateral which isn't the same thing.
They do offer staking but that's the not the same either. Return is generated from the networks themselves - like with ETH they are offering 4% APY after a 25% cut. That seems completely fine.
Funny, just saw a comment a few days ago on HN advocating Gemini over Tether and I was wondering why he thought 5-8% yields weren't a scam. https://news.ycombinator.com/item?id=33568884
She also runs https://web3isgoinggreat.com which is helpful for staying just-enough up to date with all the crazy things going on in the crypto space if you don't want to sign up for her newsletter!
You mean the service that had to beg people online far and wide to change their domain names from .link to .limo because the founder was in jail for aiding North Korea in money laundering? Quite the shining beacon of decentralization in a centralized land, yeah.
(If you ever wonder why people treat crypto as a joke, think back to this moment.)
I know everyone will laugh at me for saying this but... we are still in the early stages of cryptocurrency from a technology development perspective.
I'm not aware of anyway to securely scale a decentralized cryptocurrency without recursive proofs of correctness that are fast to prove and fast to verify. Every year since 2016 I've seen major progress being made in this area but we have far to go. We just barely got there in 2020. We could probably build a scalable decentralized cryptocurrency in 2020, maybe. Give it another 5-10 years of advancement like we saw over the last 5 and you will have the ability to build scalable decentralized cryptocurrencies. That doesn't mean people will build them or that even if they do the built systems won't suffer from serious drawbacks. It is a long road ahead.
Now there are other problems to solve as well, but everything i being gated right now by proofs of correctness. We have a steam engine, we can put it on rails and it can pull a small load. Unfortunately the expectation has been set that we have train that can move millions of people. The fact that we can't meet this expectation doesn't mean that steam engines or engines in general are bad.
It's fascinating the amount of repetitive comments that believe there should be some sort of time limit for a technology to succeed. It's not clear to me where this line of thinking comes from, the implication being that if something doesn't work after x years, people should just give up and go back to the old ways.
It is unlikely that Charles Babbage is going to be able to build his difference engine and even if he does it is so complex and so prone to failure that it probably will never be commercially viable.
vs.
It is unlikely that Charles Babbage is going to be able to build his difference engine, thus proving computers can't work and have no utility.
What does "money not controlled by a central entity" do? What problem does it solve? Why do I need it?
Keep in mind that in my day to day life, I rely on a central entity, a government.
And in places where people can't, life is NOT BETTER. It's awful. We call those places failed (fragile if you want to be nice) states.
And government should be able to control money. Money is tied to the economy, it's tied to politics, it's tied to the society.
The idea that by decentralizing things money will be fully democratic is just silly. Plus, full blown democracy doesn't even work. It leads to tyranny of the masses, that's why every modern country has a constitution that basically say: "you can't do that, no matter how much you want, since you can't abuse others you don't like[1]".
[1] In practice, "can't do that" means something really hard to do, usually stuff like "persuade at least 67% of your countrymen to let you do it", to rein in the insanity.
I setup a double entry bookkeeping solution for my LLC that uses Amazon QLDB as a block chain ledger. Not sure if this really counts, but it seemed like a good use case for the tech. I used amazon-qldb-double-entry-sample-java as a starting point if anyone is curious.
if there was risk to the overall system then I think the PowersThatBe(tm) would have much more interest in these setups and not let them run so wild and free... off a cliff.
Exchanges and trading firms are not "Crypto". They're human institutions which happen to sit atop cryptocurrency instruments. What we're seeing play out in realtime is what happens when unregulated human institutions come to possess fantastical amounts of wealth -- in short, they go pathological.
"Happen to sit atop" is so far from an accurate accounting of the multi-headed hydra that is the crypto/defi space. Good thing I'm not expecting much in the way of accurate accounting.
It's a two-faced ethos, praising decentralization and thumbing its nose at banks while simultaneously entrusting the bulk of its assets to entities that are strictly worse than banks.
If a person wants an industry to succeed, they will want companies in the industry to behave honestly. And if a company behaves dishonestly, they will want the dishonest company to leave that industry. Why is that so hard to believe?
Because shills exist, who claim something is good when they know it's bad. Typically due to a vested interest, like wanting the industry to succeed. "This is good for Bitcoin" is a meme precisely because these people exist, publicly trying to spin any negative into a positive.
Pretending collapses like FTX don't impact the cryptocurrency space in negative ways is dishonest.
Companies like FTX collapsing do negatively affect the space. But what's even worse is companies like FTX that are irresponsible and haven't collapsed yet. What's a guy to do?
I warned people last year not to use FTX. Now FTX is gone. Please tell me what feelings I'm allowed to feel now that they're finally gone.
Feel however you like. I will continue to feel that most "this bad news is actually good for crypto" claims involve quite a bit of at least motivated thinking and pure shillery at worst.
>the entire "decentralized" ecosystem to collapse.
Because it doesn't? While all centralized exchanges are suffering from FTX's collapse, decentralized ones like Uniswap aren't facing any existential risks from it.
> "State of play: The Gemini Earn program allowed users to deposit their coins in exchange for regular interest payments — typically at generous rates that could be as high as 8%."
Bernie Madoff's exclusive private fund had investors lining up to get in, based on Madoff's history of returning a steady 10% to investors. Of course it was all a big Ponzi scheme...
I wonder if a crypto contagion could actually help the broader economy by acting as an escape valve. For the past 14 years, the government keeps stepping in to bail out bad bets and keep all the scum floating. But with crypto, it was an an area of the economy that government largely kept its distance from and lacked a mandate. So there will be no will to rescue anything and a full on bank run can commence, destroying lots of wealth. When will then take some of the extra money out of the real economy without having to destroy any traditional business.
Not sure what you mean. If I buy some cryptocurrency coin for $10 somebody received $10 from me. If now the value of the crypto goes $0, I have lost $10 but the who I gave $10 to still has that money. It has not magically disappeared. Or do you mean something else?
But this is exactly how all assets are priced and that price signal is good enough to take loans out against the asset collateral and create even more money supply.
You're changing value stores in this scenario, which mitigates the loss but doesn't eliminate it. WHat makes you think that $10 accurately represents some set of physical goods for which it can be exchanged? What about when you start exchanging like-for-like at different agreed rates? If we equate wealth to money, and money is largely based on shared faith and acceptance, then when that agreement shifts wealth most certainly is created and disappears out of and into thin air.
At start you had 10 bucks and he had 10 bucks worth of crypto for total assets of 20
Now you have crypto with value of 0 and he has 10 bucks for total assets of 10
Overall 10 bucks is gone and yes there are winners and losers
Edit: TikTok quiz abbreviated: you buy for 50, sell for 60, buy again for 80, sell for 90. How much did you win / lose? ... the confusion for some people being created since they sold at 60 to buy back at 80
It's more like we have discovered that our estimation that $20 of wealth existed was incorrect, and only $10 existed. Someone speculated incorrectly.
It's like a gold mine being revealed as barren. Whether you say wealth was destroyed or wasn't there to begin with is... distinction without a difference.
Actually… and here’s the really fun part… the wealth was always a social construct. It doesn’t exist physically, only in ideas. It is whatever we collectively say it is. When we think something is worth $20, it is! When we decide it’s worth $10, it is! Things are worth what people will pay for them. The money is all paper anyway.
> If I buy some cryptocurrency coin for $10 somebody received $10 from me. If now the value of the crypto goes $0, I have lost $10 but the who I gave $10 to still has that money
Here's an example of how this works:
FTX "minted" their own cryptocurrency. They minted billions of dollars of it.
When people purchased a tiny fraction of it, that established a price for one coin.
Once that happened, FTX could say "we're worth billions of dollars."
But keep in mind:
* the cryptocurrency was created out of thin air
* the value of the crypto crashed by over 90% in the past month
On top of all that, there was a "multiplier effect" when the "assets" were used as collateral on loans to counterparties.
The net effect is that the "assets" were worth billions at some point, but that value has evaporated. And loans were made on those "assets" which may have multiplied the actual impact several fold.
It's a banal comparison, but this is a lot like Beanie Babies in the 1990s. At one point the market was worth millions of dollars, and then it evaporated overnight.
That's deflationary, and if there's one thing the world needs right now, it's deflation.
When you buy $10 of crypto you are passing that $10 to another person, so the amount of money is unchanged. You receive a promise for $10 for some point in the future essentially. If that goes up, you now have a promise for $12, for example. If there is $1 trillion in crypto that suddenly goes up to $2 trillion then an extra trillion in promises were created that would put extra pressure on the existing amount of dollars in existence if they were all redeemed at once (inflation). If the money supply remains unchanged and crypto prices change, then it can increase/decrease the demand for dollars.
Yes, $10 has "magically" disappeared. Consider this case. I buy a used car from you for $10000. You now have $10,000 and I have a car worth $10,000 (let's assume that i got a fair price and would be able to resell it for that amount too).
A day later the Russian army hits my car with a mortar. You have $10,000. I have some scrap metal. Rather than $20,000 worth of stuff, there's now $10,000 (plus some scrap metal) total.
While technically correct, I will point out that during "the crash" many with access to capital are able to secure a net long position either by way of savings or via real options -- LLC is an example of a real option where the capitalist only loses the investment value making the financial leverage an attractive and useful tool.
People losing jobs and thinking about their next steps are usually too late with not enough skin in the game to jump on the decade-long bandwagon. That's the "wealth" some of the commenters here seem to be pointing to. Essentially, inequality.
I think you highlight the problem with crypto speculation, it does not produce any revenue, so the price appreciation is only governed by new speculators bet that a greater fool will buy it. When you trade there must be a seller and buyer, the value of the untraded part is only a potential value and not real value, as soon as you put it for sale, there will be more supply than demand and the price plummet, as it happened with FTT. The total supply may have been valued at billions of dollars even thought only few millions have been bought, so the collapse just transfered the wealth to the ones who sold above the real money that was put into it. I think it is a zero sum game as there is no revenue, only speculation.
Recommended reading on the topic of wealth destruction by fraud, John Kay "The Bezzle Years." An introductory quote to give you an idea:
More than a half-century ago, John Kenneth Galbraith presented a definitive depiction of the Wall Street Crash of 1929 in a slim, elegantly written volume. Embezzlement, Galbraith observed, has the property that “weeks, months, or years elapse between the commission of the crime and its discovery. This is the period, incidentally, when the embezzler has his gain and the man who has been embezzled feels no loss. There is a net increase in psychic wealth.” Galbraith described that increase in wealth as “the bezzle.”
Not when the money never existed in the first place.
These shitcoins with billion dollar market caps never actually took a billion dollars into any accounts. The volume is fake, the activity is fake, the price is fake.
Technically, Jerome Powell did. Currency valuation is complex because it is relative so the lens of perspective becomes everything. The primary nuance in your example is that currency devaluation through inflation is not the same as currency devaluation through a decrease of adoption (and therefore overall buying power): this is very clearly reinforced by the IMF's criteria for what a currency requires to become the global reserve. Any modicum of "objective" value can only be reached through multiple relative comparisons. For example:
- How many Dollars does a bitcoin buy?
- How many Bitcoins does a Dollar buy?
- When the exchange rate varies, what does that say about the relative value of each currency?
- How many Potatoes can a Dollar buy?
- How many Potatoes can a Bitcoin buy?
- How many Drugs can a Dollar buy?
- How many Drugs can a Bitcoin buy?
The above is extremely oversimplified but much like a global foreign exchange relies on shifting exchange rates, so does the value of all currency in terms of relative buying power. In terms of absolute buying power - my personal highly subjective bid is that a currency's "value" is a compound of its' exchange rate as well as the amount of people willing to exchange it, and the amount of it in circulation as well as the breadth of people willing to accept it in exchange for goods and services.
The person who sold it to you for $1 (or, possibly, the person who sold it to them, recursively).
If A mints a coin for free and sells it to B for $0.25, B sells it to C for $0.50, C sells it to D for $0.75, and D sells it to E for $1.00, at which point it crashes to zero, A, B, C and D have all made $0.25 each, and E has lost $1.00, but nothing of value was created or destroyed.
E incorrectly believed that the coin was worth $1.00 and thus that more wealth existed in the world than was actually the case, but that doesn’t mean wealth was ever destroyed, just that his incorrect estimate was updated.
For example, bitcoin has a market cap of $320B. At its peak it was worth about four times that. Did $960B just disappear? Basically, yes.
The coin has no intrinsic value (in the way that a can of corn does, for example). It's worth money because people say it is. And market cap is just a multiple of what it trades for at the margins times the number of shares (coins).
To give an example, say that I bought a bitcoin 10 years ago and that it was my only possession. At its peak, I could have sold the bitcoin for ~$64k, so I had a net worth of 64k. If I didn't sell it at that point and still hold it, I'm now worth ~16k. No one made $48K of of me... there were no transactions in that time period. The "wealth" has simply vanished.
You can prove you actually own how much you want to prove you actually own, without leaking any other information on your identity or current wealth. You can sign documents. You can mount complex escrow processes with it. You can send it worldwide to anybody without even knowing where they live (phone numbers fail), or what their bank is (IBANs fail) or what their email is (gift cards fail) or whether they are allowed by someone else to receive money (paypal fails). You can pool it with friends and set up conditions for safe withdrawal reliant on multiple people agreeing at the same time. And you can receive money from anyone, anywhere around the world, without anyone else's permission.
Yes, but how many coins fulfill those basic requirements? Why is btc special? Why would any of these coins be worth anything besides some fee to convert-to from fiat and convert-from to fiat?
You can pay Bitcoin (and only Bitcoin) to embed messages, typically transaction messages, in the global Bitcoin blockchain.
I was hoping years back that all of this would have taken off for payments rather than silliness. I was wondering if we'd see a (low) Bitcoin value determined by the need to pay BTC transaction fees and those fees being effectively locked up until the next block comes
I would say that bitcoin has extrinsic value. The value it has is because people agree it has value. Imagine I started a blockchain using the exact same code as bitcoin and called it Bitcoin9890812894. It would have the same functionality as bitcoin but a value of $0 since virtually no one else would agree that it has any value.
On the opposite end, a can of Cambell's soup has intrinsic value, because it's worth something to someone regardless of what anyone else thinks. The can of soup that Andy Warhol as the basic for his famous paintings has a mixture of both types of value (surely someone will pay significantly more for that can over any other identical can).
> The value it has is because people agree it has value. Imagine I started a blockchain using the exact same code as bitcoin and called it Bitcoin9890812894. It would have the same functionality as bitcoin but a value of $0 since virtually no one else would agree that it has any value.
That doesn’t seem like a contradiction at all, right? If your fork somehow became well known and replaced the original, then yeah, your fork would have some intrinsic value as a medium of exchange and a store of value.
> If your fork somehow became well known and replaced the original, then yeah, your fork would have some intrinsic value as a medium of exchange and a store of value.
Intrinsic value is a value outside of perceived value. A can of soup is calories, which we need to survive, as long as it is edible, it will always be worth something to a human. Farm land has intrinsic value because it can produce food. Diesel has intrinsic value because farmers need this to produce food. Bitcoin9890812895, my fork of Bitcoin9890812894 has no intrinsic value to anyone.
No, I'm not saying that the current market price of bitcoin is the same as its intrinsic value. I'm saying that you can calculate a value of bitcoin using objective measures rather than the current market price of bitcoin. Those objective measures can include things like the capabilities of the bitcoin network, the number of types of people using it, etc.
The value of Bitcoin is the sum of its intrinsic and perceived value.
Consider a hypothetical Bitcoin, without the objective measures you describe. Without the capabilities of the network, people willing to accept it as payment for goods/services —- it is a coin that nobody has a use or want for, i.e. an unadopted shitcoin.
The value of unadopted shitcoins approaches zero as fewer and fewer people use it. Therefore, the value of Bitcoin is entirely comprised of perceived, and not intrinsic value.
Another way:
Compare a Bitcoin with a banknote. A banknote has perceived value (it represents one, or several, dollars, which have a stable value and are accepted universally) and intrinsic value (it is piece of paper that you could burn to provide a small amount of heat, in a pinch). The Bitcoin doesn’t even have that tiny amount of intrinsic value that the banknote has.
During the Weimar Republic, people burned paper money because it was cheaper than wood. In that situation hyperinflation led to the perceived value falling so low that it was below the paper money’s intrinsic value. If everyone stopped accepting Bitcoin and its perceived value evaporated, that Bitcoin would not even have the intrinsic value remaining, of heat from a single burning banknote.
But you're using a far too narrow definition of "intrinsic value" that is not at all the definition used in economics in finance. It doesn't just mean something like "the value it would have to me if I were the only person alive on Earth." Computer networks, protocols, and other technological systems can still have intrinsic value even when they require many people to use them.
I'll debate that- the intrinsic value from exchange is less than the cost to pay the miners to run the network, therefore a negative net present value -- bitcoin is not a store of value, but fundamentally destroys value and relies on greater fools to buy for any price increase.
About the amount of work to make a toy banking system. I never tried, but there are some download and next next finish coin generators, right? So the bitcoin system is worth about a buck or so. (.. if I want to be very generous, we can add the value of the bitcoin brand, and that el salvador accepts it, some apps already can handle it, but really that's it. It's still negligible.)
> I had a net worth of 64k
No you didn’t. You had a potential net worth of 64k, but you didn’t take advantage. You can’t just compare to peak, your wealth loss/gain comes from comparing to the price you bought it.
How else would you understand wealth? Are people who have loans against massive stock portfolios but relatively little cash (spent on houses, cars, trips, etc)... poor? Obviously not.
OP was worth at least 64k at some point and now is worth at least 16k. The value and total amount of wealth (in US Dollars) has gone down.
What's a potential net worth? "Net worth" is already "how much money would you have if you sold all your assets and settled all your debts". Since for most people most of their wealth is in assets, it's totally normal for net worth to swing up and down as the market value of household goods/land/buildings/companies/bitcoins changes.
The catch is that even if your net worth is a certain amount on paper, you can't necessarily realize that as cash.
Take Elon Musk, for example. A lot of his wealth is in Tesla stock. But he can't sell that stock without also affecting its price. If he decided to sell all of it tomorrow, the price would plummet and he would only receive a fraction of what it's worth today.
This is what a lot of these companies are doing. I can create 100 tokens and sell you one for $1. In theory, my "net worth" is now $99, since I have 99 tokens that are worth $1 each. In reality, if I tried to sell all 99 of them, I'd quickly find that people are actually not willing to buy all of them for that amount.
I trust money more than wealth. Unsold stock should not be quantified until the moment it is sold.
It's getting tiring to hear about "so and so billionaire lost X billion". No, they didn't lose anything that they didn't have to begin with. Having more stock than the trade volume of that stock means all of that "wealth" is mostly theoretical.
I totally agree... crazy times in the past few years. I have heard that some people were able to borrow against their "wealth" (stock holdings, crypto holdings, vested ownership shares) for homes, cars, boats and more since Covid. If their "wealth" suddenly evaporates in the form of losses, they find themselves on the wrong side of the trade. Super duper risky and the appetite for these "products" was immense from what I understand.
If you didn't count the "theoretical" wealth you wouldn't call them billionaires in the first place.
That "theoretical" wealth clearly has a massive impact on the real world, so it's silly to pretend it does not exist. For example, Elon didn't buy Twitter with a giant bag of gold coins -- he borrowed against his wealth, which is mostly in stock.
And his "wealth" shrunk far more than what he had to liquidate and pay twitter for.
Because no sane organization will lend out real cash over the same amount of collateral TSLA stock, and leveraged lending opens TSLA to extremely high risk as value dropping would means Musk will be forced to sell to cover/and or stake more TSLA. This is exactly how FTX failed - they counted their own token as their "asset". Spoiler: it didn't work.
Does this wealth have a high impact on the world? Of course it does. But does it has the same impact as same volume of cash? Absolutely not.
Many people have a net worth greater than the number of circulating dollars. Also, dollars are not risk-free. They target a few percent annual loss, after all!
He was talking about money, but I think meant wealth based on the context of his response to the OP. They are almost interchangeable, but not in this context.
> Unsold stock should not be quantified until the moment it is sold.
I don't know Elon Musk's finances, but I imagine that he's got a bunch of stock, (let's say) an amount of cash in the tens or even hundreds of millions and debts well above the amount of cash he has on hand. If you don't count unsold stock, then Elon Musk is poorer than most college students.
I agree the numbers are misleading (e.g. Bill Gates money is very diversified and he has already paid many of the capital gains on microsoft stock sales, so comparing his wealth to Elon Musk's with a single number is quite misleading). But you have to count unsold stock for something.
Let's take a different example. Let's say I have 100 foobar coins. I sell one of them to an associated entity for $1, the market cap is now $100, I have $99 in "wealth". That entity sells one back to me for $2, now the market cap is $200. I sell it back for $3, now the market cap is $300.
Do I now actually have $300 in wealth? No, because it's illiquid, and the bid for it more broadly is likely $0, I have to apply a large liquidity discount. It seems like many communities behind these coins have been doing something similar to the internal trading I've been describing here, and hyping them to find outside people willing to trade some of their real dollars for these worthless coins, and those few trades have been used to establish the broader market caps of these things.
All illiquid and somewhat illiquid have this property to varying degrees, ranging from startup stock (no, selling 20% for $1M to a VC doesn't mean your company is actually worth $5M, unless you could find a buyer for all the stock for that much) all the way up to Amazon, Tesla, Apple, etc, because there's no buyer waiting to absorb all the outstanding stock at the current bid. There would be a buyer willing to absorb all of it at some level, but it's likely at a level far lower than the current market cap.
Twitter is a counter example for your tech stock scenario. However, you could argue that its hyper-inflated Tesla stock trading for hyper-inflated Twitter stock, much like a BTC millionare, trading BTC for ETH.
Right, if a company finds a buyer, then its market cap is suddenly realized. The liquidity discount is meant to reflect the uncertainty of that given no current bidder for all the stock, and the discount is lower for public companies with demonstrated interest than for private companies. And you can see the downward pressure that Musk’s selling Tesla shares has had on its price.
Indeed. It's no different than if I kept a hand written ledger in a paper notebook and sold entries onto that ledger for USD. In this case, people would see its a piece of paper and scoff at the idea that having their name written onto this paper is worth any money, even if someone else paid money to put their name on the ledger, but doing the exact same thing with cryptocurrencies fools people because the fake spot price and fake market cap is broadcast across the internet as if it were real, obscuring the fact that each of these coins is just the digital version of someone's personal notebook.
There are a lot of people willing to lend you money on the back of less-liquid-than-cash assets, though.
It may not be "real wealth" but it certainly is spending power and psychological cushion, which means different spending choices, which means inflationary pressure.
I had a lot of coworkers who listed crypto holdings on their mortgage application in the past few years. They wouldn't have been bidding as high if the perceived value of those wasn't there.
Yeah, when money's cheap and easy, banks make bad loans. Don't depend on the ability to get asset-backed loans to get you through a downturn, though, banks tend to get tightfisted real fast.
The described foobar coin was illiquid and couldn't be sold. But that's not true for BTC, ETH, and even a lot of the shitcoins that had some decent volume om multiple exchanges.
So in that sense, it _was_ wealth for the holders.
> You create an NFT and sell it to yourself for $200,000.
> Now you have $200,000 and a $200,000 NFT
But you now also have a liability of $200,000. Your total asset is still $200,000 , not $400,000.
> If you can convince someone to buy that arbitrary NFT at 95% discount
so you just sold the NFT for $10,000. If somebody else got tricked into thinking they got a 95% discount - that's on them. A fashion store often marks up their clothing by 100%, and have "sales" of 50%!
>But you now also have a liability of $200,000. Your total asset is still $200,000 , not $400,000.
Assets are not liabilities, so you'll need to explain why you think it is a liability.
Fashion brands and their physical goods are definitely not the same as NFTs, insomuch as they at least have intrinsic value. NFTs only intrinsic value is they good for ripping off greater fools.
> There would be a buyer willing to absorb all of it at some level, but it's likely at a level far lower than the current market cap.
For crypto, no one would want to buy the entirety of bitcoin, because it basically has no value if it isn't traded, so it's effectively worth $0 if someone owns all of it.
For companies, this isn't necessarily true. When acquisitions happen, the current market cap is usually the floor, not the ceiling. I agree with your overall point though.
The "market cap" for crypto is just an illusion. There never was enough liquidity. The money was lost the moment you exchanged it to crypto. Some of it is in hands of other people. Some of it was spent to keep the show going (mining, employees for all the crypto businesses etc.).
You and every individual investor could have cashed out but that is as saying that Madoff customers could have cashed out. It's just an illusion. Most of the money disappeared once you deposited and Madoff, SBF, or some other scammer spent it on a new boat or house on an island.
Actually the wealth is gone. Not because bitcoin was a ponzi scheme (that doesn't destroy wealth or money, that indeed just redistributes it) but because a common way to get bitcoin or other cryptocoins is to destroy equivalent amount of wealth, burn gas, energy, make ASIC silicone to mine, etc. What a madness, really.
This is not wrong, physical wealth was indeed destroyed to make tokens of negligible* value to humans, but the meaning of OP's "wealth" is claims on real goods or services -- as in the houses bought by insiders a few weeks ago. Destroying the remainder of such claims is a real benefit to the world economy, reducing inflation of all legit currencies.
*negligible not zero, because some tiny slice of crypto transactions actually are done by useful workers in order to shield wages from kleptocratic regimes.
Sam Bankman Fried marked his 1 billion Serum (a dex on Solana) tokens at $2.1B on his balance sheet.
The last time Serum was worth $2.1+ per token, it was Jan 2022. At current market prices, that same stake is worth less than $250M (given liquidity conditions).
Serum was also a dex that SBF's company, Alameda, pretty much made in-house, and then allocated themselves 1 billion tokens.
So this "wealth" was created out of thin air. And disappeared into thin air.
Ergo, it was not real. It wasn't lost. It never really existed in the first place.
They will use this to capture all crypto and regulate it.
Problem, Reaction, Solution. I think FTX was only caught because Binance exposed them too early before SBF could bring regulation to the exchange and insulate himself. Him, his family and GF all have ties to people that could have made this happen.
Now no matter what the end game is regulation, either by someone like SBF to make it happen or knowing full well it was going to blow up. With regulation they can protect the fox in the hen house like they do with the stock market and keep all the control.
If you don't think so, read in depth what Bernie Madoff did and how connected he was. The best part is, stock market still allows PFOF which he invented to help with his Ponzi scheme.
> before SBF could bring regulation to the exchange and insulate himself.
If that was his endgame he would've had better record keeping and books. Regulation and paperwork go hand in hand, he was not set up for existing in a regulatory environment.
Maybe. Unfortunately I think a lot of Americans do have crypto holdings and a lot of investment firms as well. Also, crypto tycoons are heavy contributors to political parties.
> So there will be no will to rescue anything and a full on bank run can commence, destroying lots of wealth
How does this actually benefit anyone? It's not wealth redistribution.
> When will then take some of the extra money out of the real economy
But it wasn't real money in the real economy, it was fake money in a fake economy.
Admittedly some real money went in, and some came out again to buy stadium endorsements and superbowl adverts, but the main effect of this is to wreck the savings of (a) ordinary rubes and (b) over-optimistic VC firms. I can see why people want (b), but you can't separate it from (a).
When you take money out of circulation, you reduce inflation.
Here's a "real world example:"
There's a house near me that's selling for $7,777,777 (get it? Lucky sevens?)
The cost of the house is obviously arbitrary, and it's listing has a bunch of references to bitcoin. The owners of the home are obviously trying to "leverage" crypto mania to find a buyer.
Now that a bunch of crypto "wealth" has been destroyed by falling prices, the owner of that house will need to re-assess whether $7,777,777 is a realistic price.
More than likely, it's not. And by lowering the price of the home they're selling, they're contributing to a reduction in real world inflation rates.
Also, yes, I know that inflation stats use a proxy for the cost of housing.
Well it would still have a devastating effect. Most businesses would insta-close tomorrow. And remain closed for months while shit is sorted. Meanwhile panic ensues - world population drops 5b in 1 month.
Not true. You would need to know the cost to build the house and/or the price paid for the house prior to this selling event. Once its been sold again, we can assess whether there has been a net reduction or addition to the supply of money/credit/debt.
Money is not just dollars. I consider my bank account money, even though I know its backed by some fraction of its value in actual dollars. People take out loans that are backed by stocks, for example. If the stock market went to zero, they would default on the loan, and money would be destroyed.
Your bank account is the solidest non-money because FDIC insured up to $100,000. If it weren't, then it would be an IOU from a bank, worth whatever that trust is worth.
In your loan example, either you haven't spent the money they loaned you, which would then be reclaimed, or you have spent it, in which case someone else has it.
No money would be destroyed in either scenario, unless what you did with the loan was put it in a suitcase and burn it.
The only things that remove money from circulation are: bank accounts that only accrete (usually temporary, and thus not actual removal), taxes, and physical destruction.
> If the stock market went to zero, they would default on the loan, and money would be destroyed.
> In your loan example, either you haven't spent the money they loaned you, which would then be reclaimed, or you have spent it, in which case someone else has it.
Not sure if you understood the parent's statement. Money is created largely by loans - when banks lend $1m to a company, the company owes $1m to the bank and gets $1m, but no one loses $1m anywhere. And by spending that $1m somewhere else, a fresh $1m is printed out of thin air and goes into circulation. When the company pays that back, that $1m is destroyed.
There is certainly a "root" of money that seems not to be created via loans anywhere, namely those issued directly by the central bank (the Federal Reserve in US's case). And no, they are loans nevertheless - since these money is backed by the government's ability to collect taxes, any money printed is effectively created via loans to the government, and the government has infinite ability to borrow money. When the government is unable to collect taxes anymore, nobody needs these money either and the government effectively goes bankrupt since its loan is no longer backed. As a result, dollar loses its value. That's how our current fiat money system works.
>Not sure if you understood the parent's statement. Money is created largely by loans - when banks lend $1m to a company, the company owes $1m to the bank and gets $1m, but no one loses $1m anywhere. And by spending that $1m somewhere else, a fresh $1m is printed out of thin air and goes into circulation. When the company pays that back, that $1m is destroyed.
So your contention is that Bank of America prints the $1m dollars that it loans to me? Color me skeptical. I imagine they'd have better rates if they had a money printer. Or maybe they wouldn't bother loaning money at all.
What is real money anyway? Money is an idea and the money supply contains far more than physical currency. If someone believes they have crypto wealth, they will spend accordingly and the velocity of what we measure as the economy increases. If that crypto wealth disappears, that person is going to cut back on their real spending. The economy is human.
It's easy to take a philosophical stance on this, but this represents many peoples' life savings. There are countless lives that have been irreparably harmed by crypto scams, which has a net negative effect on our society.
I think the idea here is that pumping the economy full of helium will eventually be catastrophic. If this crypto crash is allowed to actually play out instead of getting bailed out it could prevent something far more damaging later on than even a million people losing their deposits.
> These (smart) people can use their time and skills towards more productive stuff.
But if society really believes that their smartness could have been used better, why aren't they paid for doing "more productive stuff" than crypto? These people did crypto because it paid the most. Therefore, at the time, it must mean that it is most productive to do crypto.
I guess society is not optimized for max productivity. As a group, society makes many resource allocation mistakes and (hopefully) corrects them later on.
Fe. society might have been better off investing in nuclear energy in the past 30 years, yet it did not and it s starting to look as a mistake.
Circumstances play a role too. My opinion is that if it had not been for the pandemic and the economic anomalies that happened way fewer people would have paid attention to crypto.
Crypto is a tiny, tiny fraction of global ponzi markets like government bonds or real estate. There is not nearly enough liquidity in crypto to make a difference in those.
Yes exactly. The “real economy” stopped producing new things since 2008. Growth has been in ephemeral attention economy output to keep the public distracted and not off building local communities that serve the public, but focused on acting as missionaries for the greatness of US capitalism; how amazing is this free market! SBF lost his customers money and is chilling in the Bahamas playing video games! Freedom.
"Not your wallet, not your coins" is true, but kinda irrelevant here.
The coins themselves are sometimes worthless (like FTX's token), or can be frozen (Tether does this: https://www.coindesk.com/business/2022/11/10/tether-freezes-...). It doesn't matter if you hold a collapsed coin in your wallet or an exchange's; it's still not gonna do you any good.
Because they never bought the coins to begin with.
It's marked down in a ledger that this person has this many coins.
It only matters when someone wants to transfer coins to another exchange or their own wallet. Then they have to purchase the coins and send them.
I would argue it's not necessarily a problem to have liabilities for which you do not have assets on hand, whether it's Bitcoin or some security. The difference between these two situations is:
1) FTX didn't even bother listing their customer liabilities on their balance sheet, unlike Citadel.
2) I would assume (hope) that Citadel isn't a completely fraudulent company without the capital to make good on those assets if delivery is demanded!
It is the same, it's the fact that you don't really own it or know if the 3rd party has it or has the means to get it. If you have the keys to the wallet you're certain of what you have and you have full domain.
They’re a market maker, so wouldn’t those be options contracts? The “securities owned” line would be other options contracts that hedge against them, no?
Part of the reason crypto's history maps to tradFi's history so precisely is because there aren't that many unique ways to make more money out of an existing pile of money.
The debate about whether these tokens meet economic definitions of currency is besides the point; the goal, like tradFi, is to accumulate as many of them as possible and do whatever it takes to protect their price (pump) until you're ready to shift the risk to someone else (dump).
well said. very simple, clear, and observable in reality. i feel like i've said this in a more roundabout way to friends, fam, and myself (when trying to wrap my head around all of this to explore it or steer clear).
TradFi is built around providing financial services. It's not built around issuing virtual assets and then pumping & dumping them, I don't know where you get this notion from.
I actually had accounts with Gemini Earn, Celsius Network, and BlockFi, and money in all of them (as a just in case one fails thing). However, after the crypto crash earlier this year, and reading "Not your keys - not your crypto" for the millionth time, I pulled them all out and put them in an Exodus wallet. I calculated the APY loss but decided better safe than sorry - even though, in my head, I thought the odds of any individual one of them failing was extremely low, let alone all of them.
Holy !@#$ing cow. Dodged multiple bullets. At least I didn't share my financial plan at the time at the Thanksgiving table last year or it would be really awkward now (thank goodness my uncle took that role in a small capacity)...
I don't know what your savings plan look like, but I hope your idea of diversification is not to have all of your savings in a varied array of crytocurrencies :-)))
Of course not - I only saw it as a way of diversifying the crypto portion of my diversified investments. But there was a bit of crypto - I'm just glad I didn't recommend others join me.
I've still got everything on just Coinbase, which I assume (?!) is reliable enough to not be at risk.
What's the "upsell" for using a wallet? The "not your keys" argument logically makes sense to me but it doesn't seem worth it from a convenience stand-point.
> Coinbase, which I assume (?!) is reliable enough to not be at risk.
This is what anyone could have said about FTX until suddenly it wasn't.
The upsell is complete access to the DeFi ecosystem. Not just the part your exchange wants to support. The convenience issue is overblown, at least for tech inclined people like commenters here would be.
My experience with my hardware wallet is that I put some stuff on it, left it for a year, and then when I went to go plug it in it wanted to update. The update will wipe it.
I can use my recovery seed phrase after, but as far as I’m concerned that’s an “oh crap” backup. For all I know I could have screwed up writing it down. Unlikely, but possible. Apparently it’s also possible to other software wallets to get the crypto off of there.
Frankly, if there aren’t ways for the average non-tech person to safely and reliably hold crypto there’s no point. Most of my stuff is on Coinbase and I’ve always figured that if that ship goes down the whole thing will come crashing down anyhow.
As a Bitcoin maxi this is fun to watch. It's like the 08' financial collapse all over again, but there's no bailout coming this time around.
I think it is glaringly obvious at this point that most of society does not understand how money works, and will fall victim to the same old scams no matter where they manifest.
This entire crypto collapse has been a long time coming. You can't simply manufacture money out of nothing, nor can you inflate debt endlessly.
Bitcoin as a community has distanced themselves from 'crypto' and these boiler-room pump and dump scams.
Bitcoin maxis fight for the simplicity and real-word cost behind proof of work for a reason. Bitcoin may be arbitrary digits in a ledger but it isn't free to make. The supply is capped, yet the work anyone can put into securing the ledger is unbounded.
Regardless of where you choose to invest, self custody is king. Get your tokens off exchanges. Not your keys, not your coins.
"Don't buy Tony's magic beans. Tony's magic beans are a scam, they're not really magic at all. I buy my magic beans from Frank. Everyone knows that only Frank grows real magic beans."
I agree. They even have a whole army to defend that, unlike, uh, a whole room full of dusty old GPUs burning up a rainforest every time someone makes a transaction. /s
This is like pretending there’s no difference between USD and Turkish Lira. There are substantial and material differences between Bitcoin and nearly all other cryptocurrencies.
I thought Bitcoin was a really neat idea as an experiment of a completely market driven asset. It seems like it still could become/already is that (I think this is called the "digital gold" idea).
Of course when the mania settles I have no idea if the value of digital-gold-sans-gambling would be $5 or $500,000 or $0. But I do think there is a neat idea that isn't just a pure scam buried in there.
There's companies like Paxos that are actually audited and have a token PAXG that is backed 1:1 with actual gold reserves. The tokens themselves actually have serial numbers that are linked to a physical gold bar.
To me I think the neat thing about Bitcoin is that the decentralization and lack of intrinsic value are exactly what make it (mostly) purely market driven.
Blockchain/decentralization as a technology I'm not very sold on yet.
Oh? Do tell! That sounds interesting. I lost interest in BTC after they decided to cap the block size and push LN because LN was so poorly thought out.
Can't say I'm surprised, though the only evidence for this appears to come from Peter Todd so how are you sure it's true?
LN should never have been pushed as hard as it was. If they'd launched it and it'd naturally outcompeted regular Bitcoin transactions then fine whatever, but destroying on-chain capacity before LN was even coded was truly crazy.
This is when I get to say “I told you so”. Excerpt from my 9 month old comment [1]
A whole bunch of these startups have sprung up; which take up real money (USDT or even USD, INR etc.,) promising very attractive guaranteed returns without locking up customers' fund. Look at these[1] for examples. Anyone who knows anything about banking in the traditional world knows how ridiculous it is. And indeed some of these are beginning to unravel[2]. In Anchor's case there are way more lenders than borrowers so Anchor is resorting to pay those high yields from their reserves. It's cutting close to being a Ponzi scheme at the moment.
In a traditional banking world businesses take a loan either to cover for a short-term cashflow crunch (example an invoice that's delayed by their client) or for longer term investment. That money usually goes into economic activities which are expected (hoped?) to bear fruit to repay the loan.
In the crypto world however such loans are taken only to be put back into the crypto world; to be swapped into some hot new coin to be staked and what not. The music has got to stop at some point.
I'd say the difference with the stock market is that that the bottom of it is composed of companies that produce and sell actual, tangible products: cars, planes, oil, computer software, construction materials, etc. All financial instruments (legitimate or not) are built on top of this. You buy into some index fund under the assumption that, on some level, you're putting money into the production of goods and services.
Meanwhile, the "crypto market" deals only in hype all the way down. There are no goods and services produced (unless you count "hype"), only dollars going in one end and coming out the other. If I put my dollars in some "crypto investment", it's only so that some early adopter with 50000 btc can get some dollars out. The rest is misdirection.
> It also failed because user money was stolen and mismanaged by hugely incompetent 20 year olds, not because it was invested in crypto.
Ah, but you repeat yourself! Almost every actor in crypto is an incompetent 20-something, or an intentionally criminal 20-something.
Exchanges like Coinbase might be the "good guys" but when the assets they let you exchange are inherently worthless magic beans and many of them are intentional scams, it's hard to justify the stock market analogy.
I can't understand the mentality of anyone who buys crypto...and stores it in a centralized exchange.
What's the point of holding USDT or USDC if you're going to keep it in a quasi-bank? Isn't the whole point of crypto NOT to trust governments and centralized authorities?
How do you even know the exchange spent the money on crypto if you dont see the keys, you may have just handed over $$ for a positive transaction on a virtual spreadsheet
> Isn't the whole point of crypto NOT to trust governments and centralized authorities?
Perhaps originally, but now it is simply a bunch of get-rich-quick schemes, or maybe more accurately wallstreetbets-style gambling. I.e. even if people know it's going to all go to shit, try to play the game long enough and get out before someone pulls out the Jenga piece below you.
Really sad how crypto devolved into a bunch of "wagmi" nonsense. It was originally meant to be a more serious counterweight to the excess of central bank monetary policies. Now it's just grifters and scammers.
What's ironic is that the meltdown of crypto and crypto culture came right when central bank excesses are at the peak - at least for the vast majority of people alive.
> What's ironic is that the meltdown of crypto and crypto culture came right when central bank excesses are at the peak - at least for the vast majority of people alive.
I don't understand. Central banks are finally raising rates after 2 decades of ultra-low rates. If anything, central bank excesses are well below their peak now.
I would never do it but I understand why people do. They're speculators and daytraders. And it's extremely inconvenient (and expensive) to move money out of wallets and into exchanges and back in order to make a trade. So people take short-cuts and just leave their money in the exchange accounts.
The problem with crypto evangelists is that they keep forgetting it's humans who use it.
The funny part is that the highest risk, most speculative trading strategies and instruments are available only on-chain (meme coins, high APR token farms, even decentralized margin trading platforms).
These people took on risk, but not enough to warrant being on-chain, and in the process, lost it all. Weird place to be in - risky enough to lose it all, not risky enough to be completely speculative. Really in no man's land.
The point of crypto for the vast majority of people is to not be the one left holding the bag. It's just a ponzi scheme that's open for anyone to participate in.
Hopefully this is the end of this entire dumbfuck historical moment. Absolute fleecing of normal people disguised as some kind of technosocial revolution.
Nah, it'll happen again. This will spur on regulations for custodial wallets, and the next boom cycle will involve TradFi contagion risk.
BTC price isn't moving, no one is liquidating, volatility is lowest its ever been, none of the hodlers have given up yet and probably won't, they are just waiting it out to try again in 2-5 years.
> On Wednesday, the crisis touched a high-profile crypto lender run by the billionaire twins Cameron Winklevoss and Tyler Winklevoss, forcing them to halt withdrawals from their Gemini Earn crypto lending program. ... The Gemini Earn program allowed users to deposit their coins in exchange for regular interest payments — typically at generous rates that could be as high as 8%.
The Gemini Earn page appears to redirect to this announcement:
> We are aware that Genesis Global Capital, LLC (Genesis) — the lending partner of the Earn program — has paused withdrawals and will not be able to meet customer redemptions within the service-level agreement (SLA) of 5 business days. We are working with the Genesis team to help customers redeem their funds from the Earn program as quickly as possible. We will provide more information in the coming days.
The language of this announcement is bizarre. Withdrawals are "paused," not "halted" as reported. In other words, there's a chance that Genesis will cough up the funds.
But the biggest red flag is that nothing is said about new deposits. Apparently, Team Gemini is still taking them. This is, unfortunately, par for the course with these schemes going all the way back to Mt Got. "Pause" withdrawals, but continue to allow deposits. The language of the announcement makes this look like a temporary blip that will soon be resolved. It's a tactic with a long history and an almost boringly predictable outcome.
No criminal fraud prosecution happens that quickly, and the "friends" are only friends when there's millions of donations to throw around. None of the politicians SBF and his co-CEO were purchasing will be returning their calls today.
He stole user funds to use in his investment company. He even built a backdoor in the accounting system to move the money without setting off alerts with the security send audit team.
Going bankrupt is not a crime in itself (ask any former president, one has experience and the other is a lawyer)). Yes, there is a lot that looks kinda criminal, but it will take a bit more than a week to put together a criminal prosecution.
Dominoes indeed are falling, but the coin prices are staying largely the same. Perhaps we're at a point where most people are already down so much from last year that it makes no sense to sell, no matter what the news says
The good news is that the problems seem to be confined to the crypto sector. There are a few hedge funds and pension funds with losses, but so far, nobody in "traditional finance" seems to have huge exposure to crypto. So the real world economy keeps on running normally while the crypto sector gets flushed.
The difference, of course, is that Amazon's market cap has actual assets and cash flows behind it. The liquidation value of all of crypto on the other hand is approximately $0.
I don't think we've heard the whole story about the exposure of legit orgs and businesses.
If a pension fund loses 1%, that's manageable. If it's 10%, that's a crisis for anyone expecting benefit checks every month, and possibly a much wider pool of people/orgs if some kind of rescue or bailout is required.
It’s noteworthy that this is not a coincidence (coin-incidence?) but the result of, first among others, the SEC holding steady in the face of a lot of pressure in limiting the financial system‘s exposure.
Unless there are right regulations in a capitalistic system, capitalism will create abuse and problems.
We are in 2022 and it's really annoying how we cannot discuss deep changes in how capitalism functions unless an army of trolls brings up the gulag point: "the soviet union failed, thus there is no viable alternative to capitalism".
It's already almost difficult to discuss it criticize growth, so socialism is really beyond taboo.
Capitalism is not any more at fault here than GPUs or math.
Yes, the right regulations are indeed vital for a capitalistic system. Saying "capitalism will create abuse and problems without regulations" is like saying "cars will cause death and destruction without a steering wheel". That's why we don't build them without steering wheels, and a car without a steering wheel is not really a car.
A financial market is a market, the very word "market" necessarily implies regulation, like all markets had since the dawn of time (it's why you brought your stuff there, and why the customers came). If a new technology creates a new niche in the financial market, and regulation has not caught up yet, nothing is wrong with the concept of capitalism, the problem is that regulation has not caught up yet. And now it largely has, and these companies are blowing up, and the system works. Not sure what is supposed to make us "discuss deep changes in how capitalism functions" if how modern capitalism functions is fixing the problem.
> It's already almost difficult to discuss it criticize growth
turning the social meta from positive sum to zero or negative sum is the most disastrous idea conceivable. everything you cherish, including your physical safety, is built on an assumption of shared future rewards. people will seek advantage no matter what; they must have a socially productive avenue or it will be taken from others.
if you are so sure an alternative is possible, i encourage you to demonstrate it -- live your life with others in a way that defies market forces. the proof is in the pudding; for now, there is only one game in town.
> i encourage you to demonstrate it -- live your life with others in a way that defies market forces. the proof is in the pudding; for now, there is only one game in town.
are you implying that you positively know that there is not a single group of people on the planet living an alternative that's better than what the majority is doing?
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[ 3.8 ms ] story [ 333 ms ] threadhttps://www.cnbc.com/2022/11/16/genesis-lending-unit-halts-w...
I suspect it will take some time, but at the ecosystem level, contagion is already here. Time will tell if it spreads beyond to the markets (but it feels inevitable at some level).
Depending on the size of the hole Genesis might outside the other non-ftx ones combined, and is structurally much more important than them.
Despite the appearance, this is not the story of a bunch of degenerate kids playing with made-up money.
Real serious money is at stake, billions of it, people are losing their shirts, or something else.
FTT: $26 -> $1.60 Serum: $0.80 -> $0.26 Solana: $36 -> $14
Or, more indirectly all crypto 'market cap' in general: $1050B -> $825B. Ok, so market cap is pretty ephemeral, but chances are, if you held any crypto prior to FTX collapsing, its theoretical value has dropped because of it. DeFi doesn't make you immune.
So... chapter 11 by Monday?
https://www.mollywhite.net/etc/ftx-contagion
See also her explanatory newsletter
https://newsletter.mollywhite.net/
If its not completely clear by now: no, these companies can't promise you 8% APY without essentially running a ponzi scheme. I'm sure even Madoff had some good years during bull runs. The only other semi-possible option is burning VC money with those APY's, which is maybe what Coinbase is doing
It's almost impossible to beat the market after fees. Anyone who promises to do so, consistently, is full of it. French (2008) and a whole body of literature before and after.
though it is possible to find some bonds that have an annual yield of 8%. Though no one would expect them all to make it maturity without any credit issues.
https://treasurydirect.gov/savings-bonds/i-bonds/i-bonds-int...
iBonds hit above 8% return in a year if you bought at just the right time this year, IIRC.
Of course, if you calculate real return then you will have a sad.
Inflation bonds are kind of an exception there, since if inflation is 8% the market should be doing much better than that on average.
Utilities and co-ops issued ~15% paper which also did extremely well for those who purchased it in the early 80s.
For reference, the 30 is now at about 100bp less than shorter treasuries:
https://www.marketwatch.com/market-data/rates
Not this dead horse again. Yes, academics have written a lot of papers claiming things that turned out to be false. See Renaissance Medallion Fund and Berkshire Hathaway for references.
> The efficient-market hypothesis (EMH) is a hypothesis in financial economics that states that asset prices reflect all available information. A direct implication is that it is impossible to "beat the market" consistently on a risk-adjusted basis since market prices should only react to new information.
But anyway, it sounds like we agree on the main point: relatively few individuals are able to consistently beat the market.
2. BRK is dead even with the S&P 500 over the last decade. This is despite the fact that BRK has access to cheap/nearly free leverage
There are better examples out there if you want to critique EMH.
The original point still stands. The vast, vast majority of professional investors (let alone retail investors) underperform the market. Almost everyone who promises safe alpha is full of it.
I'm curious. Can you give some links, please?
> The original point still stands. The vast, vast majority of professional investors (let alone retail investors) underperform the market. Almost everyone who promises safe alpha is full of it.
EMH claims that nobody can consistently beat the market in terms of risk-adjusted returns. Yes, almost everybody who promises safe alpha is wrong. That's self-evident from the fact that the stock markets are mainly professionals trading against other professionals. If one professional makes money with a good trade, there is (most often) another professional at the other end of that trade. Obviously you can't have a negative-sum game and then have the majority of players making positive returns - it wouldn't be negative-sum in the first place if that were possible!
I've seen "bonus" APRs as high as 40% offered.
https://crypto.com/us/earn is still offering 14.5% APR, and 8.5% on stablecoins, after accidentally sending $400M to a competitor.
> Earn 16% on Crypto
> Make your idle digital assets work for you with Nexo. Start earning up to 16% APR, paid out daily.
e.g. to hit the headline rate of 14.5% APR, you need to hold no more than $3,000 of DOT and at least $40,000 of CRO (their own token)
the reason it's so high for DOT is that DOT is currently paying 15% APR to validators.
It's extremely shady what crypto.com are doing but not necessarily unsustainable, because they're basically lying about what APR you can get
Holding 40k in CRO would be extremely unwise right now no?
https://www.binance.com/en/support/announcement/earn-up-to-4...
It's hard to have empathy for these people when they've been so obnoxious up until now to anyone trying to help them with learned experience.
Assuming you're not running an outright Ponzi scheme, then when you increase interest rates, you lower your borrower quality by the same amount, meaning your risk increases by at least the same ratio (or more).
By taking 8% interest or more, during a period of historically low interest rates, you were lending to the least reliable borrowers in existence - those borrowers that absolutely everyone lending money at lower rates said no to or, even worse, shady gamblers who can't legitimately draw finance from the traditional financial system without raising alarm bells.
There's no surprise in this outcome to anyone with even a basic understanding of maths and/or economics. It's sad, but utterly predictable.
With Crypto, I'm not sure if I do. To my understanding, you deposit money into a cryptocurrency, like ETH for example, in an exchange. The exchange then uses it as liquidity to allow other people to convert one cryptocurrency to another. Am I understanding this right? If so, it was my assumption that they were making 10% on transaction fees & rewarding you with 8% or something lower than 10%.
In that case, my risk/reward assumption was that many of them would raise/lower their rates based on the amount of transactions being done & how valuable the liquidity was to them. I saw that some exchanges did this in terms of months & others were constantly changing their rates.
Am I wrong in thinking that this is something that should be feasible to do without be a ponzi scheme? Of course there is extra risk based on how long the interest rate is fixed for if the market were to go down fast. I would assume banks are similar in the sense that you might buy a Certificate of Deposit (CD) or type of a bond and you get a fixed rate for a period of time. Your country's currency could drastically change or inflation could change. For most countries this isn't near as volatile though.
Both parties of the transaction send their money to the exchange before the transaction takes place. That means the exchange actually has excess (working) capital.
So if I want to sell my ABC token for XYZ token, they are borrowing your XYZ token that you have gaining interest to make the transaction work. They are then taking the ABC token I sold to credit an ABC token they had borrowed from someone else.
I may be completely wrong on this but that was my understanding of why this worked. Of course it doesn't work when everyone wants to take their money out. I would assume a responsible entity would use the money earned from fees to help provide liquidity.
I would also assume a responsible entity would want to stop transactions of ABC token if there was no longer enough liquidity to support the above borrowing & trading.
Amen. I burned a couple grand in Prosper in the mid 00s, primarily because I'm an idiot. I think a lesson there also applies here:
1. If you are a borrower, and had decent credit, you'd just go to a normal bank, because you could get much lower rates.
2. So the only people borrowing on Prosper were people with horrible credit (and for good reason), who basically got free money on Prosper and then promptly defaulted, sometimes after like a month or 2 of payments.
Same thing goes with crypto. If you're earning 8-10% interest, it means someone else is paying slightly more than that to borrow, which they would only do because they can't get cheaper rates.
This reminds me, I think the exchanges also used that borrowed money to allow others to borrow against it to hedge or speculate on big moves. Those people were for sure paying much higher rates. They would of course pay those higher rates because they were assuming a big move in the price.
You buy some sort of tokens on their marketplace with which you can partake in (what very much looks like) ponzi schemes. It's far from clear what their role is in all of this, even if I would think we all would be better off if they distanced themselves from it.
There is probably a lot of customer demand here too. We've seen even the staunchest opponents give in one after another, and offer marketplaces for these tokens.
If you look into protocols like Polkadot you will find that inflation is built-in and staking is a mechanism used to secure the protocol. In turn, you get a nice APY, but the coin dilutes over time.
It doesn't mean its a ponzi, but certainly an 8% yield isn't a safe investment, there will be some liquidity/market/credit risk. Hopefully its just liquidity.
They do offer staking but that's the not the same either. Return is generated from the networks themselves - like with ETH they are offering 4% APY after a 25% cut. That seems completely fine.
> actual economic activity
Nice subtle burn at the end of the article.
As far as I'm aware, none of those involve anything that looks remotely like financial speculation.
ENS is the only good example, standing naturally next to many imitators and scams.
(If you ever wonder why people treat crypto as a joke, think back to this moment.)
The ENS and ens.link are different people. You have misunderstood the situation.
I'm not aware of anyway to securely scale a decentralized cryptocurrency without recursive proofs of correctness that are fast to prove and fast to verify. Every year since 2016 I've seen major progress being made in this area but we have far to go. We just barely got there in 2020. We could probably build a scalable decentralized cryptocurrency in 2020, maybe. Give it another 5-10 years of advancement like we saw over the last 5 and you will have the ability to build scalable decentralized cryptocurrencies. That doesn't mean people will build them or that even if they do the built systems won't suffer from serious drawbacks. It is a long road ahead.
Now there are other problems to solve as well, but everything i being gated right now by proofs of correctness. We have a steam engine, we can put it on rails and it can pull a small load. Unfortunately the expectation has been set that we have train that can move millions of people. The fact that we can't meet this expectation doesn't mean that steam engines or engines in general are bad.
It is unlikely that Charles Babbage is going to be able to build his difference engine and even if he does it is so complex and so prone to failure that it probably will never be commercially viable.
vs.
It is unlikely that Charles Babbage is going to be able to build his difference engine, thus proving computers can't work and have no utility.
It's just a statement.
What does "money not controlled by a central entity" do? What problem does it solve? Why do I need it?
Keep in mind that in my day to day life, I rely on a central entity, a government.
And in places where people can't, life is NOT BETTER. It's awful. We call those places failed (fragile if you want to be nice) states.
And government should be able to control money. Money is tied to the economy, it's tied to politics, it's tied to the society.
The idea that by decentralizing things money will be fully democratic is just silly. Plus, full blown democracy doesn't even work. It leads to tyranny of the masses, that's why every modern country has a constitution that basically say: "you can't do that, no matter how much you want, since you can't abuse others you don't like[1]".
[1] In practice, "can't do that" means something really hard to do, usually stuff like "persuade at least 67% of your countrymen to let you do it", to rein in the insanity.
It's hard to argue that 95% of people in Scotland aren't true Scots.
Anything that involves a person one both ends of a transaction chain inherently has one or more 'human institution' dependencies.
In fact, many crypto proponents are happy that these centralized pseudo-banks get all flushed the out.
Competing with centralized entities is hard.
Pretending collapses like FTX don't impact the cryptocurrency space in negative ways is dishonest.
I warned people last year not to use FTX. Now FTX is gone. Please tell me what feelings I'm allowed to feel now that they're finally gone.
Because it doesn't? While all centralized exchanges are suffering from FTX's collapse, decentralized ones like Uniswap aren't facing any existential risks from it.
"stuck" - LOL. Hope dies last.
Bernie Madoff's exclusive private fund had investors lining up to get in, based on Madoff's history of returning a steady 10% to investors. Of course it was all a big Ponzi scheme...
What a stain on the name of a great mathematician
https://www.investopedia.com/terms/d/dutch_tulip_bulb_market...
Did they even get a moment of silence?
Vaporware has a way of eviscerating
[0] https://www.smithsonianmag.com/history/there-never-was-real-...
Notice how I didn't say disemboweled with entrails all over the place with all of the fud being distributed about crypto ponzis/vaporware.
https://www.wordnik.com/words/eviscerate
Literacy is fun the mental in your case :p
https://www.investopedia.com/terms/l/law-of-supply-demand.as...
https://poemanalysis.com/idiom/pushing-up-daisies/
Which one retains value in a market crash? My money is on US Dollars, but you are free to disagree with me.
It's true no matter if you're talking about falling stocks or falling crypto.
Yes, the $10 exists, but that $10 trade may have inflated the value ("market cap") of the coin by billions.
At start you had 10 bucks and he had 10 bucks worth of crypto for total assets of 20
Now you have crypto with value of 0 and he has 10 bucks for total assets of 10
Overall 10 bucks is gone and yes there are winners and losers
Edit: TikTok quiz abbreviated: you buy for 50, sell for 60, buy again for 80, sell for 90. How much did you win / lose? ... the confusion for some people being created since they sold at 60 to buy back at 80
It's like a gold mine being revealed as barren. Whether you say wealth was destroyed or wasn't there to begin with is... distinction without a difference.
Here's an example of how this works:
FTX "minted" their own cryptocurrency. They minted billions of dollars of it.
When people purchased a tiny fraction of it, that established a price for one coin.
Once that happened, FTX could say "we're worth billions of dollars."
But keep in mind:
* the cryptocurrency was created out of thin air
* the value of the crypto crashed by over 90% in the past month
On top of all that, there was a "multiplier effect" when the "assets" were used as collateral on loans to counterparties.
The net effect is that the "assets" were worth billions at some point, but that value has evaporated. And loans were made on those "assets" which may have multiplied the actual impact several fold.
It's a banal comparison, but this is a lot like Beanie Babies in the 1990s. At one point the market was worth millions of dollars, and then it evaporated overnight.
That's deflationary, and if there's one thing the world needs right now, it's deflation.
A day later the Russian army hits my car with a mortar. You have $10,000. I have some scrap metal. Rather than $20,000 worth of stuff, there's now $10,000 (plus some scrap metal) total.
People losing jobs and thinking about their next steps are usually too late with not enough skin in the game to jump on the decade-long bandwagon. That's the "wealth" some of the commenters here seem to be pointing to. Essentially, inequality.
More than a half-century ago, John Kenneth Galbraith presented a definitive depiction of the Wall Street Crash of 1929 in a slim, elegantly written volume. Embezzlement, Galbraith observed, has the property that “weeks, months, or years elapse between the commission of the crime and its discovery. This is the period, incidentally, when the embezzler has his gain and the man who has been embezzled feels no loss. There is a net increase in psychic wealth.” Galbraith described that increase in wealth as “the bezzle.”
Link: https://www.johnkay.com/2021/09/08/the-bezzle-years/
Burn baby burn.
These shitcoins with billion dollar market caps never actually took a billion dollars into any accounts. The volume is fake, the activity is fake, the price is fake.
How can a crypto coin lose 99% of its value? It was worth nothing to begin with. No wealth created, no wealth destroyed. Plain transference.
If I convince one person to pay $10 for a quarter, are all quarters worth $10?
If you answered "yes", you can run https://coinmarketcap.com/.
- How many Dollars does a bitcoin buy?
- How many Bitcoins does a Dollar buy?
- When the exchange rate varies, what does that say about the relative value of each currency?
- How many Potatoes can a Dollar buy?
- How many Potatoes can a Bitcoin buy?
- How many Drugs can a Dollar buy?
- How many Drugs can a Bitcoin buy?
The above is extremely oversimplified but much like a global foreign exchange relies on shifting exchange rates, so does the value of all currency in terms of relative buying power. In terms of absolute buying power - my personal highly subjective bid is that a currency's "value" is a compound of its' exchange rate as well as the amount of people willing to exchange it, and the amount of it in circulation as well as the breadth of people willing to accept it in exchange for goods and services.
If A mints a coin for free and sells it to B for $0.25, B sells it to C for $0.50, C sells it to D for $0.75, and D sells it to E for $1.00, at which point it crashes to zero, A, B, C and D have all made $0.25 each, and E has lost $1.00, but nothing of value was created or destroyed.
E incorrectly believed that the coin was worth $1.00 and thus that more wealth existed in the world than was actually the case, but that doesn’t mean wealth was ever destroyed, just that his incorrect estimate was updated.
For example, bitcoin has a market cap of $320B. At its peak it was worth about four times that. Did $960B just disappear? Basically, yes.
The coin has no intrinsic value (in the way that a can of corn does, for example). It's worth money because people say it is. And market cap is just a multiple of what it trades for at the margins times the number of shares (coins).
To give an example, say that I bought a bitcoin 10 years ago and that it was my only possession. At its peak, I could have sold the bitcoin for ~$64k, so I had a net worth of 64k. If I didn't sell it at that point and still hold it, I'm now worth ~16k. No one made $48K of of me... there were no transactions in that time period. The "wealth" has simply vanished.
This is pretty debatable. Bitcoin does have some intrinsic value as a medium of exchange and store of value.
I was hoping years back that all of this would have taken off for payments rather than silliness. I was wondering if we'd see a (low) Bitcoin value determined by the need to pay BTC transaction fees and those fees being effectively locked up until the next block comes
On the opposite end, a can of Cambell's soup has intrinsic value, because it's worth something to someone regardless of what anyone else thinks. The can of soup that Andy Warhol as the basic for his famous paintings has a mixture of both types of value (surely someone will pay significantly more for that can over any other identical can).
That doesn’t seem like a contradiction at all, right? If your fork somehow became well known and replaced the original, then yeah, your fork would have some intrinsic value as a medium of exchange and a store of value.
Intrinsic value is a value outside of perceived value. A can of soup is calories, which we need to survive, as long as it is edible, it will always be worth something to a human. Farm land has intrinsic value because it can produce food. Diesel has intrinsic value because farmers need this to produce food. Bitcoin9890812895, my fork of Bitcoin9890812894 has no intrinsic value to anyone.
Yes, and we're not talking about perceived value. We're talking about intrinsic value from a peer-to-peer network that's used by many people.
Consider a hypothetical Bitcoin, without the objective measures you describe. Without the capabilities of the network, people willing to accept it as payment for goods/services —- it is a coin that nobody has a use or want for, i.e. an unadopted shitcoin.
The value of unadopted shitcoins approaches zero as fewer and fewer people use it. Therefore, the value of Bitcoin is entirely comprised of perceived, and not intrinsic value.
Another way:
Compare a Bitcoin with a banknote. A banknote has perceived value (it represents one, or several, dollars, which have a stable value and are accepted universally) and intrinsic value (it is piece of paper that you could burn to provide a small amount of heat, in a pinch). The Bitcoin doesn’t even have that tiny amount of intrinsic value that the banknote has.
During the Weimar Republic, people burned paper money because it was cheaper than wood. In that situation hyperinflation led to the perceived value falling so low that it was below the paper money’s intrinsic value. If everyone stopped accepting Bitcoin and its perceived value evaporated, that Bitcoin would not even have the intrinsic value remaining, of heat from a single burning banknote.
What's happening is not great for crypto investors, but it's beneficial for people who want inflation to go down (nearly all of us.)
OP was worth at least 64k at some point and now is worth at least 16k. The value and total amount of wealth (in US Dollars) has gone down.
Take Elon Musk, for example. A lot of his wealth is in Tesla stock. But he can't sell that stock without also affecting its price. If he decided to sell all of it tomorrow, the price would plummet and he would only receive a fraction of what it's worth today.
This is what a lot of these companies are doing. I can create 100 tokens and sell you one for $1. In theory, my "net worth" is now $99, since I have 99 tokens that are worth $1 each. In reality, if I tried to sell all 99 of them, I'd quickly find that people are actually not willing to buy all of them for that amount.
I trust money more than wealth. Unsold stock should not be quantified until the moment it is sold.
It's getting tiring to hear about "so and so billionaire lost X billion". No, they didn't lose anything that they didn't have to begin with. Having more stock than the trade volume of that stock means all of that "wealth" is mostly theoretical.
That "theoretical" wealth clearly has a massive impact on the real world, so it's silly to pretend it does not exist. For example, Elon didn't buy Twitter with a giant bag of gold coins -- he borrowed against his wealth, which is mostly in stock.
Because no sane organization will lend out real cash over the same amount of collateral TSLA stock, and leveraged lending opens TSLA to extremely high risk as value dropping would means Musk will be forced to sell to cover/and or stake more TSLA. This is exactly how FTX failed - they counted their own token as their "asset". Spoiler: it didn't work.
Does this wealth have a high impact on the world? Of course it does. But does it has the same impact as same volume of cash? Absolutely not.
> Unsold stock should not be quantified until the moment it is sold.
I don't know Elon Musk's finances, but I imagine that he's got a bunch of stock, (let's say) an amount of cash in the tens or even hundreds of millions and debts well above the amount of cash he has on hand. If you don't count unsold stock, then Elon Musk is poorer than most college students.
I agree the numbers are misleading (e.g. Bill Gates money is very diversified and he has already paid many of the capital gains on microsoft stock sales, so comparing his wealth to Elon Musk's with a single number is quite misleading). But you have to count unsold stock for something.
Do I now actually have $300 in wealth? No, because it's illiquid, and the bid for it more broadly is likely $0, I have to apply a large liquidity discount. It seems like many communities behind these coins have been doing something similar to the internal trading I've been describing here, and hyping them to find outside people willing to trade some of their real dollars for these worthless coins, and those few trades have been used to establish the broader market caps of these things.
All illiquid and somewhat illiquid have this property to varying degrees, ranging from startup stock (no, selling 20% for $1M to a VC doesn't mean your company is actually worth $5M, unless you could find a buyer for all the stock for that much) all the way up to Amazon, Tesla, Apple, etc, because there's no buyer waiting to absorb all the outstanding stock at the current bid. There would be a buyer willing to absorb all of it at some level, but it's likely at a level far lower than the current market cap.
It may not be "real wealth" but it certainly is spending power and psychological cushion, which means different spending choices, which means inflationary pressure.
I had a lot of coworkers who listed crypto holdings on their mortgage application in the past few years. They wouldn't have been bidding as high if the perceived value of those wasn't there.
So in that sense, it _was_ wealth for the holders.
- You start the day with $200,000. You create an NFT and sell it to yourself for $200,000.
- Now you have $200,000 and a $200,000 NFT, meaning you've doubled your wealth to $400,000.
- If you can convince someone to buy that arbitrary NFT at 95% discount, you end up having $210,000 in cash by the EOD.
But you now also have a liability of $200,000. Your total asset is still $200,000 , not $400,000.
> If you can convince someone to buy that arbitrary NFT at 95% discount
so you just sold the NFT for $10,000. If somebody else got tricked into thinking they got a 95% discount - that's on them. A fashion store often marks up their clothing by 100%, and have "sales" of 50%!
Assets are not liabilities, so you'll need to explain why you think it is a liability.
Fashion brands and their physical goods are definitely not the same as NFTs, insomuch as they at least have intrinsic value. NFTs only intrinsic value is they good for ripping off greater fools.
For crypto, no one would want to buy the entirety of bitcoin, because it basically has no value if it isn't traded, so it's effectively worth $0 if someone owns all of it.
For companies, this isn't necessarily true. When acquisitions happen, the current market cap is usually the floor, not the ceiling. I agree with your overall point though.
You and every individual investor could have cashed out but that is as saying that Madoff customers could have cashed out. It's just an illusion. Most of the money disappeared once you deposited and Madoff, SBF, or some other scammer spent it on a new boat or house on an island.
*negligible not zero, because some tiny slice of crypto transactions actually are done by useful workers in order to shield wages from kleptocratic regimes.
The last time Serum was worth $2.1+ per token, it was Jan 2022. At current market prices, that same stake is worth less than $250M (given liquidity conditions).
Serum was also a dex that SBF's company, Alameda, pretty much made in-house, and then allocated themselves 1 billion tokens.
So this "wealth" was created out of thin air. And disappeared into thin air.
Ergo, it was not real. It wasn't lost. It never really existed in the first place.
Now no matter what the end game is regulation, either by someone like SBF to make it happen or knowing full well it was going to blow up. With regulation they can protect the fox in the hen house like they do with the stock market and keep all the control.
If you don't think so, read in depth what Bernie Madoff did and how connected he was. The best part is, stock market still allows PFOF which he invented to help with his Ponzi scheme.
Just my take on it all...
If that was his endgame he would've had better record keeping and books. Regulation and paperwork go hand in hand, he was not set up for existing in a regulatory environment.
How does this actually benefit anyone? It's not wealth redistribution.
> When will then take some of the extra money out of the real economy
But it wasn't real money in the real economy, it was fake money in a fake economy.
Admittedly some real money went in, and some came out again to buy stadium endorsements and superbowl adverts, but the main effect of this is to wreck the savings of (a) ordinary rubes and (b) over-optimistic VC firms. I can see why people want (b), but you can't separate it from (a).
Here's a "real world example:"
There's a house near me that's selling for $7,777,777 (get it? Lucky sevens?)
The cost of the house is obviously arbitrary, and it's listing has a bunch of references to bitcoin. The owners of the home are obviously trying to "leverage" crypto mania to find a buyer.
Now that a bunch of crypto "wealth" has been destroyed by falling prices, the owner of that house will need to re-assess whether $7,777,777 is a realistic price.
More than likely, it's not. And by lowering the price of the home they're selling, they're contributing to a reduction in real world inflation rates.
Also, yes, I know that inflation stats use a proxy for the cost of housing.
If the entire stock market went to zero tomorrow, exactly the same number of dollars would be circulating.
In your loan example, either you haven't spent the money they loaned you, which would then be reclaimed, or you have spent it, in which case someone else has it.
No money would be destroyed in either scenario, unless what you did with the loan was put it in a suitcase and burn it.
The only things that remove money from circulation are: bank accounts that only accrete (usually temporary, and thus not actual removal), taxes, and physical destruction.
It's now $250,000.
https://www.fdic.gov/resources/deposit-insurance/brochures/i....
> In your loan example, either you haven't spent the money they loaned you, which would then be reclaimed, or you have spent it, in which case someone else has it.
Not sure if you understood the parent's statement. Money is created largely by loans - when banks lend $1m to a company, the company owes $1m to the bank and gets $1m, but no one loses $1m anywhere. And by spending that $1m somewhere else, a fresh $1m is printed out of thin air and goes into circulation. When the company pays that back, that $1m is destroyed.
There is certainly a "root" of money that seems not to be created via loans anywhere, namely those issued directly by the central bank (the Federal Reserve in US's case). And no, they are loans nevertheless - since these money is backed by the government's ability to collect taxes, any money printed is effectively created via loans to the government, and the government has infinite ability to borrow money. When the government is unable to collect taxes anymore, nobody needs these money either and the government effectively goes bankrupt since its loan is no longer backed. As a result, dollar loses its value. That's how our current fiat money system works.
So your contention is that Bank of America prints the $1m dollars that it loans to me? Color me skeptical. I imagine they'd have better rates if they had a money printer. Or maybe they wouldn't bother loaning money at all.
Maybe it will alleviate the semiconductor shortage.
There’s real benefit when we consider the amount of man-hours spent the past years on trying to reinvent finance, with little success so far.
These (smart) people can use their time and skills towards more productive stuff.
But if society really believes that their smartness could have been used better, why aren't they paid for doing "more productive stuff" than crypto? These people did crypto because it paid the most. Therefore, at the time, it must mean that it is most productive to do crypto.
Fe. society might have been better off investing in nuclear energy in the past 30 years, yet it did not and it s starting to look as a mistake.
Circumstances play a role too. My opinion is that if it had not been for the pandemic and the economic anomalies that happened way fewer people would have paid attention to crypto.
Sure it is. It redistributes money from the marks to the crooks.
https://news.ycombinator.com/item?id=33630150
(336 points, 344 comments)
The coins themselves are sometimes worthless (like FTX's token), or can be frozen (Tether does this: https://www.coindesk.com/business/2022/11/10/tether-freezes-...). It doesn't matter if you hold a collapsed coin in your wallet or an exchange's; it's still not gonna do you any good.
Users bought it but the exchange didn't have it, which is what the OP was saying. If you don't have the keys, you don't really have the coins.
Citadel Securities has in their books securities sold, not yet purchaed. $65 billion. How is this not the same thing ? lol
1) FTX didn't even bother listing their customer liabilities on their balance sheet, unlike Citadel.
2) I would assume (hope) that Citadel isn't a completely fraudulent company without the capital to make good on those assets if delivery is demanded!
The debate about whether these tokens meet economic definitions of currency is besides the point; the goal, like tradFi, is to accumulate as many of them as possible and do whatever it takes to protect their price (pump) until you're ready to shift the risk to someone else (dump).
Traditional finance also had plenty of those, but they're super heavily regulated, so now they're a lot rarer.
Holy !@#$ing cow. Dodged multiple bullets. At least I didn't share my financial plan at the time at the Thanksgiving table last year or it would be really awkward now (thank goodness my uncle took that role in a small capacity)...
that reminds me of the tranches in mortgage backed securities during the 2008/9 financial crisis.
See this scene from The Big Short https://www.youtube.com/watch?v=4WUGhteNlzM
I've still got everything on just Coinbase, which I assume (?!) is reliable enough to not be at risk.
What's the "upsell" for using a wallet? The "not your keys" argument logically makes sense to me but it doesn't seem worth it from a convenience stand-point.
This is what anyone could have said about FTX until suddenly it wasn't.
The upsell is complete access to the DeFi ecosystem. Not just the part your exchange wants to support. The convenience issue is overblown, at least for tech inclined people like commenters here would be.
I can use my recovery seed phrase after, but as far as I’m concerned that’s an “oh crap” backup. For all I know I could have screwed up writing it down. Unlikely, but possible. Apparently it’s also possible to other software wallets to get the crypto off of there.
Frankly, if there aren’t ways for the average non-tech person to safely and reliably hold crypto there’s no point. Most of my stuff is on Coinbase and I’ve always figured that if that ship goes down the whole thing will come crashing down anyhow.
I think it is glaringly obvious at this point that most of society does not understand how money works, and will fall victim to the same old scams no matter where they manifest.
This entire crypto collapse has been a long time coming. You can't simply manufacture money out of nothing, nor can you inflate debt endlessly.
Bitcoin as a community has distanced themselves from 'crypto' and these boiler-room pump and dump scams.
Bitcoin maxis fight for the simplicity and real-word cost behind proof of work for a reason. Bitcoin may be arbitrary digits in a ledger but it isn't free to make. The supply is capped, yet the work anyone can put into securing the ledger is unbounded.
Regardless of where you choose to invest, self custody is king. Get your tokens off exchanges. Not your keys, not your coins.
Of course when the mania settles I have no idea if the value of digital-gold-sans-gambling would be $5 or $500,000 or $0. But I do think there is a neat idea that isn't just a pure scam buried in there.
To me I think the neat thing about Bitcoin is that the decentralization and lack of intrinsic value are exactly what make it (mostly) purely market driven.
Blockchain/decentralization as a technology I'm not very sold on yet.
No they don't. They promote Lightning Network as some sort of savior of all things, but it's the complete opposite of simplicity and soundness.
LN should never have been pushed as hard as it was. If they'd launched it and it'd naturally outcompeted regular Bitcoin transactions then fine whatever, but destroying on-chain capacity before LN was even coded was truly crazy.
A whole bunch of these startups have sprung up; which take up real money (USDT or even USD, INR etc.,) promising very attractive guaranteed returns without locking up customers' fund. Look at these[1] for examples. Anyone who knows anything about banking in the traditional world knows how ridiculous it is. And indeed some of these are beginning to unravel[2]. In Anchor's case there are way more lenders than borrowers so Anchor is resorting to pay those high yields from their reserves. It's cutting close to being a Ponzi scheme at the moment. In a traditional banking world businesses take a loan either to cover for a short-term cashflow crunch (example an invoice that's delayed by their client) or for longer term investment. That money usually goes into economic activities which are expected (hoped?) to bear fruit to repay the loan. In the crypto world however such loans are taken only to be put back into the crypto world; to be swapped into some hot new coin to be staked and what not. The music has got to stop at some point.
[1] https://news.ycombinator.com/item?id=30335625
It also failed because user money was stolen and mismanaged by hugely incompetent 20 year olds, not because it was invested in crypto.
It's like someone saying the whole stock market is a scam because of Bernie Madoff.
Meanwhile, the "crypto market" deals only in hype all the way down. There are no goods and services produced (unless you count "hype"), only dollars going in one end and coming out the other. If I put my dollars in some "crypto investment", it's only so that some early adopter with 50000 btc can get some dollars out. The rest is misdirection.
Ah, but you repeat yourself! Almost every actor in crypto is an incompetent 20-something, or an intentionally criminal 20-something.
Exchanges like Coinbase might be the "good guys" but when the assets they let you exchange are inherently worthless magic beans and many of them are intentional scams, it's hard to justify the stock market analogy.
What's the point of holding USDT or USDC if you're going to keep it in a quasi-bank? Isn't the whole point of crypto NOT to trust governments and centralized authorities?
How do you even know the exchange spent the money on crypto if you dont see the keys, you may have just handed over $$ for a positive transaction on a virtual spreadsheet
Perhaps originally, but now it is simply a bunch of get-rich-quick schemes, or maybe more accurately wallstreetbets-style gambling. I.e. even if people know it's going to all go to shit, try to play the game long enough and get out before someone pulls out the Jenga piece below you.
Oh well.
Decentralized solutions are vulnerable to this.
Idealistic decentralized solutions...
I don't understand. Central banks are finally raising rates after 2 decades of ultra-low rates. If anything, central bank excesses are well below their peak now.
The problem with crypto evangelists is that they keep forgetting it's humans who use it.
These people took on risk, but not enough to warrant being on-chain, and in the process, lost it all. Weird place to be in - risky enough to lose it all, not risky enough to be completely speculative. Really in no man's land.
Not really...
BTC price isn't moving, no one is liquidating, volatility is lowest its ever been, none of the hodlers have given up yet and probably won't, they are just waiting it out to try again in 2-5 years.
This is astounding to me. I would be curious how long they kept their money in an exchange and if that’s common practice among other firms.
The Gemini Earn page appears to redirect to this announcement:
> We are aware that Genesis Global Capital, LLC (Genesis) — the lending partner of the Earn program — has paused withdrawals and will not be able to meet customer redemptions within the service-level agreement (SLA) of 5 business days. We are working with the Genesis team to help customers redeem their funds from the Earn program as quickly as possible. We will provide more information in the coming days.
https://www.gemini.com/blog/an-important-message-regarding-g...
The language of this announcement is bizarre. Withdrawals are "paused," not "halted" as reported. In other words, there's a chance that Genesis will cough up the funds.
But the biggest red flag is that nothing is said about new deposits. Apparently, Team Gemini is still taking them. This is, unfortunately, par for the course with these schemes going all the way back to Mt Got. "Pause" withdrawals, but continue to allow deposits. The language of the announcement makes this look like a temporary blip that will soon be resolved. It's a tactic with a long history and an almost boringly predictable outcome.
Did you read the article you linked to?
"Which specific tree do you think I should have hit?"
Glad it's falling apart now before it sucks the entire economy down with it.
If a pension fund loses 1%, that's manageable. If it's 10%, that's a crisis for anyone expecting benefit checks every month, and possibly a much wider pool of people/orgs if some kind of rescue or bailout is required.
Unless there are right regulations in a capitalistic system, capitalism will create abuse and problems.
We are in 2022 and it's really annoying how we cannot discuss deep changes in how capitalism functions unless an army of trolls brings up the gulag point: "the soviet union failed, thus there is no viable alternative to capitalism".
It's already almost difficult to discuss it criticize growth, so socialism is really beyond taboo.
Yes, the right regulations are indeed vital for a capitalistic system. Saying "capitalism will create abuse and problems without regulations" is like saying "cars will cause death and destruction without a steering wheel". That's why we don't build them without steering wheels, and a car without a steering wheel is not really a car.
A financial market is a market, the very word "market" necessarily implies regulation, like all markets had since the dawn of time (it's why you brought your stuff there, and why the customers came). If a new technology creates a new niche in the financial market, and regulation has not caught up yet, nothing is wrong with the concept of capitalism, the problem is that regulation has not caught up yet. And now it largely has, and these companies are blowing up, and the system works. Not sure what is supposed to make us "discuss deep changes in how capitalism functions" if how modern capitalism functions is fixing the problem.
turning the social meta from positive sum to zero or negative sum is the most disastrous idea conceivable. everything you cherish, including your physical safety, is built on an assumption of shared future rewards. people will seek advantage no matter what; they must have a socially productive avenue or it will be taken from others.
if you are so sure an alternative is possible, i encourage you to demonstrate it -- live your life with others in a way that defies market forces. the proof is in the pudding; for now, there is only one game in town.
are you implying that you positively know that there is not a single group of people on the planet living an alternative that's better than what the majority is doing?