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Crypto’s Lost Vision: Breaking Down the FTX Scandal

Crypto’s Lost Vision: Breaking Down the FTX Scandal

“It also offers a lesson: the world’s recent obsession with knighting these quirky kids and holding them up as standard bearers simply because what they do seems complex is not wise. And worse, it’s directly contradictory to the original ethos of the space.”

A scandal in the cryptocurrency universe erupted last week, causing a once-vaunted and widely admired cryptocurrency exchange and trading firm to go belly-up in a matter of days. Judging by the media reaction, one might think this is the first time the industry has experienced a high-profile bankruptcy.

But crypto-land has seen this before. In 2014, a highly popular but poorly run Bitcoin exchange called Mt. GOX—an acronym for Magic the Gathering Online Exchange—similarly failed in spectacular fashion. Many early bitcoin adopters were effectively robbed of their funds, and Bitcoin slumped into a protracted bear market for several years. Just this year, in fact, the crypto market has seen collapse after collapse. The Terra Luna crash and Celsius implosion, for example, saw major sell-offs and a rapid (largely unsuccessful) scramble by users to secure the cryptocurrency they held with these organizations. 

The FTX scandal sweeps more broadly than any prior industry collapse because its investors comprised many elite players from the traditional finance and political classes. FTX was seen as a safe way to gain exposure to cryptocurrency without having to invest in the volatile market directly. And these beliefs were uncritically confirmed by a fawning media that spent much of the last year knighting FTX’s now-disgraced founder, Sam Bankman-Fried.

As someone who has been in the Bitcoin space for quite a while now, the mainstream obsession with SBF, as Bankman-Fried is commonly known, never made much sense. In July, responding to Anthony Scaramucci’s praise of a New York Times puff piece on SBF, I noted the probable demise of such a seemingly astroturfed campaign to elevate this unproven kid to godlike status (forgive the salty language, it’s Twitter).

Four months later, FTX is in bankruptcy. People who held their money and cryptocurrency with the formerly respected exchange have had their accounts frozen. And its founders, including SBF, are in hiding in the Bahamas, apparently contemplating fleeing to Dubai, a non-extradition treaty country.

As best as we can tell so far, here’s what happened. 

SBF catapulted to prominence by inventing a trading algorithm that essentially arbitraged the price of Bitcoin (and presumably other cryptocurrencies) across domestic and foreign exchanges. As one (now remarkably embarrassing) YouTube expose on SBF put it: If Bitcoin were priced at $10,000 on a U.S. exchange and $11,000 on a Japanese exchange, SBF’s algorithm would essentially buy the $10,000 Bitcoin in the U.S., then sell it for $11,000 in Japan and pocket the difference.

Arbitraging is nothing new, but apparently, the margins were quite good for SBF, who would go on to found a quantitative trading firm Alameda Research, in 2017 using these tactics. But that was not enough for SBF, the self-described “effective altruist,” who wanted to make billions purportedly so he could just “give it away.” So in 2019, he decided to spin off his own cryptocurrency exchange, which he would call FTX. Importantly, this exchange created its own cryptocurrency token, FTT, which could be used to secure discounts on trades and grant access to other incentives unique to the FTX trading experience. It also traded on the secondary market, and people would buy and sell FTT in hopes that its value would rise along with FTX.

The creation of FTT and the subsequent reliance of Alameda Research on the token would prove crucial to SBF’s downfall.  But before we get to the fall, let’s explore the rise.

In 2021, amid an incredible cryptocurrency bull market, FTX started raising money. A lot of it.

That July, FTX raised $900 million at a valuation of $18 Billion. And more capital raises occurred throughout the year, with FTX’s valuation eventually ballooning to $25 Billion.

Despite the cooling off of the market in 2022, the first half of the year was no different. In January, FTX raised an additional $400 million from SoftBank at a valuation of $32 Billion. (SoftBank, you may recall, was an early investor in WeWork, which also spectacularly crashed before an IPO listing in no small part because of the founder’s extravagant spending and investments).

Things appeared to be going great for FTX as it inked a $135 million sponsorship deal for naming rights of the Miami Heat’s home court. But the fragile cryptocurrency market was faltering. As prices started falling, many companies built around these currencies were going defunct. First, it was the Terra Network, which took Three Arrows Capital, a hedge fund giant, down with it. Then crypto bank Celsius experienced a bank run and could not cover its obligations. It is now in bankruptcy proceedings.

Amidst all this turmoil, FTX and Alameda Research– fresh off years of capital raises amounting to billions of dollars — appeared poised to pick through the wreckage. On July 22, 2022, FTX executed a partial bailout of Voyager Digital, a publicly traded company steeped in the cryptocurrency space. It also spent $250 million to prop up crypto lender BlockFi, which promises above-market APY returns if you park your cryptocurrency with them.

Perpetually incorrect investment analyst, Jim Cramer, summed up the general belief of Traditional Finance players that SBF was crypto’s white knight:

And while SBF was consolidating his market share in crypto with one hand, he used the other to acquire political capital. As Alex Berenson points out, SBF spent roughly $50 million donating to Democrats in 2020 and 2022, apparently making him the second largest donor to Democrats behind only George Soros.

SBF didn’t want to quit there. In fact, he had aspirations of donating up to $1 Billion to political causes over the next few years. But the gravy train would soon run out.

On November 2, 2022, nearly one year from the cryptocurrency market’s high water mark, a copy of Alameda Research’s balance sheet leaked. And despite all the dollars raised by SBF over the preceding 22 months, much of Alameda’s purported “assets” were in the form of FTT, the crypto token created by FTX. CoinDesk reported at the time:

Billionaire Sam Bankman-Fried’s cryptocurrency empire is officially broken into two main parts: FTX (his exchange) and Alameda Research (his trading firm), both giants in their respective industries.

But even though they are two separate businesses, the division breaks down in a key place: on Alameda’s balance sheet, according to a private financial document reviewed by CoinDesk. (It is conceivable the document represents just part of Alameda.)

That balance sheet is full of FTX – specifically, the FTT token issued by the exchange that grants holders a discount on trading fees on its marketplace. While there is nothing per se untoward or wrong about that, it shows Bankman-Fried’s trading giant Alameda rests on a foundation largely made up of a coin that a sister company invented, not an independent asset like a fiat currency or another crypto. The situation adds to evidence that the ties between FTX and Alameda are unusually close.

The financials make concrete what industry-watchers already suspect: Alameda is big. As of June 30, the company’s assets amounted to $14.6 billion. Its single biggest asset: $3.66 billion of “unlocked FTT.” The third-largest entry on the assets side of the accounting ledger? A $2.16 billion pile of “FTT collateral.”

There are more FTX tokens among its $8 billion of liabilities: $292 million of “locked FTT.” (The liabilities are dominated by $7.4 billion of loans.)

“It’s fascinating to see that the majority of the net equity in the Alameda business is actually FTX’s own centrally controlled and printed-out-of-thin-air token,” said Cory Klippsten, CEO of investment platform Swan Bitcoin, who is known for his critical views of altcoins, which refer to cryptocurrencies other than bitcoin (BTC).

And with that revelation, a chain reaction was set off. As news of the leak spread, holders of large sums of FTT began wondering why they had exposure to a cryptocurrency that essentially acted as a bridge loan for SBF’s trading fund. One player in particular executed the death knell for SBF: Chengpeng Zhao (or CZ as he is commonly called).

CZ is the CEO of Binance, the world’s largest crypto platform. And reports of his rapid liquidation of FTT precipitated a generalized market sell-off of the token. What’s worse, the Wall Street Journal reported that SBF was using customer deposits on FTX for loans to cover Alameda Research’s risky bets. With FTT having lost roughly 95% of its value in just over a week, it is likely that most customer deposits will never be returned.

As of now, SBF has resigned, and FTX has entered bankruptcy proceedings. The WSJ reported this morning that SBF is now “in the crosshairs” of U.S. prosecutors.

The situation is a stark reminder of the fragility of the cryptocurrency space and the risk associated with entering it. It also offers a lesson: the world’s recent obsession with knighting these quirky kids and holding them up as standard bearers simply because what they do seems complex is not wise. And worse, it’s directly contradictory to the original ethos of the space.

Bitcoin, the world’s first cryptocurrency (and the only viable one to my mind), was created on the premise that users should corroborate for themselves the state of the protocol. As it is often put in Bitcoin circles, “don’t trust, verify.” That’s why the Bitcoin blockchain is public. And that’s why if you take the responsibility of controlling your accounts (instead of handing that responsibility to these fragile exchanges), you are able to send value all over the world instantly and without permission.

This culture is embedded in Bitcoin’s creation. Just after publicly releasing the code for Bitcoin, pseudonymous creator Satoshi Nakamoto put its purpose squarely into view.

The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts. Their massive overhead costs make micropayments impossible.

For its part, Bitcoin has–through much discipline and more than a few internal fights–retained all the attributes that Satoshi found lacking in traditional currencies. But the cryptocurrency space at-large has spent year after year rediscovering all the problems associated with traditional currencies. It appears almost entirely based on trust, and it’s increasingly clear that untrustworthy people largely lead it.

If Bitcoin was designed to avoid the problems of legacy finance, crypto appears equally designed to readopt them.

In the first bitcoin block ever mined, known as the Genesis Block, Satoshi placed a coded reference to the problem of trust in currencies and the requirement of bailouts that inevitably follow when such trust is abused. Because it was a newspaper headline, the message partially operates as a timestamp to indicate that the chain kicked off on that particular date. But it was also perhaps an effort to communicate that Bitcoin would work differently than the system that led us to that crisis.

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks

Nevertheless, CZ just revealed a possible rescue package for future faltering crypto companies and banks

What could go wrong? In the immortal words of The Who: “Meet the new boss, same as the old boss.”

Bryan Jacoutot is an attorney in Atlanta, Georgia. He is the leader of the Bitcoin practice group at Atlanta-based law firm, Taylor English Duma, and is a commercial litigator focusing on election law issues with the Election Law Group.

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Comments

The Crypto buffett is ridiculous….it’s pretty much F around and find out at this point.

But but but Cramer said he will be the new

Warren. Buffet

A financial genius

The Wolfs of Wall Street are howling…

    Olinser in reply to gonzotx. | November 14, 2022 at 7:36 pm

    Cramer has always been a complete idiot who was propped up by the media (like Krugman).

    I seem to recall somebody mapped out that going exactly the opposite of Cramer’s predictions got you something like a 20% return.

      Cramer is never right about anything. On the other hand, Alex Jones has been right about 90 percent of the time:

      https://www.infowars.com/posts/ceo-of-ftx-is-daughter-of-sec-heads-former-boss/

        Wow, okay. Let me guess, you also are a QAnon adherent who thinks that lizard reptilian aliens are taking over the world and that everyone in Hollywood sips on baby blood at parties while sticking pins in Trump dolls. Please tone down the crazy. It’s not good. And it’s certainly not convincing anyone of anything . . . except maybe that you need help. Fast.

          CommoChief in reply to Fuzzy Slippers. | November 14, 2022 at 8:53 pm

          Are saying Sturgill Simpson wasn’t being literal in his song ‘Turtles all the way down’?

          No, not quite. (I didn’t give you the thumb-down, btw.

          Fuzzy, here’s a challenge: go on Jones’ website, and pick a story that is untrue:

          https://www.infowars.com/

          You won’t find one.

          Jones isn’t perfect, but he’s been eriely right about the BIG stuff for a long time.

          Dude, I don’t care if you thumbs down me until Kingdom comes. Honestly. One thing you can always count on from me is that I will say exactly what I think. I don’t care who agrees, if NO ONE agrees. Never have.

          That said, I dislike Jones’ crazy and always have (even back when I was still buying Glenn Beck’s crazy, go figure THAT one). Look, these people are ranting crazy they don’t even believe to get clicks and bucks. That’s okay. It’s totally American. Free speech, free market, big dollar payout. I’m good with that. I’m not good with Jones absolute cray-cray, never have been, never will be. He actually claimed the Sandy Hook shooting was a fake. He’s paying millions for that lie.

          You can watch and follow whatever you want, it’s still America. But don’t ask me to follow this nutter. It’s not going to happen. Will I defend his right to say whatever crazy gets his followers most slathering and most likely to donate cash, sure. Of course I will. Heck, the Prof wrote a post not defending Jones, but pointing out that not supporting him in light of the leftist, Big Tech bans was a mistake. First they came for . . . .

          Fine, but are the frogs gay?

          Not sure, but I’m pretty sure penguins are.

          BierceAmbrose in reply to Fuzzy Slippers. | November 15, 2022 at 1:39 pm

          Kermie and Miss Piggy?

          Is there a word for that?

          henrybowman in reply to Fuzzy Slippers. | November 16, 2022 at 2:14 pm

          “BB(P)W.”

    NGAREADER in reply to gonzotx. | November 17, 2022 at 1:25 pm

    Just create a fund that bets against Cramer’s advise-you’ll be rich in a year or less.

I’m thinking of starting a new crypto currency called TBC (Tulip Bulb Coin)™

Anybody want in?

    As long as you announce it launders money to the left, you’ll find Wall Street running to lose other peoples’ money.

      Well, they’ll use other people’s money to force their social agenda down our throats, and then they’ll lose it. No wait… first they’ll skim a few hundred mil off the top to finance their opulent Hamptons lifestyle.

    NotCoach in reply to Paul. | November 16, 2022 at 1:14 pm

    You can’t bank your coin using my coin, PSC(Pyramid Scheme Coin)! I guarantee a 11eveenty billion % return!

    *Contingent upon the base of the pyramid expanded infinitely forever and ever, no refunds.

Off subject , but I just have to put this here. It’s so upsetting what our facist government is doing to real American Patriots, especially Trump
Connected, parents, religious people.
I was just sick when they treated Rudy so foul, just sick.

But now, now that midterms appear “over”, the steal was almost 100% and we have our new shining star! We’ll call me stupid…
————

Rudy Giuliani will NOT face criminal charges following raid on his New York home and office in probe into his Ukraine dealings, prosecutors say

Prosecutors said a grand jury probe that led to the issuance of warrants that resulted in the seizure of Giuliani´s electronic devices had concluded.

Prosecutors have reviewed evidence taken during the raids in April 2021
Sixteen of his devices, including cell phones and computers, were seized
Operation was part of an investigation into his dealings with Ukraine in 2020
New York prosecutors said the grand jury in the case had concluded
Giuliani’s lawyer, Robert Costello, called the decision a ‘total victory’
Costello added in a statement that he wish the move had been made sooner
https://www.dailymail.co.uk/news/article-11427497/Prosecutors-No-criminal-charges-expected-Giuliani-raid.html

So it was all about intimidation and thuggery

And this comes AFTER the midterms

Oh for God sakes there is absolutely NOTHING wrong with what I posted amd you keep taking it off?

We are censoring because we don’t agree? Now it’s clearly not my blog but this is ridiculous. It’s not foul, it’s not abusive in any way

This “kid” is going to be Epsteined, he funneled 100 million back to the Democrats!

    We don’t censor based on disagreement, never have. If we did, it would be rather clear, no? We are applying a long-standing LI policy that we don’t use LI comments to promote other sites unless as evidence of a point you are making that is actually related to the topic at hand. We go through this every single election cycle, and it’s always the same. And it will continue, as always.

      It was not about the site, it was clearly a picture, meme

        LI doesn’t have image ability in comments for a reason, you want to share memes, great, do it on Twitter or wherever it’s supported.

        Shout out your Twitter handle, get some followers who are interested in what you are, and enjoy. Our comment section is not a Twitter.

      I think this has gotten personal

      BierceAmbrose in reply to Fuzzy Slippers. | November 15, 2022 at 2:21 pm

      Three possibly useful, succinct (Try not to fall over on “succinct” from me. –ed.) heuristics I use for commenting here:

      “What conversation are we having?”

      “What’s the topic?”

      “Who is speaking?”

      The answers are something like “an exloratory and learning conversation”, “on the topic in the article”, “among people speaking for themselves, here and now.” As Not A Common Carrier nor Pretending to Be, that seems pretty right.

      Perhaps some of the legal eagles hereabouts can weigh in on stuff like: editorial /non-editorial, hosting liability for comments and contributions, private vs. common carrier or “platform.” And perhaps commerce regulations. As a no-fee service, hosted comments are available, and managed approximately “however we feel like.:”

      I, myself, feel like my comments here and elsewhere are under my “byline”, so my liability not the hosts’. While I try to stay on topic, for the topics they’ve raised. And I’m a guest here, so the rules are whatever they say they are. Just one handle’s hot take.

      M Poppins in reply to Fuzzy Slippers. | November 15, 2022 at 3:47 pm

      you’re a moderator here? Yikes.

    CommoChief in reply to gonzotx. | November 14, 2022 at 8:48 pm

    LI doesn’t belong to us, it isn’t ours to do with what we want. We are guests here and should strive to follow the guidelines of our hosts.

      gonzotx in reply to CommoChief. | November 14, 2022 at 8:56 pm

      I smell
      Something

        Remember: he who smelt it, dealt it.

        CommoChief in reply to gonzotx. | November 14, 2022 at 10:12 pm

        gonzo,

        Fuzzy and I have gotten into it on multiple occasions. In one thread both our posts got taken down when we both got a little too heated. I’m sure both of wish we hadn’t pushed it that far on the occasion. I do anyhow. It happens, people are human and make errors.

        The rules are the rules. Fuzzy and the other mods enforce the rules. In the case I refer to even upon themselves. The folks who run the place have been straight with me and as far as I have seen with everyone else. At the end of the day we are guests, some of us paying guests, but still guests.

          Absolutely, I’ve had many of my own comments removed, and I’m good with that. We don’t pick favorites here, even our own writers/editors, that’s just fact.

          And just for the record, yes, I wish I didn’t get heated with you, Chief. As often happens, I get caught up in ideas and rhetoric and forget how much I truly respect you and so many of our readers. It’s easy to get caught up in “winning” the argument and forget you’re talking to real people you care about. I am working on that (and not doing great, but I am trying.).

    scooterjay in reply to gonzotx. | November 14, 2022 at 8:50 pm

    You too? I have been subjected to “da biz” but not for linking to a website. I’m sorely disappointed in LI…it is quickly devolving into Hot Drudge Air.

      Your comments advocating shooting random Americans for wrongthink and actual violence against the government (you don’t say who or how) are not welcome here. Never will be. Professor Jacobson told you so, but you just keep on. You’ve been here a long time, but your welcome is wearing very thin. Very.

        scooterjay in reply to Fuzzy Slippers. | November 14, 2022 at 10:39 pm

        Correction: You think I advocate randomly shooting people.
        The fact that you feel compelled to argue with commenters tells me all I need to know about you.
        Karen.

          You did, Scooterjay, that’s why your comments were not allowed. You can make stuff up all day long, but we have the receipts.

          I have always engaged commenters here, so what is new now? Call me “Karen” all day long, but you have been told by Professor Jacobson that you are wrong. Care to call him a Karen?

          BierceAmbrose in reply to scooterjay. | November 15, 2022 at 2:31 pm

          “You thjink…”

          Well, exactly. Doesn’t matter what you — or I — intended. We are guests here. Looks to them like over that line. Doesn’t fit for them.

          “…argue with…”

          I’m reminded of the evolution of an umpire:

          Beginner — “I call them as I see them.”
          Yoeman — “I call them as they are.”
          Master — “They ain’t nothing til I call them.”

          One prefers straight umpires or refs. But in their game, that isn’t your call. Also reminds me of a story from the book Moving Zen, and a similar one from Holding the Center. The host holds a space for the players. If you don’t like how the space works, go to one with a different host.

Another example of folks having their trust abused by a grifter. Small money folks looked at the crypto space, saw the price of Bitcoin and went with a cheaper option.

    And, as always, got what they paid for. Personally, I don’t see anything in Bitcoin either. It seems to me that they’re all just walking on air, and the recent implosion seems to confirm it.

      CommoChief in reply to txvet2. | November 14, 2022 at 10:18 pm

      IMO buying the off brand crypto is like buying gold clad coins instead of pure gold, then wondering why they aren’t the same value.

      I hate it for gullible investors who let greed drive them. When Bitcoin took off those who hadn’t gotten on board jumped on an alternative and tried to ride it but didn’t look beyond price and the ‘magic’ of the hot new thing.

What happened here fits with my “crypto” breakdown from the other thread. “Crypto” as the term is used, is really 4 things.

— Yes, a ponzi scheme. Big Finance is full of those. And you end up with “crack the whip” “growth” amplification. Like in Web 1.0, sure webby companies made $ sometimes; the consolidation and centralization “big platforms” made more, faster; the infrastructure parts companies made more, faster. Then, when it crashed, Sun, Cisco, and so on all fell faster than even the web sites.

Exchanges “crypto” as in currency is volatile as a commodity; “crypto” as in infrastructure organizations are more volatile; “crypto” service orgs like “exchanges” are more volatile still.

— “Crypto” “gains” were bubble, commodity volatility amplified by people trying to front-run it.

— A “crypto” currency has some interesting attributes independent processing and commodity bubbles. The underlying tech lets info be signed, and tamper-detected. Blockchain uses a protocol built on top of this.

— “Crypto” *currencies* are interesting because as non-govt, non-fiat currencies, they’re not connected to fiscal policy. Over-spending doesn’t inflate them. Central banks can’t inflate the currency to fund spending and retire the debt, on the sly.

People can’t get their crypto out of this exchange. Oh, noes.

This is different from Greece freezing bank accounts, Canada freezing bank accounts, civil asset forfeiture in the US, etc.

Chartered banks are no more to be trusted than this grifter’s exchange. That’s a hell of a thing.

A fool and his money are soon parted…

    I heard that as “A fool and his money are soon elected” which is fairly bipartisan, I think. But when the fools in question are taking kickbacks… um… bribes? Oh, campaign contributions by way of FTX sent back from Ukrainian sources to Dems who voted to send them money… Yeah, that does sound a lot like kickbacks. Anyway, with that in mind I’d like to make a correction to “A fool with *our* money is soon reelected… and gets to keep the money.”

Here’s a C-note. 💵

“Scam bank, man. Fried!!”

Benny Johnson

·
Nov 13, 2022
@bennyjohnson
·
Follow
FTX was a money laundering scam for Democrats.

$50M spent on electing Dems this cycle.

Will a single Democrat return the blood money given to their campaigns through theft of regular Americans savings?

This should be the biggest scandal in the world right now.

Nicholas Andre : What is this? What is this? Where’s all the money?
Lloyd Christmas : That’s as good as money, sir. Those are I.O.U.’s. Go ahead and add it up, every cent’s accounted for. Look, see this? That’s a car. 275 thou. Might wanna hang onto that one.

    #FJB <-- Disco Stu_ in reply to ghost dog. | November 15, 2022 at 11:48 am

    When I read that I immediately thought of the federal government’s Social Security and Medicare “trust funds”. You know, those “lockboxes” where, after they collect our mandated “contributions” over 50-or-so working years and they send over all those gilt-edged IOUs.

    And then send us annual statements that describe all the future benefits to which we’re entitled.

    EXCEPT … Ooops – Looks like those IOUs will be depleted in 10-15 years and you older formerly-working citizens may “have” to share in the pain. After all: We’re all in this together, doncha’ know.

    Thinking of the complex dancing between the two national political parties trying NOT to be in power at the time those nasty future events hit so they can blame the “totally unexpected surprises” on the other party.

      BierceAmbrose in reply to #FJB <-- Disco Stu_. | November 15, 2022 at 1:02 pm

      Changing US Fed accounting to use “lockbox”” contents to offset debits and deficits, started when? And when did IOUs from federal operations, start getting treated as good as cash? Let’s recall that The Big Crash of 2008-ish was in part because of treating “instruments” as “good as cash.”

      When “cash” can be arbitrarily inflated; when the federal govt deliberately treats bond issues and spending as ways to change the “money supply”, “good as cash” gets less good.

      I, myself, don’t know how to get paid in live chickens, yet.

        henrybowman in reply to BierceAmbrose. | November 16, 2022 at 2:03 pm

        “And when did IOUs from federal operations, start getting treated as good as cash?”
        Of course, cash itself is now pretty much identical to IOUs from federal operations, when you come down to it… so the answer to the question is August 15, 1971.

          BierceAmbrose in reply to henrybowman. | November 16, 2022 at 4:54 pm

          Yeah, exactly so.

          I’m so old, I remember a time when The Fed tried to track money supply to gross economic activity, maintaining a constant “value” per unit, though by fiat. Good times.

Forgive the ignorant question: how is my paycheck in USD fundamentally different than this guys cryptocoin?

    BierceAmbrose in reply to Dathurtz. | November 16, 2022 at 4:59 pm

    That *is* the question.

    One simple answer is in some ways profoundly, in others not at all.

    Another simple answer is: exactly the same — they’re both manipulated by insiders for their benefit, to the extent opacity lets them get away with it. (There’s a saying in finance, with some variations: In complexity there’s opacity; and opacity leads to fraud.)

    The more complex, accurate, and useful answer is that *the foundational mechanism* under public crypto is more robust, and transparent than fiat monies and central banks. Meanwhile the wrappings around the commodity are still Wild West — yet another tech bubble.

I have a question – Anyone have any idea if the scale of this is such to have any systemic fallout? (Almost no one thought sub-prime mortgages would have such an impact, until Bear Stearns and Lehman went under and the banking system nearly collapsed.)

    gonzotx in reply to jb4. | November 14, 2022 at 9:49 pm

    Don’t worry, we’ll just print 20 trillion more, it’s all an illusion anyway.
    There not enough gold to back 1/100,000,000,000 of it and all the countries seem to be in agreement

    America is just too big to fail!!!!

    If we fail, they all fail, we got to
    Keep the grift going for all the other countries

    This too shall be sweep under the rug

    All So last week

    BierceAmbrose in reply to jb4. | November 15, 2022 at 1:25 pm

    Plenty of people thought this was a problem, before it happened. That’s the subject of “The Big Short”. The movie does a fine job; the book goes further.

    The “shorts” bet against the common wisdom. They saw it coming, and made a killing when Bear & etc. collapsed. They were disparaged before the fact as wrong, and after as predatory. Kinda raises the question of “Who’s predatory here?”

    They weren’t the only ones. My favorite from the book is the academic economist who, having the courage of his convictions, sold his house n rented it from the buyer. Then after the collapse bought the house back, along with pretty near the rest of the block.

    Useful to think of the ’08 collapse as a confluence of about 6 things. And the “response” both made it worse, and picked winners and losers. The useful question about these big financial institutions “collapsing” being such a risk, is why is this such a risk to the rest of us, who won’t make any money if they’re successful?

    My own, superficial take on the response to the ’08 collapse goes something like this. If we gotta dump a bunch of money, something like a trillion, into the system to keep it going, why does that have to land on the centralized financial institutions who captured the up-side of their risky bets, until they didn’t. Me holding my mortgage or savings in some house of carts bank doesn’t make me the problem, or the beneficiary.

    A trilliion is around $3,000 per person in the US. What if we pushed $3,000 into everyone’s account, and let the big finance houses play out eating the meal they ordered?

    Maybe general economic activity wouldn’t have collapsed as hard as it did. Maybe we’d have somewhat less than 5 million folks who lost their homes. As for sub-prime loans, for many of those, literally everyone involved was committing fraud — borrower, originator, bundlers, rating orgs, packagers into securities, traders. The least fraudulent people in this whole mess were the people betting against — shot on — the mortgages, mortgage bonds, and stocks in the companies orchestrating these shenanigans.

    Any similarity to the structure of ‘rona response is purely coincidental. Oh, wait…

It’s not that complicated. Billions in gov’t subsidies goes to Ukraine, Ukraine puts money into FTX, FTX sends money to Brandon and fellow democrat lowlifes. Money washed and clean.

This overeducated weirdo never had a chance. His lefty college professor parents retained their surnames and slapped the hyphenated, atrocious combination on their children. His surname alone was a warning to the world.

Over at Coffee and COVID, lawyer Jeff Childers’ last three posts include an intriguing take on the FTX story, positing that it was both a money laundering operation for the Democrat party – partly through Ukraine – and a setup collapse for the government to push for crypto regulation, which Janet Yellen is now touting. Given the left’s shenanigans in all spheres that have been exposed these last three years, this conspiracy theory might be yet another one that’s proved to be true.

https://www.coffeeandcovid.com/p/c-and-c-news-sunday-november-13-2022
https://www.coffeeandcovid.com/p/c-and-c-news-monday-november-14-2022
https://www.coffeeandcovid.com/p/c-and-c-news-tuesday-november-15

    BierceAmbrose in reply to Longplay. | November 15, 2022 at 1:11 pm

    Good takes. Always look for multiple effects. Since Cloward-Piven, there’s no reason to believe any problem or goal the expansionists claim is the actual goal.

    In case anyone wasn’t clear on that, “never let a crisis go to waste.” And as an addendum, if it’s a crisis you provoke, you can time it, and have a magical solution in your pocket, just when people “get all wee-wee’d up” and react.

    Current inflation didn’t have to happen.

    Energy shortages didn’t have to happen.

    Trillions dumped into useless “education” the marks can’t pay back didn’t have to happen.

    Supply chain fragility didn’t have to happen; it’s recent interruptions didn’t have to happen.

    Housing bubble III.0, coming to a reality near you, didn’t have to happen.

    The pandemic, pandemic response, crippled economy, capital capture n mis-application in the trillions, health health-span workforce capability and lifespan consequences, didn’t have to happen.

    The innoculation against this BS is “show me.” Talkin to a rando in Rochester on election day, stupid govt “investments” came up, because they asked what “issues” I think about when deciding how to vote. The Buffalo Billion, and the latest new stadium for the Bills — how’s that gonna work out? How’d the Toronto Ferry work out?

    Ask-y guys volunteered that “They shoulda let the ferry go longer before shutting it down.” He goes to Toronto all the time. Woulda liked it. Good for him. No answer to: “How long do you try; how and when do you delcare it not working — shut it down?”

    Encroachment programs that don’t work only need more, more-ness. Every time. It’s like the encroachment is the point, not the good it does.

Beat by beat parallel to my comments on “crypto”, probably more accessible and better written, by Glen Reynolds here:

https://nypost.com/2022/11/14/uncle-sam-is-playing-the-same-game-as-broke-disgraced-crypto-king/

Interesting to me, it includes the notions I’ve touched on of “industry segment as speculative commodity”, “how it plays with the Overlords”, and “similarities with central banking.”

None of this is fully-developed theory on my part. Seems like something’s there — the descriptions track as far as they’ve gelled for me, so far.

“…the world’s recent obsession with knighting these quirky kids…”

They’re spreadsheet-jockeys on steroids. Their models work, and refined models work better, as much as they track to real activity. Reality is more complex, and complicated than the stuff captured in these spreadsheets, or the more elaborate models.

Bitcoin is no more “viable” than any other DC, there is just more money in it and, therefore, more motivation to continue its charade as an actual “asset”. It’s gambling hub, pure and simple.

    BierceAmbrose in reply to Strelnikov. | November 15, 2022 at 2:47 pm

    Public blockchain records, if they work as it looks, have some properties that make them very interesting as currency.. Exactly contrary to centrally-banked, and fiat currencies. Part of the confusion around this is that “currency” is four things at once:

    — Currency is a bookkeeping system. Who has how much of generic “:stuff”, what the economists call “value.” It becomes less useful for this, when units of the currency diverge from units of “value.” (More precisely, “money” is a bookkeeping system, that a “currency” tokenizes.)

    — A commodity, you can store, trade, speculate, anticipate, and so on. It becomes less useful as the “market” becomes more opaque, manipulated and encumbered.

    — A market and industry, you can jump on and jump into. Kind of barely valuable, but lots of quick killings to be made here, before you become the “bioger fool.”: Governments are interesting because they can front-run markets, that they then make more valuable by how they manage them. Exchanges and most “crypto” tech companies go here.

    — A govt mechanism of fiscal, economic, and political influence and control. BigThink economists love talking about how “fiscal” and “monetary” policy have to be run together, pointing to this independence as fundamental to economic problems in the EU. Central banking, and legal exclusiveness of currencies allows things like choking donations to your political opponents.,

    Public blockchain records used as a currency work differently from government fiat currencies in all four aspects of currency. The last one is particularly interesting. What good is money you “have” if you can’t trade if when and for what you want?

      Your third one is not unique to money.
      Your fourth one isn’t really true as a unique characteristic. It’s just stating that politics uses the same mechanisms as the economic market to track its value.

        BierceAmbrose in reply to GWB. | November 16, 2022 at 5:06 pm

        You’re correct. I don’t think I said “uniquely.” Didn’t mean to imply that.

        Clarifying #4 — Governments explicitly use fiscal and monetary policy applied to currencies they manage to enact political ends. That’s another entanglement on what is sometimes treated as a simple medium of exchange, or a simple commodity.

The guilty party here is greed. This is just the current “Enron.”

So… crazy ponzi scheme cryptocurrency goes bankrupt after funneling millions (or billions) to Dems, who will now use this failure to push a central bank version of crypto and severely regulate everyone else.

Anyone else see that maybe this was a plan and not a “failure”?

Nice job, Mr. Jacoutot!

In today’s disclosures. FTX was the major funder of the “linchpin” NEJM “fake study” used by the Swamp to claim that HCQ and IVM were worthless in treating COVID.

https://drpanda.substack.com/p/bankrupt-cryptocurrency-exchange?utm_source=substack&utm_medium=email

(In other related news several other studies, including another study in Brazil, found ivermectin helps to reduce the risk of death by 92%. There’s even a whole website that links to news reports and medical studies).

I’m actually liking that this guy bilked so many people out of so much money.

If you fell for this, you should lose and lose BADLY. You have no basis for investing if you invested in this… just like so many people have no clue and should not be investing.

Just like California should fail and fail badly. It’s a premise built on garbage.

There is no other logical outcome.

A buddy of mine in 2009 told me he was doing currency trading. He was in his early 30s. My thinking was- whoa those are waters deeper than you want to swim in…and he lost a crap ton of money doing it. Fast. All of a sudden crypto comes along and it’s like currency trading on crack with a touch of Hunter Biden’s sloppy seconds mixed in for a regulatory back stop…. and EVERYBODY wanted in.

Three cheers to every curmundgeon who bit their lip as the world around them lauded the fake wealth of the ponzi scheme.