[HN Gopher] FTX fiasco sparks billions of dollars of outflows fr...
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FTX fiasco sparks billions of dollars of outflows from exchanges
Author : mfiguiere
Score : 231 points
Date : 2022-11-14 14:18 UTC (8 hours ago)
(HTM) web link (www.bloomberg.com)
(TXT) w3m dump (www.bloomberg.com)
| nathias wrote:
| This kind of cascading failiures are great to see, it's making
| the whole space move towards defi and makes it more resillent. We
| can only imagine if anything in the legacy financial sector was
| allowed to fail this hard, how much better we would be in the
| long run if we werent forced to bail out banks.
| wins32767 wrote:
| We'd all be vastly poorer because there would be much less
| capital available for future investments.
| Loughla wrote:
| Is this honestly a "this extreme failure of [super common
| aspect of crypto] is good for crypto" argument? Or am I reading
| this incorrectly?
| roland35 wrote:
| Nonl, you're reading it correctly. Apparently the more
| catastrophic billion dollars scams that come crashing down
| the better crypto will be.
|
| I am not sure if most people will have enough patience
| though!
| nathias wrote:
| you seem to think crypto is going away, but that isn't ever
| going to happen, the question is will it be completely
| centralized and made into a distopian nightmare fuel by
| states and corporations, or can we make good tools for
| people to resist this path
| TremendousJudge wrote:
| Well, the financial crash of 1929, while resulting in some good
| financial regulations being enacted, also created such levels
| of misery and want that people ended up thinking it to be a
| good idea to engage in the deadliest conflict in the history of
| mankind. Those who survived were left scarred for the rest of
| their lives. I think we should be wary of trying something like
| that again.
| nathias wrote:
| yes, and some lessons were learned, but then we stopped
| learning and I think it will cost us more
| headsoup wrote:
| I'm sure the article means _attempted_ outflows from Exchanges.
| They have a funny knack of pausing outflows in times like these
| because of system issues, aside the outflows through the also
| coincidental hacks.
| paulpauper wrote:
| Any attempt at BTC going higher is quickly sold off. I think
| we're a loong way from any hope of recovery. When one considers
| that every asset class has failed, combined with high inflation,
| 2022 has been probably the worst year ever for investors,
| possibly worse than 2008. 2008 had a deeper bear market, but
| bonds and gold did well and inflation was low.
| isolli wrote:
| Yes, bitcoin is certainly not looking like an inflation hedge
| right now.
| Silverback_VII wrote:
| Billions of dollars? I don't believe that so many real dollars
| are left in the ecosystem. And who is buying one bitcoin for
| $15,000 at the moment so that another guy can withdraw his money?
| skinnymuch wrote:
| Lots of automated trading by firms is still happening. There
| could be enough people trying to buy the dip. Or doing manual
| day trading/active trading. Crypto communities still have a
| huge number of believers.
|
| Or take a look at the EA community and their cognitive
| dissonance over SBF and the general issue of bootlicking
| billionaires when it comes to altruism. Not everything is
| rational now.
|
| Or you're right and it's wash trading keeping the price afloat.
| djbusby wrote:
| Having sign in issues on Coinbase. Anyone else?
| [deleted]
| bloomingeek wrote:
| I mean, seriously, who didn't see this coming? Hope and hype
| aren't the same thing. Can you really expect to trust any entity
| who you can't sue/call on the phone/read reviews on?
| codehalo wrote:
| Just to be clear, they are withdrawing tokens, not selling
| them.
| rwmj wrote:
| Notional billions because unless new real money comes into the
| system, the BTC taken out are worth very little.
| JumpCrisscross wrote:
| > _unless new real money comes into the system, the BTC taken
| out are worth very little_
|
| There is a lot of wealth and money being destroyed. These
| assets were pledged. People made spending and savings decisions
| with them in mind [1].
|
| In a farcical way, crypto is doing a good deal to alleviating
| the pain of monetary tightening by concentrating it on its
| holders.
|
| [1] https://en.wikipedia.org/wiki/Wealth_effect
| ProjectArcturis wrote:
| Hey, if all the exchanges die, BTC won't be able to go down any
| further!
| me551ah wrote:
| Since a lot of exchanges maintain fractional reserves, we are
| going to see a lot more exchange going bankrupt or _hacked_ very
| soon.
| bogomipz wrote:
| Is there a correlation between the knock-on effects of the
| recent collapses and an increasing in exchange hacking? Is the
| idea that hackers would prioritize these targets while there
| are still those fractional reserves left?
| stuxnet79 wrote:
| I think the italics indicate that these hacks are
| premedititated and engineered by the founders to look real
| when in fact they are a clever way of explaining away a
| liquidity trap.
| bogomipz wrote:
| Oh interesting, yeah I missed that subtlety. It certainly
| creates a way to buy time to try to plug a hole on the
| balance sheet while they are "investigating."
| HWR_14 wrote:
| I thought they were a clever way of the founders buying
| private islands.
| twstdzppr wrote:
| Good luck to the crypto peeps out there. Seems like a strange
| world!
| NKosmatos wrote:
| I still don't understand why people keep their crypto in
| Exchanges... Is it that difficult to have a secure private
| address where you keep your crypto?
|
| I get it that if you want to exchange and play with the markets
| you need to have your crypto in a shared wallet, but why for f**
| shake would you put all your money there?
|
| That's the whole point with crypto, you don't need a bank
| (exchange) to store them for you. Not your keys, not your coins
| :-)
| bsaul wrote:
| People don't even trust themselves to host their photos. they
| rely on cloud providers for that. How do you expect them to
| become their own digital bank. It makes absolutely no sense.
| catiopatio wrote:
| If that's true, then "crypto" is just traditional finance
| with extra steps (and near-zero regulatory oversight).
| status200 wrote:
| If i had to operate at the lowest common denominator in every
| realm, it would be a miserable experience. Just because
| certain people are incompetent doesnt mean that the option
| should not exist.
| thatguy0900 wrote:
| I don't think he's saying the option shouldn't exist, just
| that it's not sensible to yell at the people using
| exchanges like what they're doing doesn't make sense. You
| have the option of buying a vault and not using banks in
| fiat, too, though I very much doubt you do that.
| swarnie wrote:
| I think a few of the headline writers offered Bernie++ levels
| of return for money held with them.
|
| Should have been a red flag on reflection
| paulpauper wrote:
| to trade it? You cannot trade or convert to cash unless you use
| some sort of exchange. If you want to go from something like
| BTC to Shibu you need an exchange. There are some decentlrized
| alternatives but the volume is tiny. BISQ still has absolute
| shit volume and hard to use. It's not intended for trading or
| cashing out large sums.
| pamplemoose wrote:
| It looks like Uniswap has more volume for ETH/USD than almost
| any other centralized exchange right now
|
| https://twitter.com/haydenzadams/status/1592188164218707969?.
| ..
| NKosmatos wrote:
| Sure, I get that. But why on earth keep all of it there? You
| can keep the majority of your crypto in a private address
| (hardware wallet, cold storage, metal plates...whatever) and
| only transfer/use as much as you're willing to
| play/trade/convert.
| mimon wrote:
| Because crypto in cold storage doesn't earn interest and
| can't be used as collateral for a margin loan.
|
| Crypto is full of people looking for to get rich quick with
| interest rates that are obvious ponzi schemes and/or by
| taking on insane leverage. They don't want to just put
| tokens in an offline wallet and watch the market prices.
| yellow_postit wrote:
| Up until recently for ETH this was non tenable given the
| gas fees.
| HWR_14 wrote:
| Have ETH gas fees come down since the move away from POW
| to POS?
| ojagodzinski wrote:
| So you're telling me that all these people exchanges
| currencies non-stop 24/7? Why can't they have coins in their
| offline wallet and transfer them to the exchange only before
| the transaction?
|
| On a similar (sort of) principle, I do not keep 100% savings
| on the bank account to which my ATM card is attached, I have
| a separate account where I keep most of my savings and move
| money between them once a month or when i need to buy
| something very expensive.
| paulpauper wrote:
| probably day traders. These are people who trade crypto
| daily, sometimes many times/day. depositing and withdrawing
| may take a long time, so easier to keep it on the exchange
| and accept the risk.
| ralph84 wrote:
| Because on-chain transactions are expensive and exchanges
| offer cheap off-chain transactions. If you could transact
| on-chain as cheaply as you can move money between a
| checking and savings account of course people would do
| that.
| SpaceManNabs wrote:
| > Because on-chain transactions are expensive
|
| For what chain? As far as I can tell, this is only true
| for ETH, and you can mitigate this by switching to a true
| L2, although not many of them are up to par yet.
| nly wrote:
| All the top HFT firms are trading Bitcoin at this point and
| have been for years.
| skinnymuch wrote:
| Yeah the second paragraph makes sense. I do the same thing.
| I have a lot of bank accounts because of a side hustle
| (think dozens). I don't connect my main savings bank
| account with any of these. Just in case something goes
| wrong, it's easier if everything public goes through one or
| two banks with low amounts of money and I only carry a
| lower balance debit card with me.
| stingrae wrote:
| Why? It is what people are used to with traditional stores of
| value. Banks, brokers, etc.
| yellow_postit wrote:
| Exactly this coupled with ease of use.
|
| How often for stocks purchased via a broker do you go and
| reregister them to direct registration so the certificates
| are in your name?
|
| At this point I'm beginning to think the "not your keys"
| group is arguing in bad faith every time an exchange fails
| for failing to see why a retail investor would prefer an
| exchange.
| LawTalkingGuy wrote:
| I'm far from a crypto pusher but I've been around it for
| years...
|
| The issue is that exchanges are pretty much guaranteed to
| be frauds, by market dynamics. There are only a few routes
| to profit, 1) charge users or 2) use user's funds to trade,
| or 3) trade against the user but with more knowledge. One
| of those is limited to maybe $20 per year, the other two
| are crimes. Every single crypto exchange picked one or both
| of the crime strategies because it was the way to make an
| exchange wildly profitable.
|
| People who did use exchanges are people who were doing
| things they were warned were not a good idea, and were
| doing it for the obviously unrealistic gains and imho would
| have simply mailed their money to a Ponzi scam if that was
| all that was available.
|
| Everything has some weakness and crypto is like cash here -
| if you let someone hold onto it for even a second they can
| refuse to return it.
|
| I don't think you can blame a community of honest
| developers who described and detailed the risks for
| intentionally self-deluding investors. A 100%+ yearly
| return is a better indicator of something wrong than of a
| great untapped opportunity and these investors tried
| betting against people who they were assured were scammers
| and when that failed they blame the currency. It's like
| trying to win a rigged game against a carnie and then
| blaming the bus driver who gave you a ride to the carnival.
| catiopatio wrote:
| The "not your keys" group understands that a centralized
| exchange _is not crypto currency_.
|
| If all you've done is reinvent the existing monetary system
| minus all regulation, oversight and value, you've invented
| absolutely nothing at all.
|
| Except, perhaps, a novel new way to convince rubes to give
| you their money.
| time_to_smile wrote:
| This is the 3rd wave of crypto enthusiasm that I've observed.
| In the first wave it was exclusively technical people who
| understood the details of blockchain, and where fascinated with
| the tech and perhaps a bit naively enthusiastic about the
| social component.
|
| Then the second wave was technical adjacent people. Most of the
| "investors" I knew they were less technical people but still in
| the startup scene. Most of them didn't really understand how
| cryptocurrencies worked, but weren't completely clueless. They
| still had to figure out how to create a wallet, acquire coins
| etc but could only give you a hand wavy understanding of how
| various currencies actually worked.
|
| This current wave was the naive retail wave, where large masses
| of people who fundamentally do not understand the underlying
| technology started getting involved. Most of these people in
| earnest do not understand what a "wallet" is, have no idea how
| to use crypto currencies outside of a central exchange. All
| they know is "a lot of people seem to be making easy money off
| this".
|
| This is precisely why so many of the loudest critics in this
| current wave where crypto enthusiasts in the first wave. It
| became increasingly clear to anyone with technical
| understanding of the topic that the only explanation for what
| we're seeing is a lot of the very financial corruption and
| scams they were hoping to fight in the first wave.
| woeirua wrote:
| Now we get the cascade of exchange failures, followed by the
| absolute collapse of all Crypto prices.
|
| If you have any money on the exchanges now is the time to get
| out.
| tbrownaw wrote:
| > _If you have any money on the exchanges now is the time to
| get out._
|
| No, _last week_ was the time to get out. By the time everyone
| knows it 's time to get out, it's already to late.
| legutierr wrote:
| In the case of bankruptcy, the clawback period can be 90 days
| or more. So, it was probably too late back in September.
| JTon wrote:
| I agree in general. Crypto winter is here and appears to be
| getting worse. But I also am a frequent listener of Darknet
| Diaries podcast and basically every shady exchange of money
| online is facilitated in crypto. So it has a non-zero value.
| kmac_ wrote:
| How to spin a new con coin in 4 easy steps:
|
| 1. Mine a bunch of new hashes.
|
| 2. Fake liquidity by selling to yourself - bonus points if
| you make it appear that the price is rising by selling/buying
| for more $.
|
| 3. When naive folks shout "it's raising to the moon!" and buy
| the crap - drop all what you have from the step one.
|
| 4. Profit - Lambo is yours!
| glofish wrote:
| This is a great point - crypto will have utility.
|
| But for whom? What how much is that utility really worth? And
| what kind of utility? That is what keeps shifting and what
| all the pro-contra propaganda is about.
|
| In fact the bitcoin could even have negative utility, where
| getting someone stuck holding bitcoin is good for someone
| else.
|
| Imagine that ... not just that bitcoin goes to zero, but
| could go into negative even!
| pirate787 wrote:
| The net present value of Bitcoin is likely negative, as
| there's substantial cost (billions of dollars per year
| depending on the current price of BTC) in maintaining the
| mining infrastructure that makes the network happen.
| misja111 wrote:
| If nobody can withdraw their funds the Crypto prices can only
| go up, not?
| nopenopenopeno wrote:
| Exchange users are the only ones who cannot withdraw their
| funds. Bitcoin users can always withdraw their funds.
| misja111 wrote:
| How? You can't change them for dollars/euro's/.. without an
| exchange? I guess you could sell them to a private person
| but then it wouldn't effect the BTC/USD rate.
| nopenopenopeno wrote:
| You can exchange BTC all you want, but if you exchange
| (verb) it then it's no longer BTC. Likewise, if it's
| sitting on an exchange (noun) then it's not BTC.
|
| Normally I would have sympathy but if you post on HN then
| I have trouble taking it seriously that you can't figure
| this out. How could it possibly be any more obvious?
| misja111 wrote:
| > .. if it's sitting on an exchange (noun) then it's not
| BTC.
|
| I'm sorry but you lost me here. If I stall my BTC's in a
| wallet on an exchange, they remain BTC's?
|
| Also I have a feeling that you're not getting my point.
| It is the selling/buying of BTC's for USD at the BTC
| exchanges that determines the official BTC/USD rate. Sure
| you can also exchange them for something else (if the
| exchange lets you), but this will not affect the BTC/USD
| rate.
|
| So if on an your exchange you're unable to withdraw your
| BTC's, you can't sell them, which means you're unable to
| affect the BTC/USD rate: I.E. BTC price will not go down.
| isolli wrote:
| What kind of off-ramp can they use?
| anonporridge wrote:
| The ultimate goal of bitcoin is to _be_ the off-ramp, not
| _need_ an off-ramp.
|
| There is a huge subset of bitcoin TrueBelievers(tm) who
| regularly buy bitcoin with their local fiat with no
| intent of ever selling it back for fiat, but instead wait
| and invest elsewhere in expanding the network of people
| and institutions who will accept it directly for goods
| and services, e.g. El Salvador.
|
| Most of these people are ready for a very long winter and
| a longer game on the order of decades.
| skinnymuch wrote:
| How do you withdraw Bitcoin for something you can actually
| use? A fund means a sum of money. Bitcoin isn't money in
| the normal sense. It never got to that point.
|
| If everyone kept their own wallets, bitcoins value would
| tank to pre-2017 numbers.
| plebianRube wrote:
| I don't. I pay the counterparty directly with lightning
| for under 200 fiat equivalent, or on chain for larger
| purchases.
|
| The point is, I never need to buy fiat (what you call
| withdrawing)
| YetAnotherNick wrote:
| Either you are living in a completely different world or
| exaggerating the number of transactions by a lot. I do
| dozens of transaction per day from grocery to digital
| items to service to bill payment to repair and so much
| more. I am pretty sure almost no one in that group
| accepts crypto.
| HWR_14 wrote:
| Is "under 200 fiat" the same as "under $200 transaction
| fee" in USD?
|
| And where are you that most counterparties accept BTC? El
| Salvador?
| inkcapmushroom wrote:
| Not the parent, but I think they meant "for purchases
| under $200 in value I use the lightning network, for
| larger transactions I do a direct transaction". The $200
| was not talking about transaction fees AFAIK.
| ProjectArcturis wrote:
| Anything aside from BTC and ETH is worthless. It'll be
| interesting to see what happens to their prices. I suppose it
| will depend a lot on interest rates.
| kranke155 wrote:
| Polkadot and Algorand are worthless ? Maybe they don't have
| the ecosystem yet but they are serious projects that didn't
| get ridiculous VC backing.
| bookaway wrote:
| >that didn't get ridiculous VC backing.
|
| 144 mil on an ICO off the bat is not ridiculous? Whatever
| its technical merits are, if Polkadot skyrocketed more than
| other altcoins (10x in 15 months) the reason was probably
| due to the cult of personality around Gavin Wood. If you're
| "a co-founder of Ethereum" in a crypto boom, you're
| probably riding the wave at the top.
| kranke155 wrote:
| Was that a private or a public ICO?
|
| Just saying that Polkadot actually works, true it could
| be super centralised that way I'm not sure about it's
| history. But the Kusama / Polkadot combo has delivered,
| its not a memecoin with no utility.
|
| And of course there's always Tezos, which has imo the
| only organic NFT market out there.
| Aaronstotle wrote:
| Missing Monero
| glofish wrote:
| Crypto will never be worthless!
|
| People mistakenly believe that the two option you have are
| valuable or zero. Instead it is a scale from positive to
| negative value.
|
| For example a legislation to have bitcoin "pay for" the
| environment damage could lead to it having a negative value.
|
| Working with and spending effort on a coin that goes to zero
| is a loss of productivity and opportunity of not doing
| something useful. Again the real cost is non-zero.
| bornfreddy wrote:
| > For example a legislation to have bitcoin "pay for" the
| environment damage could lead to it having a negative
| value.
|
| I'll bite. So basically, owner would have to pay more than
| they would get to sell their Bitcoin? I'm sure nobody would
| do that, so the price is effectively capped at zero and
| can't go lower.
| WXLCKNO wrote:
| > For example a legislation to have bitcoin "pay for" the
| environment damage could lead to it having a negative
| value.
|
| Lol this is beyond absurd.
| archontes wrote:
| It's a perfectly sensible statement. Bitcoin provides
| value in the form of moving money from A to B, which is a
| service people are happy to pay some amount for, and
| (arguably) being a store of value. Bitcoin's value,
| derived from its utility, is quantifiable, most easily by
| comparison to other items that provide the same utility.
|
| Bitcoin has a cost, as well. The undercover economist
| might tell you that it fails to charge for an
| externality, namely its climate impact.
|
| It's entirely possible that, were that exernality priced
| in, the cost to operate bitcoin might exceed the value it
| provides relative to other providers, which would give it
| net negative value.
| ProjectArcturis wrote:
| In which case it would stop transacting and the value
| would be zero.
| boringg wrote:
| I mean if FTX was being held up as the highest quality this
| should absolutely cause fear that there are worse actors on
| fringier exchanges.
| headsoup wrote:
| Or over at bitfinex
| throwaway22032 wrote:
| Good!
|
| You should not keep cryptocurrencies on an exchange.
|
| We have been saying this since the early 2010s. Ten years,
| minimum.
|
| This is exactly the point of cryptocurrency.
|
| If you're not doing that, you're messing about with IOUs.
| idiotsecant wrote:
| Not your keys not your crypto.
| AmVess wrote:
| Truth in simplicity.
| arcticbull wrote:
| > This is exactly the point of cryptocurrency.
|
| Yes but it's also got serious "this is the year of the Linux
| desktop" vibes. If there's one thing exchanges and this
| collapse have proven it's that normies could not care _less_
| about managing their own keys because, and this is true,
| managing your own keys at home is risky and sucks -
| intentionally.
|
| Saying that everyone should have a birdbath with a Ledger under
| it is tantamount to admitting this whole model is only for a
| few anarchocaptialist libertarian nutbags, los
| narcostrafficantes and folks trying to make ransomware payments
| - while the normies should just stick to tradfi.
| throwaway22032 wrote:
| I'm really quite happy with Linux.
|
| If it somehow became more like Windows I would use an
| alternative.
| arcticbull wrote:
| I'm confident that's true, but there's a reason it enjoys
| 2.5% market share. [1] That's kind of my point. The things
| that make it attractive to you make it a non-starter to the
| normies.
|
| [1] https://en.wikipedia.org/wiki/Usage_share_of_operating_
| syste...
| nly wrote:
| You realize much of the billions of crypto at these exchanges
| belong to market makers and quanty hedge funds at this point
| right?
|
| Their capital is there because they use instantaneous
| electronic trading venues to make money.
|
| Most of them would rather trade on swap than have to settle in
| cash. And they couldnt give a shit if they're trading Bitcoin
| or magic beans. They don't care about the Blockchain.
| favflam wrote:
| I wonder if their trading models include credit risk.
| throwaway22032 wrote:
| Then they might lose a ton of money, because they didn't
| understand what they were buying.
|
| Want to buy a Ferrari? Buy a Ferrari. Not a photo of one, not
| an "NFT", not red paint and some axles, and not a promise
| that someone has it in their garage - the real thing.
|
| IOUs are the entire problem cryptocurrencies aim to solve.
| You can trade without giving a third party full access to
| your funds.
|
| Hedge funds should _demand_ this.
| nly wrote:
| You seem to be missing the point. If you want to trade
| crypto in a 10 microsecond window then the exchange, or a
| trusted broker, needs to be a custodian of your crypto.
|
| What you're suggesting just doesn't fly.
|
| This is why the regulated markets brokers have to stump up
| collateral and we have clearing houses. You can buy
| Facebook shares in a microsecond but it takes days to
| settle and become yours. During that time, you're at risk.
| Likewise with crypto, even if you settled every few hours
| on the Blockchain (hideously expensive), there is still a
| risk window.
| jrm4 wrote:
| Yes.
|
| Treating crypto like a high velocity stock exchange gets
| you exactly the same thing that you get from a high
| velocity stock exchange; aka a system that just generally
| screws little guys.
| PaulHoule wrote:
| It's actually a system that screws (some of) the big
| guys.
|
| The "little guy" enjoys very low commissions and market
| orders with bid/ask spreads less than they ever were.
| Market makers are happy to give cheap liquidity to
| "uninformed" traders whose trades don't move markets.
| (People on Robinhood get very good access if they want to
| trade sensibly; I wouldn't blame the market makers
| primarily that many of them use stock trading as a
| substitute for sports betting.)
|
| If you like trading limit orders on the theory that odds
| are very good you can set a limit 1% below the current
| price and get a fill thanks to Brownian motion, they are
| going to outtrade you because they've got answers to the
| risk that a limit order sometimes fills not because of
| Brownian motion but because the market is moving sharply
| in one direction and you don't.
|
| Market makers do not want to trade with large traders who
| know something that not everybody knows and whose trades
| may be a harbinger of market moves that will go against
| the market makers. Market makers want to make those
| traders pay through the nose for liquidity and that is
| why large trainers are always complaining that "the
| prices I see aren't for real."
| throwaway22032 wrote:
| Yes, you cannot, in the general case, securely trade
| cryptocurrencies with 10 microsecond timing without
| accepting huge counterparty risk.
|
| If you want to park your car on the side of a free
| flowing motorway you are at risk. You can do it, but it's
| dangerous. People get hit all of the time. It might be
| more convenient to check your map. It might be faster.
| But you really probably should get off at the next exit
| or find a rest area and take that theoretical efficiency
| hit, cause it works most of the time until it doesn't.
|
| This is a demonstration of that risk. It's not the first,
| likely it isn't even the 100th.
| bcrosby95 wrote:
| You're missing the point.
|
| You can't trade _anything_ with 10 microsecond timing
| without accepting counterparty risk.
|
| Crypto is not special here, except that it's full of
| fraudsters or people that think they're smarter than they
| are.
| kasey_junk wrote:
| The person you are commenting against understands you're
| point. They _want_ crypto to be special.
|
| In their mind crypto should be the antidote to
| counterparty risk and they are willing to give up
| liquidity to achieve that.
| throwaway22032 wrote:
| The counterparty risk is significantly higher because
| cryptocurrency transactions are irreversible in the
| general case.
| quickthrowman wrote:
| And the exchange is also clearing transactions instead of
| a third party clearinghouse which ups the counterparty
| risk substantially.
| skinnymuch wrote:
| They understand what they're doing. They are trading a
| "security". They aren't trying to buy a Ferrari. They are
| trying to make as much money as possible in whatever
| "security" is available to make money on.
| TrainedMonkey wrote:
| Going with your analogy, big crypto players are trading
| lots of Ferraris each day. Withdrawing and depositing cash
| for each Ferrari purchase would take significantly longer
| than the trade itself. If only there was some financial
| engineering that could make this easier...
| tarsinge wrote:
| > This is exactly the point of cryptocurrency.
|
| This is not the point for a lot of users for which crypto is
| synonymous with trading tokens on an exchange.
| cwkoss wrote:
| I hadn't heard of FTX before it started imploding. I think a lot
| of people are overestimating the impact of this.
|
| Sketchy foreign crypto companies explode all the time. This one
| is more exciting and salacious because it seems like prominent
| investors, US regulators and politicians bought the lie (and the
| whole c-level polycule thing). The rest of the crypto ecosystem
| will continue marching on.
|
| I think it's likely this is the cycle bottom: doom and gloom
| feels like its probably a local maximum. I predict history will
| repeat itself: BTC price will be boring for another two years
| until the run-up to block halving in 2024.
|
| If you want to own crypto, now's probably a good time to set up
| DCA. My personal advice to friends is to DCA (buy fixed dollar
| value each ~month) on Coinbase (least sketchy exchange) until 1%
| of your net worth is in BTC and ETH (2:1 ratio). Pull any
| accumulated funds off the exchange to coldwallet quarterly. DCA
| out when it exceeds 5%.
| next_xibalba wrote:
| IMO, the impact is probably not overstated.
|
| This isn't just about how far the contagion has spread via
| counterparty risk. And that is a significant factor. Leverage
| is widespread and undocumented. This is also about an awakening
| to the risks associated with hosting your "wealth" in custodial
| wallets controlled by completely unregulated entities. Entities
| that have continually failed to achieve even a modicum of
| transparency (all stablecoins, most exchanges). Entities that
| in some cases refuse to identify a headquarters (Binance). In
| other words, this is an ongoing macro trust rug.
| throwaway22032 wrote:
| Gox went under in 2014. Eight years ago. There have been tens
| if not hundreds since then.
|
| If you're being "awakened" now, you've not just been asleep,
| you've been sedated...
| next_xibalba wrote:
| The early adopters who were in the space pre-2018 or
| pre-2020 are a small minority of count of crypto
| participants today. (Not to mention the fact that all of
| this has happened many, many times throughout financial
| history for hundreds of years.)
|
| But for the majority of participants today (aka dumb money
| retail), this is their first experience in getting rekt.
| Many of them will likely wash their hands of the entire
| space.
| beambot wrote:
| You admit that you were completely oblivious to a Top-3 CEX,
| and then proceed to prognosticate about crypto cycles and
| investment timing...? Respectfully: doesn't inspire much
| confidence.
| cwkoss wrote:
| It has been a notable exchange for barely over a year.
| rufusroflpunch wrote:
| These things come in waves. Every cycle is the same: People come
| in for the gains and pump and dumps, then they get wrecked when
| the tide goes out. Some of them learn their lesson and move from
| a trading model to a savings model. They withdraw and hold for
| the long term in a wallet they control.
|
| Then we start again with a new generation.
| thelock85 wrote:
| I have no real philosophical or financial -besides a few BTC
| bought years ago- stake in crypto's success or demise, but it
| seems that there is an unsolvable marketing problem in this
| space: how to nudge considerable behavioral changes needed to
| move a critical mass of retail investors/users from traditional
| banking/finance to "defi".
|
| This kind of shift is more like a social movement but VCs don't
| fund education and organizing (hallmarks of societal shifts),
| they fund growth (if not for a single company then for a sector).
|
| So crypto should really be more hobbyist than mainstream right
| now (which is what I think I hear crypto enthusiasts screaming
| about amidst all the fallout).
|
| But the current reality shows us that crypto-as-a-hobby market
| would not be big enough to realize the crypto-as-a-new-paradigm
| vision, hence the celeb endorsements and positioning value
| propositions against centralized banking features to raise the
| money/interest needed to build out the vision.
|
| It's the standard startup journey, except that marketing for
| growth/adoption naturally places the business at odds with the
| ideals of the technology.
|
| Just my two cents!
| areoform wrote:
| It is striking to me that the crypto community is re-enacting a
| classical bank run in a "decentralized" system where such a thing
| wasn't supposed to happen.
|
| What's even more impressive is how quickly the crypto community
| is speed-running the history of financial fraud from penny stocks
| to bank runs. From Wikipedia,
|
| > Several leading Wall Street bankers met to find a solution to
| the panic and chaos on the trading floor.[14] The meeting
| included Thomas W. Lamont, acting head of Morgan Bank; Albert
| Wiggin, head of the Chase National Bank; and Charles E. Mitchell,
| president of the National City Bank of New York.[15] They chose
| Richard Whitney, vice president of the Exchange, to act on their
| behalf.[citation needed]
|
| > _With the bankers ' financial resources behind him, Whitney
| placed a bid to purchase 25,000 shares of U.S. Steel at $205 per
| share_, a price well above the current market.[16] As traders
| watched, Whitney then placed similar bids on other "blue chip"
| stocks.
|
| > On October 28, "Black Monday",[17] more investors facing margin
| calls decided to get out of the market, and the slide continued
| with a record loss in the Dow for the day of 38.33 points, or
| 12.82%.[12]
|
| > On October 29, 1929, "Black Tuesday" hit Wall Street as
| investors traded some 16 million shares on the New York Stock
| Exchange in a single day. Billions of dollars were lost, wiping
| out thousands of investors. The panic selling reached its peak
| with some stocks having no buyers at any price.[18] The Dow lost
| an additional 30.57 points, or 11.73%, for a total drop of 68.90
| points, or 23.05% in two days.[19][20][21][22]
|
| ...
|
| > Many people blamed the crash on commercial banks that were too
| eager to put deposits at risk on the stock market.[49]
|
| > In 1930, 1,352 banks held more than $853 million in deposits;
| in 1931, one year later, 2,294 banks failed with nearly $1.7
| billion in deposits
|
| Does any of this sound familiar?
| koonsolo wrote:
| > It is striking to me that the crypto community is re-enacting
| a classical bank run in a "decentralized" system where such a
| thing wasn't supposed to happen.
|
| A bank run can only happen with fractional reserve system. An
| exchange that keeps a 1:1 ratio of assets is not exposed to a
| bank run. Fiat banks on the other hand are by definition
| exposed to it.
| qorrect wrote:
| Are there laws on requiring crypto exchanges be 1:1 ?
| andrepew wrote:
| I think FTX acted fraudulently rather than breaking a
| securities or banking law. They told users they were 1:1
| and didn't gamble with user deposits but did it anyway.
| ahepp wrote:
| What does this have to do with centralization? Decentralization
| doesn't preclude panic selling. Maybe it wouldn't be a "bank
| run" because everything would be marked-to-market all the time,
| but you could presumably still see your account become
| worthless in the blink of an eye, no?
| JoeAltmaier wrote:
| Good question.
|
| Is it intrinsic to digital currency that it be in an
| exchange, and convertible to dollars?
|
| But it didn't go that way. If you want to trade/spend
| something that is in increments of tens of thousands of
| dollars, you have to have an exchange. Where all of the
| fraud, panic and crime happened. Because it was decentralized
| (no supervisory authority)
| pamplemoose wrote:
| FTX was a completely centralized entity.
|
| The decentralized aspects of crypto ("defi") has been operating
| just fine through this entire shit-show.
| nullc wrote:
| To most people defi = blockchain-ized ponzi schemes. Programs
| that have you deposit assets in exchange for unsustainable
| 'yield' drawn from other deposits, collateralize by illiquid
| magic beans.
|
| There were massive 'defi' failures earlier this year. FTX
| itself appears to have been primarily invested in varrious
| defi schemes while being short Bitcoin, resulting in the
| current insolvency.
| JeremyNT wrote:
| > The decentralized aspects of crypto ("defi") has been
| operating just fine through this entire shit-show.
|
| There's a reason that exchanges like FTX are central to
| "crypto" as a practical matter, regardless of the technical
| underpinnings of crypto itself. These things are required to
| facilitate speculation and attract users who otherwise would
| be capable of interacting with the actual distributed stuff.
|
| Without the much needed fiat currency of this class of users,
| the pyramids couldn't have been built _nearly_ so high.
| Gwypaas wrote:
| Decentralized exchanges are equal to public bug bounties.
|
| https://beincrypto.com/top-ten-defi-hacks-2022-hackers-
| darin...
| pamplemoose wrote:
| Stick to protocols that have been around for even a year
| and you'll do much better than those listed in that
| article. How much has been lost via hacks from Uniswap,
| Aave or MakerDAO?
|
| Most of those examples you linked are bridges that aren't
| considered Defi or half-baked protocols that scream "scam".
| [deleted]
| cannaceo wrote:
| I believe the CEO of MakerDAO was liquidated from his
| position recently.
| legutierr wrote:
| An example of the algorithm working exactly as intended.
| pmarreck wrote:
| Assuming all detected hacks have well-written postmortems,
| this would be one actual contribution to society from them
| idiotsecant wrote:
| And yet decentralized exchanges exist that have been
| operating successfully for years. Survival of the fittest
| is a good thing in this case. I would trust a defi exchange
| that's had people trying to break it constantly for years
| much more than I would trust, for example, the security of
| my money in a local bank. People get their money stolen in
| confidence scams and other exploits every day and that
| money is just as gone.
| archontes wrote:
| The more robust a system, the more spectacular its
| eventual failure.
| pksebben wrote:
| I think that depends on the flavor of robustness.
| spectacular failures occur with systems that have high
| interdependence of parts, high centrality, and recursive
| effects. There's also a relationship between cascading
| failure modes and complexity.
|
| Systems that are robust due to being simple, flexible,
| highly independent tend to peter out over the long haul,
| as their failure is often an effect of a changing
| environment rather than some internal fracture.
|
| Anything that's made "robust" artificially (like propping
| up a bridge with a loose piece of lumber, or injecting
| bailout money to maintain bank's solvency) is now
| completely dependant on that artificial prop. if the
| bridge is allowed to carry more traffic after being
| propped up this way, you can expect a catastrophe equal
| to the one you averted + everything that's been added
| since.
| jmyeet wrote:
| Whatever your opinion of crypto (disclaimer: I think it solves no
| problem and probably never will) you cannot deny that the FTX
| collapse has done _massive_ damage to the integrity of the
| ecosystem. It is so large it may well take years to recover. What
| 's interesting is that trust and confidence here is just as
| important as it is for TradFi. Regulation is not just important.
| It is required.
|
| SBF & his polycule cohorts are probably going to spend decades in
| prison.
|
| What astounds me is the lack of oversight from investors
| (regulation can be slow to catch up). The company literally has
| no CFO [1] and its books are prepared by a Metaverse accounting
| firm [2]. While I have sympathy for the customers who will bear
| huge losses from this. I have absolutely none fodr the investors.
|
| [1]: https://www.ledgerinsights.com/ftx-warning-signs-no-cfo/
|
| [2]: https://www.coindesk.com/business/2022/11/11/meet-the-
| metave...
| blueprint wrote:
| international remunerations and payment censorship avoidance in
| tyrannical regimes are two obvious and virtually unarguable
| problems a genuine cryptocurrency solves
| jmyeet wrote:
| This falls under the banner of "breaking the law", which is
| the only use case people foresaw in the last decade.
|
| Now you might consider that ethical (eg in totalitarian
| regimes). I make no judgement about that. But the fact
| remains the use case is avoiding the law and that has
| negative implications too (eg ransomware, funding various
| illegal activities).
| stephc_int13 wrote:
| What we're experiencing seems to be the reversal of an overly
| optimist neo-futurist trend that started in full force in the
| wake of the Subprime crisis.
|
| It can be dangerous when it happens, alas the accumulation of
| greed/bullshit and delusions is calling for it.
|
| Winter is coming.
|
| For some reason I tend to rejoice when I see bullshit finally
| exposed, but I sincerely hope this one won't last too long.
| IAmGraydon wrote:
| You rejoice because of schadenfreude. It's painful to watch a
| bunch of lemmings make 200x their original investment while you
| are lucky to squeeze out 8% per year.
| jefb wrote:
| Sure looks like a bank run. I'll set the line on an official
| entry here https://en.wikipedia.org/wiki/List_of_bank_runs at 4.5
| days.
| criddell wrote:
| Bank run doesn't seem like the correct term since the exchanges
| aren't banks.
| hn_throwaway_99 wrote:
| It's the same dynamics, though, and "bank run" is the
| historical term used for these dynamics, i.e. institution
| takes depositors funds, institution loans out funds to other
| parties (the difference in the crypto case is that it appears
| this was done illegally, while in banking it's the
| underpinning for our financial system), and then there is a
| crisis of confidence where people run to take their money
| out, with the fear that you don't want to be last in line
| when the run starts.
| c7b wrote:
| i) that's not how banks work [0]
|
| ii) that's not how these exchanges work. if they are non-
| fraudulent, they'd have to hold cryptocurrency and cash on
| behalf of their clients. they'd never have a problem
| meeting withdrawal requests (the critical element of bank
| runs)
|
| iii) crypto exchanges, if they are non-fraudulent, would be
| an equivalent to stock brokers, not banks
|
| [0] https://www.imf.org/en/Publications/WP/Issues/2019/12/2
| 0/Mon...
| krinchan wrote:
| > if they are non-fraudulent
|
| Considering that FTX is a fraudulent exchange and the
| rate at which fraud has been perpetuated by crypto
| exchanges historically, I don't know that this is any
| more than theoretical pedantry.
|
| For all practical purposes at this point in time, if you
| don't assume your exchange is lying about their reserves
| and at high risk of a run you're in for a massive loss.
|
| I am heavily against crypto, but I will be the first to
| point out the decentralization purists were right: not
| your keys, not your coins. If you're going to play this
| game, putting complete trust in mostly unregulated
| entities who have conflicting self-interests from
| you...yikes.
| hn_throwaway_99 wrote:
| That absolutely is how banks work. Yes, there are
| fundamentally complexities under the covers, but banks
| take deposits and make loans - that is their fundamental
| purpose.
|
| Your points about "that's not how these exchanges work"
| is just a rephrasing of the point I made where the assets
| were loaned out illegally.
| c7b wrote:
| Have you even had a look at the article that I linked?
| You are making a claim without providing any backup
| whatsoever for your position, after it's already been
| pointed out to you with a scholarly reference that your
| belief is wrong.
| hn_throwaway_99 wrote:
| Suggestion: if you're trying to make a point, state it.
| Linking to 40 page article about the theory behind
| monetary creation in the modern world is not exactly a
| good way to make your argument against the statement that
| "banks take deposits and make loans".
|
| I honestly don't know how one can argue against that, it
| is simply true to anyone who has used a bank. I did _not_
| make any larger statement about the mechanics of modern-
| day money creation.
| c7b wrote:
| It's in the abstract already: money creation is a result
| of bank's loan creation - the two are connected. Banks
| don't take deposits that they then lend out, they instead
| create those deposits ex nihilo when they make a loan.
| hn_throwaway_99 wrote:
| The difference is still useless pedantry for the purposes
| of a discussion about bank runs.
|
| If a bank makes a lot loans, and those loans go bad, and
| then depositors are fearful for their money and make a
| run on the bank, it is the depositors who are still shit
| out of luck unless their deposits are insured. You can
| argue all you want that the traditional model of
| fractional reserve banking isn't how today's money
| creation works, but at the end of the day there is a
| direct line between the quality of a bank's assets (its
| loans) and the ability for it to service its liabilities
| (its deposits).
| criddell wrote:
| "Banks take deposits and make loans" in the context of
| this thread seems to imply that the money loaned by a
| bank belongs to depositors.
| bandrami wrote:
| Ironically historical bank runs were mostly on thrifts or
| savings & loans, which also aren't banks.
| chasd00 wrote:
| > since the exchanges aren't banks
|
| These aren't anything though, they're made up by the
| founders. They don't behave like any typical financial
| institution. These things are just implementations of
| functionality, the fact that they are trusted with large
| amounts of money by random people on the internet is really
| good marketing and promises of riches.
| ktta wrote:
| Well maybe we should find a new term, because atleast in the
| US, bank runs on actual banks aren't possible anymore due to
| the fed mandated reserve requirement being 0% and banks being
| able to print new $
|
| These events are the closest we can get to bank runs today
| halfmatthalfcat wrote:
| But they've been acting like them, leveraging reserves into
| even riskier coins.
| hamiltonians wrote:
| this is bullish only because coins that are not on exchanges
| cannot be sold
| AkshatJ27 wrote:
| Is this satirical? P2P exchanges exist.
| cma wrote:
| No one really connects decentralized P2P though:
|
| https://cryptobriefing.com/metamask-opensea-blocks-expose-
| ce...
| hamiltonians wrote:
| volume is tiny and does not impact market
| bragr wrote:
| https://archive.ph/U3Veb
| thedangler wrote:
| It's getting even crazier. Some researchers are thinking hedge
| funds used FTX wrapped securities to fake stock locates for
| collateral. If this is true... everything is about to blow up.
| snapcaster wrote:
| This comment gives me serious gamestop baggie vibes
| Jerrrry wrote:
| GME cultists are trying to pin their bags on the crypto space.
|
| Compushare got yall so hard, lmao.
| ProjectArcturis wrote:
| What does "FTX wrapped securities" even mean? Everything I've
| read says they invested in crypto-related stuff, not publicly
| traded stocks in unrelated industries.
| paulproteus wrote:
| In May, FTX.us announced stock & ETF trading:
| https://www.investopedia.com/ftxus-launches-stock-
| brokerage-...
|
| I don't know anything about how it worked or who used it,
| etc. I wonder if it relates somehow to this idea of wrapped
| securities though.
| matt_s wrote:
| > The exchange will provide no-fee brokerage accounts and
| commission-free trading. CEO of FTX, Sam Bankman-Fried,
| recently acquired a 7.6% stake in Robinhood, which also
| provides fee- and commission-free brokerage services.
|
| Sounds like it was to allow people to move funds from
| crypto into US stocks. If that was the case and that
| business also went bankrupt then I think people lose
| whatever stocks they "bought" via FTX Stocks because they
| likely just tracked prices and made it look like people
| "owned" a security by updating a record that says they
| bought it.
|
| If there were huge numbers of purchases of stocks through
| FTX by their customers but then FTX didn't actually
| purchase those stocks (like the recent findings that they
| didn't actually purchase the crypto) then I don't see how
| this makes any bit of difference to whatever stocks are in
| question. Its not like they were ever actually purchased
| and FTX is in bankruptcy so any FTX customers are left with
| legal avenues to get money back but it appears there's no
| money to get.
| ProjectArcturis wrote:
| If that's how they handled stock trades, that's (another)
| felony fraud.
| hn_throwaway_99 wrote:
| Do you have any evidence or sources for that? IMO major
| allegations like that deserve to be downvoted unless there is
| _something_ backing them up.
| z9znz wrote:
| FTX is just one input. Seeing that Crypto.com has 20% of their
| reserves stored in a pointless sh-tcoin (SHIB) is just further
| proof that people running cryptocurrency exchanges are idiots or
| greedy fools.
|
| One or another variation of this story has played out many times
| already. Then the whole sand castle crumbles, and a lot of fake
| money gets wiped away.
|
| The entire cryptocurrency space is just an unregulated gambling
| arena. There may be some solid, well-intentioned efforts within
| it, but they are completely overshadowed (and overcapitalized) by
| the purely insane gambling ones.
| gghhzzgghhzz wrote:
| I'm not trying to defend them, but if 20% of the customer
| assets are in SHIB then that should be the pct they are holding
| in reserve?
| z9znz wrote:
| Indeed, my assumption was probably wrong. In one of the two
| articles I read, I didn't see the quote about it being 1:1
| analysis against customer holdings. I believed it included
| general hedging assets of the exchange.
|
| As long as the exchange is not loaning or collateralizing
| against these SHIB holdings, then it's nothing of concern. It
| does still paint a pretty bad picture of the exchange or its
| customers based on the huge percentage of "value" stored in a
| coin which has absolutely no point in even existing (but
| that's beside the point of my original inaccurate post).
| SpaceManNabs wrote:
| > It does still paint a pretty bad picture of the exchange
| or its customers
|
| It just paints a bad picture of the customers. If that is
| what CDC users wanna buy, then the exchange needs to have
| enough to support the liquidity needs of their customers.
| CDC might be doing a lot wrong, but that probably isn't
| one. Wish you would edit your comment now that you
| understood the context of your assumption.
| berberous wrote:
| Crypto.com has 20% of their reserves in SHIB since that's what
| their users own 1:1. That's the correct approach; you would
| prefer they gamble with their customer's assets by swapping a
| portion to more blue chip crypto like ETH?
| DebtDeflation wrote:
| You are correct that the reserves SHOULD just reflect
| customer holding but what are the odds that customers of what
| is the 5th or 6th largest exchange in existence are in
| aggregate holding 20% of their crypto portfolio in SHIB?
| Lewton wrote:
| that's exactly what I'd expect from the users of an
| exchange called crypto.com
| driverdan wrote:
| Good. The only secure way of owning cryptocurrency is to have it
| in your own wallet. You should not be storing it on exchanges.
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