[HN Gopher] IRS files $44B claims against bankrupt FTX
___________________________________________________________________
IRS files $44B claims against bankrupt FTX
Author : sylvainkalache
Score : 236 points
Date : 2023-05-11 16:00 UTC (7 hours ago)
(HTM) web link (unchainedcrypto.com)
(TXT) w3m dump (unchainedcrypto.com)
| mikeyouse wrote:
| Fun fact, the Kroll organization who's hosting the bankruptcy
| docs / helping manage the process is the successor org founded by
| Nick Kroll's father (from The League). He sold it and started
| several new ventures with similar names.
|
| https://time.com/6095957/jules-kroll-private-detective-profi...
| hanniabu wrote:
| IRS gets priority over creditors but what about the users of the
| platform that? Are they categorized as creditors?
| rootusrootus wrote:
| I'd figure that for most people FTX would be part of an
| investment strategy (or gambling), not any kind of bank. So
| these are not depositors, they are investors, probably lowest
| on the priority list. They will get wiped out.
| JumpCrisscross wrote:
| > _what about the users of the platform_
|
| Mixed precedence [1]. Where assets were ringfenced, the courts
| are treating those users as asset owners.
|
| Unsecured creditor is the default. Lowest rung. This is true
| pretty much across web3/crypto.
|
| [1]
| https://www.ft.com/content/a87860bf-a8bf-4669-a152-de465c83a...
| vitehozonage wrote:
| Yes they are just creditors. So IRS is basically trying to take
| from the users by filing it in this way. Great way to serve the
| public...
| renlo wrote:
| It's like a thief steals all of the money from your bank
| account, he gets arrested, you file a claim to get your money
| back from his accounts, but before you can the IRS swoops in
| to claim all of the money because the thief didn't claim your
| stolen money when he filed his income taxes. I understand
| that all of the FTX depositors (technically "creditors")
| should have read the fine print, but that's what this feels
| like at least.
| kobalsky wrote:
| > should have read the fine print
|
| from what I have read FTX was the only major exchange that
| didn't claim ownership over your uninvested funds in the
| fine print, which is the crux of the situation.
|
| people using them as a wallet were not investing nor
| getting interest in their deposits.
| bearjaws wrote:
| Lol what? FTX stole everyone's money, the IRS is just
| collecting what is owed...
| fallingknife wrote:
| They're not owed that money. Would take almost $600
| billion in payroll or over $100 billion in profit to owe
| a $44 billion tax bill, and FTX doesn't come close to
| that.
| martin8412 wrote:
| Gee, I wonder why the SEC isn't happy about exchanges
| selling unregistered securities to retail investors. They
| should absolutely have cracked down on it way earlier, but
| unfortunately regulatory agencies work rather slow.
|
| You threw your money in the local wishing well and are now
| upset that it got confiscated with your money inside it for
| unpaid taxes.
| fallingknife wrote:
| It's not a matter of slow. Coinbase has been around since
| 2012 and it doesn't take 10 years. The SEC had no intent
| on cracking down and didn't even consider most of the
| market to be securities at all. Here's Gensler saying so
| himself in 2018
| https://twitter.com/ZK_shark/status/1650689125580668931
| outside1234 wrote:
| This is what is in the prospectus that you read before you
| put your money in these firms. They are subject to normal
| liquidation seniorities.
| TacticalCoder wrote:
| [flagged]
| gameshot911 wrote:
| Are you arguing that the tax assessment is incorrect in some
| way, or just generally upset that the IRS stands before other
| creditors in the US?
| CapstanRoller wrote:
| Check the comment history. He's a typical lolbertarian
| [deleted]
| nradov wrote:
| The IRS is legally required to seek all income taxes owed under
| federal law. That is hardly thievery. If the tax laws are
| unfair then take that up with Congress.
|
| As for what the NY Times printed, that has zero relevance to
| tax liabilities.
| whats_a_quasar wrote:
| FTX probably did have unpaid taxes, but could they have gotten to
| a $44B dollar unpaid bill? That implies revenue or payroll of
| order-of-magnitude $200B. I don't know FTX's finances but that
| seems extreme, even for them.
|
| The article also only mentions what half the bill is. $20.4B of
| partnership taxes and unpaid payroll, but no info on the other
| $23.6B of taxes.
|
| Edit:
|
| From a random googled article: $1.02B of revenue in 2021. It
| seems like a long jump from that to a $44b tax bill - even if
| they had perfect accounting they would never have been able to
| pay that much
|
| https://www.cnbc.com/2022/08/20/ftx-grew-revenue-1000percent...
| robinson7d wrote:
| Article says " According to bankruptcy filings on April 27 and
| 28, the IRS filed claims worth nearly $44 billion against the
| firms, including FTX.US and Alameda Research."
|
| Clicking through to the list of filings shows about 1850 items
| (rounded, 93 pages of 20 filings each), many of which don't
| appear to be against FTX.
|
| For example there's a $2.5 billion one on the first page
| against "Paper Bird Inc", who I haven't looked up yet.
| robinson7d wrote:
| Welp, guess I picked a bad one. Paper Bird Inc seems to be
| owned by Sam Bankman-Fried... but anyway maybe they aren't
| all owned by him, and regardless it might partially explain
| why the revenue numbers GP was looking up are much lower than
| the claims.
| dpflan wrote:
| Amazing find, a list of each entity and owner would be
| great to see considering you chose a random company and yet
| it was within the SBF sphere of influence. What was the end
| game for FTX? Funneling money to its own shell companies to
| achieve...
| chrisco255 wrote:
| The end game was to secure a regulatory monopoly for FTX.
| SBF was beloved in Washington circles, even the SEC Chair
| had exclusive meetings with him. It's also well known he
| spent enormous amounts of money on the elections:
|
| From Oct 19, 2022, just before their collapse:
| https://www.ftxpolicy.com/posts/possible-digital-asset-
| indus...
| dpflan wrote:
| Thanks for the link. A monopoly for FTX would mean what
| given how they managed themselves? Excessive money into
| opaque entities owned by FTX, I guess.
| AbsoluteCabbage wrote:
| [flagged]
| chickenpotpie wrote:
| > IRS is the one criminal cartel you can't mess with
|
| Many actual cartels literally behead people.
| AbsoluteCabbage wrote:
| So cutting peoples heads off is your criteria for being a
| cartel? Okaaaay.
| [deleted]
| johngladtj wrote:
| The us just drone strikes them
| HDThoreaun wrote:
| I do not believe the IRS has ever drone striked anyone
| mrguyorama wrote:
| I would be impressed if we could even find a case of an
| IRS agent pulling their service weapon out of it's
| holster on the job.
| outside1234 wrote:
| Honestly we need 10x the number of IRS folks to track all of
| these cheats down.
| brewdad wrote:
| It's the one Federal agency that actually makes more money
| than we put into it. No wonder so many want to kill it.
| LammyL wrote:
| Does this also suggest that the execs charged with the FTX fraud
| may also get hit with a huge tax bill?
| Animats wrote:
| The FTX bankruptcy will now probably be converted to a straight
| liquidation. The current management has the fantasy that they can
| emerge from Chapter 11 reorganization as a going concern. Not
| likely. There's no ongoing business worth continuing.
| SamBankmanFried wrote:
| I doubt the new management actually believes they can reboot
| the company. They're just trying to drag things out as long as
| possible to extract as much money as they can. The new CEO is
| getting paid $1300/hr.
|
| https://fortune.com/2022/11/21/new-ftx-ceo-john-ray-hired-cl...
| paulddraper wrote:
| Well hello there
| [deleted]
| Montaque wrote:
| Surely your attorneys double their fee every time you do an
| online post?
| cm2012 wrote:
| I doubt this is actually him but that would be funny
| toomuchtodo wrote:
| At least this saves a bunch of human hours that would've been
| spent untangling everything. Check gets cut to the US Treasury
| and that's a wrap.
| Etheryte wrote:
| It's unlikely that this will save much in the way of that,
| you still have to go through the bankruptcy proceedings, just
| now you also have the IRS digging through your things.
| JumpCrisscross wrote:
| Liquidation is more straightforward than trying to keep the
| beast alive while you operate on it.
| [deleted]
| [deleted]
| rickreynoldssf wrote:
| ...and here's the other shoe dropping for all the people thinking
| they were going to get at least some money back.
| supermatt wrote:
| Would the IRS get priority on any assets?
| ragnot wrote:
| Uncle Sam is the ultimate repo man.
| VWWHFSfQ wrote:
| In both Chapter 11 (FTX) and Chapter 13 cases, priority tax
| debts are generally paid before other unsecured debts, meaning
| the IRS gets priority in these cases. However, secured
| creditors may still have priority over the IRS for specific
| assets.
|
| I'm going to guess that the IRS is going to take the lion's
| share of assets.
| snacktaster wrote:
| At this point the US government/IRS has got to be the largest
| holder of crypto in the world.
| optimalsolver wrote:
| The ironing is delicious.
| justinzollars wrote:
| Yes.
| nrmitchi wrote:
| > The IRS' claims against the crypto exchange could take
| precedence over claims of other FTX creditors.
|
| It's literally the first text after the headline
| carrja99 wrote:
| A tall order to expect HN commenters to click through to the
| article. :-P
| prasadjoglekar wrote:
| Yes, but for that much money, it will be litigated and should
| be. Deference to the IRS for this sort of retrospective
| taxation is not a good idea..
| tedivm wrote:
| Retrospective taxation implies that a change was made to the
| tax code that went back in time. The reality is the tax code
| didn't change at all, but the fact that FTX was cheating on
| their taxes was discovered and adjusted for.
|
| Now I'm sure it'll get litigated, but there's a big
| difference between "I cheated my taxes and got caught" versus
| "I paid all my taxes, but then the rules changed and now I
| owe more".
| [deleted]
| [deleted]
| JumpCrisscross wrote:
| > _it will be litigated and should be_
|
| They're almost certainly inflating the claim in preparation
| of litigation, _e.g._ by reclassifying "all of FTX's
| contractors to full-time employees." (There is pressure, in
| such bankruptcies, to file claims fast.) But the current
| claim is 4x FTX's cash. It's unlikely the IRS is off by 4x.
| Unsecured creditors' recovery is likely going to be zero.
| mindslight wrote:
| The numbers seem too large to be employee reclassification
| for reasonably-paid employees, no? I would think it's more
| likely the IRS is calling the embezzled money income and/or
| wages.
| JumpCrisscross wrote:
| > _numbers seem too large to be employee reclassification
| for legitimately-paid employees, no_
|
| Yes. Which is why it's unlikely to expect the claim to
| quarter. (It might get reassigned from FTX to Alameda or
| Blockfolio, though.)
|
| > _it 's more likely the IRS is calling the embezzled
| money income and/or wages_
|
| Partnership taxes on the embezzled money.
| dh2022 wrote:
| So IRS is asking FTX to pay millions of dollars in unpaid payroll
| taxes as result of classifying FTX workers from contractors to
| employees. Will IRS refund said workers the payroll taxes workers
| paid as part of their Schedule-C? (Contractors pay their own
| payroll taxes when they file Schedule-C; companies pay payroll
| taxes for their employees, but not for their contractors)
| rickreynoldssf wrote:
| Employers pay an additional tax on payroll. The withholdings
| they send to IRS is not considered a tax.
| loeg wrote:
| You are entitled to a refund of any excessive withholding you
| make beyond your tax liability.
|
| The argument is that, as the now employees understood
| themselves to be contractors, they paid the (higher)
| contractor tax rate (employee + employer). If the IRS is
| retconning them as employees and FTX owed the employer's
| share of the employees' taxes, the employees are entitled to
| a refund of the amount they overpaid.
| ericpauley wrote:
| Contractors have to pay both halves. If they did this (big
| if) they'd be owed a refund.
| 300bps wrote:
| When you're a 1099 contractor you fill out Schedule C and pay
| as the employee and the employer.
| throwway120385 wrote:
| There was a nice tax holiday on this a few years ago.
| PopAlongKid wrote:
| There was a deferral due to Covid for paying self-
| employed tax, but it still had to be paid eventually.
| [deleted]
| prepend wrote:
| When I did my own withholding, I had to withhold Medicare and
| social security taxes on my employees behalf and deposit it
| quarterly. These are certainly taxes and there is withholding
| for the employer portion as well as for the employee portion
| withheld on their behalf along with income and any other
| applicable taxes.
|
| Here's a quote from the IRS [0]: " An employer generally must
| withhold social security and Medicare taxes from employees'
| wages and pay the employer share of these taxes."
|
| [0] https://www.irs.gov/businesses/small-businesses-self-
| employe...
| PopAlongKid wrote:
| > Will IRS refund said workers the payroll taxes workers paid
| as part of their Schedule-C?
|
| Possibly, if they ever actually collect it. (not sure of the
| legal requirement here)
|
| The best thing a contractor in this situation can do is file an
| amended return now, using Form 8919 to re-calculate the
| employee share of FICA tax they owe. This will also involve
| filing Form SS-8 (separately) to dispute their status as a
| contractor. It may take several years to get processed, but at
| least it creates a formal claim that the IRS will have to
| eventually honor or deny.
|
| Also note that only the 7.65% employer portion of FICA, _less
| the income tax deduction_ that Schedule C filers get for that,
| is in question. Also, as employees there may be other business
| deductions they took on Schedule C they would no longer be
| entitled to.
|
| The employer (FTX) is also liable for taxes that sole
| proprietors don't pay, such as FUTA (federal unemployment), and
| a variety of state payroll taxes most likely.
| londons_explore wrote:
| > Will IRS refund said workers the payroll taxes workers paid
| as part of their Schedule-C?
|
| If my understanding is correct, merely the fact the IRS has
| officially made this classification entitles those workers to a
| refund, even if the IRS never manages to collect the money from
| FTX.
|
| A nice big fat bonus paycheck for the workers there!
| choppaface wrote:
| wait, who says these FRX contractors ever paid tax to begin
| with?
| kelnos wrote:
| Assuming their employer sent 1099s to the IRS like they are
| supposed to, it's unlikely that any significant portion of
| them ended up dodging their tax burden.
| Illniyar wrote:
| [flagged]
| dboreham wrote:
| IRS just wants the payroll tax to be paid by someone, and don't
| really have a dog in the FT vs contractor question. Ordinarily
| contractors end up paying it, making IRS happy. So this
| suggests they did not.
| [deleted]
| aftbit wrote:
| It's a sign of the times that I can't tell if this is a /s. I
| think many on this board would support the IRS cracking down on
| crypto companies even if they do so in an extralegal manner. I
| am not one of them fwiw.
| kvetching wrote:
| Okay, now the government is just getting greedy. Taxes are the
| biggest scam in 2023 as our leaders don't respect us enough to
| create a balanced budget.
| Scoundreller wrote:
| Would this mean the employees have to suddenly pay up their
| unpaid employee-contribution side of things like social
| security/FICA?
| jerf wrote:
| I'm definitely anti-IRS at this point in most ways, but...
| let's be honest, this is FTX we're talking about. Their so-
| called "balance sheet" for their multi-billion dollar operation
| was an approximately one-screen-large Excel file at a level of
| detail that would have embarrassed your local plumbing shop.
| Even through my anti-IRS biases I have no problem whatsoever
| believing that FTX went well beyond playing "fast and loose"
| with tax laws to outright tax fraud. I doubt this is even the
| end of their troubles, which will more likely end simply by the
| matter becoming moot rather than investigations coming to their
| end.
|
| FTX was so badly run that it isn't even suitable as a business
| school case study. The questions it really raises is how they
| got as far as they did at that scale without ramming into one
| legal wall or another even sooner, and I don't even mean exotic
| cryptocurrency laws, I mean just plain ol' corporate laws that
| everyone else faces. How much you want to bet they weren't
| correctly an Equal Opportunity Employer, or managed to have
| non-trivial OSHA violations, or... just pick your agency,
| really.
| lazide wrote:
| All of those laws require someone to complain or report a
| problem to the right person in the agencies.
|
| All the people who would have done so didn't want to upset
| the 'getting rich' Apple cart.
| outside1234 wrote:
| It's not free money. They stole the money from us, the actual
| taxpayers.
| ummonk wrote:
| They stole it from their employees who had to pay tax on
| their income themselves, no?
| advisedwang wrote:
| Sounds like the IRS is just doing the reverse of the bullshit
| companies do classifying people as "contractors" to avoid
| regulations.
| justapassenger wrote:
| Your argument being what? Government shouldn't enforce laws,
| especially when it comes to one of the biggest scams of the
| century?
| garbagecoder wrote:
| Found the guy who cuts corners on his payroll.
| [deleted]
| Trias11 wrote:
| To all the idiots who lost money with SBF - please stop blaming
| SBF.
|
| Even if ya'll will be given all your money back - you'd still
| manage to lose it again in a short time and blame someone else.
| SBF has nothing to do with it.
|
| Your mindset and you do.
| m3kw9 wrote:
| How fk are they now?
| guywithahat wrote:
| As much as I dislike FTX/Sam, there's no way this is correct.
| What the IRS is probably doing is naming the highest number they
| can think of in hopes of increasing the percent of liquidated
| holdings they get once this goes through bankruptcy, which is
| particularly scummy considering they're just taking the money
| from people who actually deserve it.
| dagaci wrote:
| Could this be some kind of turf war between regulator/govenment
| entities to gain control over the spoils?
| ffhhj wrote:
| It's the 80's "war on drugs" all over again. A government being
| so powerful that could capture drug lords from other nations
| and get their money back, so now they can have the pie and eat
| it too. How many people from other countries invested money in
| FTX? How much they'll get back? Who is getting all of it by
| throwing legal dragnets?
| [deleted]
| newprint wrote:
| This is f** wild. I don't understand level of incompetence it
| took to trust him with that much money. People who trusted them
| with this much money are fools. Fools with large $$$.
| NSMutableSet wrote:
| I would like to see more celebration of the employees who
| confronted SBM and were then fired for "performance" or
| "culture fit". That behavior needs to be rewarded, not
| forgotten.
| lazide wrote:
| You're welcome to get the ball rolling.
| killingtime74 wrote:
| A bit of incompetence and a lot of greed. If someone says they
| can make you a lot of money, you're willing to ignore a lot of
| things. You just hope you're not the bag holder at the end. As
| long as there is greed there's always going to be more FTX and
| Theranos.
| hef19898 wrote:
| Besides too much money, which they were parted from like fools,
| they had also too much hopenof finding even greater fools.
| Doesn't work all the time so, sometimes you actually are the
| greatest, ot at least unluckiest, fool in that particular game
| of fools.
| onlyrealcuzzo wrote:
| When you're trying to start a magic bean farming business,
| and you end up investing with a crook who blows all your
| money on coke & hookers before your magic bean business gets
| off the ground... it's a little bit of expedited justice,
| isn't it?
| hef19898 wrote:
| I don't mind investors loosing money, that's part of the
| game and if you fail to do a proper due diligence and risk
| evaluation, well, you get what you deserve. All the people
| loosing money with FTX as users, well, they are a different
| story.
| [deleted]
| mschuster91 wrote:
| Especially ludicrous given that a large point of the USP of
| crypto-currencies was that you didn't need to trust anyone
| because The Blockchain and smart contracts renders "trust"
| obsolete.
|
| In the end, it all was bullshit, and (assuming the US
| government is correct with the re-classification of
| "independent contractors") exploitation and fraud.
| samstave wrote:
| There is ZERO 'incompetence' --> it is skilled fraud. Madov
| level.... this guy needs to not kill himself with a sheet in
| prison.
|
| This is a guy who is an utter piece of shit, and his FN
| STANFORD parents were certainly in on it and they need to go
| down as well, but they are a smoke screen.
| VoodooJuJu wrote:
| The most enlightening things to come out of the crypto craze:
|
| 1. There is an overwhelming abundance of rich idiots in this
| world. Wealth-merit determinism has been publicly dealt a
| serious blow that I hope people will take to heart.
|
| 2. Finance is a mature and ever-evolving complex _technology_
| in itself that has proved why it is the way it is, and no
| amount of idealist nerds and their "investor" fools can
| possibly knock it down. It must be humbling to rediscover every
| regulation and facet of finance, one crypto-blunder at a time.
| Finance as an industry attracts some of the world's most
| intelligent and most ruthless individuals, but you think
| they're somehow leaving money on the table? You think you can
| do better because you know python and cryptography 101? Really?
| JumpCrisscross wrote:
| > _an overwhelming abundance of rich idiots in this world_
|
| One of the smartest things I heard said about crypto is it's
| an unvarnished metric of the animal spirits in our world. Its
| optimal price isn't zero. But somewhere just above it. Enough
| to inspire productive work, but not enough to gain animation
| of its own.
| cycomanic wrote:
| > The most enlightening things to come out of the crypto
| craze:
|
| > 1. There is an overwhelming abundance of rich idiots in
| this world. Wealth-merit determinism has been publicly dealt
| a serious blow that I hope people will take to heart.
|
| And somehow people still say poor people are poor because
| they lack financial intelligence and we could fix their
| poverty by giving them finance education. No poor people are
| poor because they lack money, because of that they must be
| smarter with their money, they can't afford to loose it.
|
| Rich people on the other hand don't need to care. I would
| even say that many don't even notice the money they lost here
| ghaff wrote:
| Probably not so much actual poor people but I expect some
| non-trivial number of not-rich people bet money on cryto
| that they couldn't really afford to lose either from simple
| greed/FOMO or because they convinced themselves that their
| only ticket to the good life was to gamble.
| 2OEH8eoCRo0 wrote:
| I think only rich people say the poor need financial
| intelligence and then they make things like Robinhood so
| the poor can feel like they have financial intelligence
| while losing money and the rich get richer.
| [deleted]
| [deleted]
| ragnot wrote:
| Software engineers have been re-inventing concepts again and
| again since the 1970's. It isn't that much of a stretch to
| believe that they would do the same thing to finance.
| phone8675309 wrote:
| Too bad most of them don't bother to learn anything about
| finance before trying to disrupt it and instead fall back
| on libertarian wet dreams of feeling the ghastly embrace of
| the ghost of Ayn Rand.
| lazide wrote:
| People had money.
|
| People made poor decisions re: FTX and lost a lot of that
| money.
|
| So now they have less money.
|
| How else do you expect it to work?
|
| If someone had a lot of money, and they didn't blow it all,
| then they're just less rich.
|
| If someone had a little money and they didn't blow it all,
| now they're just a bit more poor.
|
| If someone had a lot of money and blew it all, they're now
| broke.
|
| If someone had a little money and blew it all, they're now
| broke too.
|
| Seriously, what is the alternative here?
| alphanullmeric wrote:
| 3. Certain politicians pretend to care about privacy until it
| comes to financial privacy, pretend to oppose crypto for
| environmental reasons but think no differently when they
| become unmineable, and pretend to oppose crypto for technical
| reasons but support CBDCs which inherit all technical
| shortcomings of cryptocurrencies minus the privacy and
| security guarantees. If you believe in the right to
| controlling other people's money, just say that instead of
| hiding behind a facade of investor protections and other
| nonsense that you make illegal to opt out.
| phone8675309 wrote:
| Honestly, if you're a con artist, the list of FTX victims
| (that will eventually come out) and the people screaming
| about the future of NFTs on Twitter are a wonderful rolodex
| of soft targets.
| tombert wrote:
| I sincerely hope that I never meet Sam Bankman Fried, because if
| I did I do not know what I would do but it certainly wouldn't be
| legal.
|
| I was stupid and thought that the 7+% interest I was getting from
| Gemini+GUSD+Genesis Holdings was a good idea, I put a good chunk
| of money in there, and as of right now the status for that
| appears to be in "limbo at best". It's particularly upsetting,
| because this all unfolded right after I got fired from my last
| job, when I really needed my liquid money to pay for things like
| "my mortgage" and "food".
|
| I'm fine now fiscally, and even wasn't in too much trouble back
| in November [1], but it make me lose multiple nights of sleep
| worrying about stuff, and also made me feel like an idiot for
| ever thinking that cryptocurrency was a good idea.
|
| [1] I have a good chunk of money stashed in stocks/ETFs, which I
| could have liquidated for money, but the market was pretty far
| down so I would have had to take a big haircut.
| unyttigfjelltol wrote:
| Forget the math, the tech, the error you made-- that lots of
| people made-- is we must evaluate the trustworthiness of the
| people running the show, and run like heck from any whiff of
| lack of integrity. My impression of the FTX folks was they
| exhibited catastrophic lack of maturity, at minimum. Now, the
| cynic says that perhaps folks were desensitized by shortcomings
| of crypto culture in general... which to my mind is a
| cautionary sign for anyone speculating in that area who has not
| _yet_ been separated from their stake.
| tombert wrote:
| I didn't actually do anything with FTX, at least not
| directly; I did not realize that the Gemini Earn program had
| anything to do with FTX or SBF until after everything
| collapsed.
|
| I didn't feel like the Gemini people were terribly
| unprofessional; at least not outwardly.
| nonethewiser wrote:
| The term "cryptocurrency" is WAY more inclusive than the thing
| you invested in.
| guardiangod wrote:
| Don't feel too bad about it. Wealth wise, what doesn't kill you
| makes you stronger. Once you made it thru the tough time, you
| can always rebuild (unlike say, health).
| birdyrooster wrote:
| I have a friend in a similar boat who lost hist entire life
| savings in Gemini
| prepend wrote:
| I'm sorry for your loss but I'm really amazed you thought that
| 7% yield from savings at a time of 0% interest rates was
| anything other than a fabrication.
|
| I looked at these and they were so absurd there was no way I
| would invest. No fundamentals. No audit. No insurance. No
| stable company or bank.
|
| What was your thought process in putting funds here? Did you
| think it would just take longer to explode and you would be
| able to withdraw before? Did you genuinely believe?
| Canada wrote:
| It was possible in a market neutral way in crypto and without
| much risk for a while.
|
| You could provide liquidity for stablecoin swaps, collect the
| shitcoin rewards and regularly dump them. Withdraw at
| anytime.
|
| Of course, in that scenario you had good control and the
| counterparty can't rug you because you could verify what was
| going on. There was some technical risk, but it never
| actually occurred.
|
| It was because interest rates were zero, largely, that this
| was possible.
|
| The mistake here was giving the assets to another party who
| can do whatever they like and where you can't see directly
| what they were doing.
| nradov wrote:
| Just because people got lucky for a while doesn't mean that
| risk was actually ever low. The reality is that risk on
| those trades was always extremely high, but it wasn't
| apparent through traditional risk metrics such as
| volatility or credit ratings. And there are more risks to
| worry about than just market risk and counterparty risk.
| ska wrote:
| >without much risk for a while.
|
| > There was some technical risk, but
|
| These statements are a bit at odds. "But it never actually
| occurred" is a statement of chance, not risk. I also
| suspect you are downplaying significant systemic risk.
| "Withdraw at anytime" could go away quite easily in several
| scenarios.
| SoftTalker wrote:
| Some of the smartest SV people fell for his con. Big names we
| all know. Anyone can be conned.
| EVa5I7bHFq9mnYK wrote:
| Wait, I have a few CDs that are "FDIC insured", according to
| Fidelity, offered by banks I absolutely don't know. In fact,
| that's the reason I choose them over Treasuries, which are
| not FDIC insured. Is my money safe or could it be a fraud
| like FTX? I learned to trust Fidelity over the years, maybe
| now is the time to be less complacent.
| prepend wrote:
| You can check those banks to confirm they are fdic insured.
|
| Although it's a lot easier to trust a boring and stable
| company like Fidelity that's not offering snake oil.
| ChainOfFools wrote:
| FTX is really no separate phenomenon than the underlying
| crypto industry itself.
|
| The entire space rests on the metrics generated at the whim
| of perhaps a hundred or two extremely (crypto-)influential
| individuals who are all affiliated with one another and
| whose incentives and behaviors are highly correlated even
| when that affiliation is weak or antagonistic. I'm
| referring here to the large established miners, both public
| and dark (i.e. bot farm based, corrupting gov. officials,
| etc.) As well as the pools that they pretend not to
| control, and to a lesser extent the operators of the larger
| exchanges - although they are not nearly as free to move in
| recent years as the miners still are. It's no accident in
| miners are extremely publicity shy.
|
| This group, which behaves like a cartel so it's reasonable
| to think about it as one, self-generates nearly every
| metric used to determine the size and depth of the entire
| industry. The fees and other costs to create fraudulent
| statistics would be impossible for anyone who is not a
| miner to swallow, but if you're mining at scale there is an
| enormous discount - because an inverse scale fraction of
| those fees are paid to yourselves.
|
| Transaction volume, price, number of nodes, number of
| accounts, velocity of funds, everything that is used to
| construct a picture of the real human interest in this
| market via the lens of virtual numbers that describe it is
| completely under the control of a few people. Although some
| of them are more regulated today than they were in the
| past, for a good part of a decade there was effectively no
| oversight into how any of these operations worked, and they
| were free to openly front run the market, buy electricity
| at substantially corruption-reduced cost or just outright
| steal it- and again in the early days this paid off
| extraordinarily well because early large block rewards
| could be sat on and held until they bubble-appreciate
| several thousand of percent above acquisition cost.
|
| when you're paying reduced (or nearly zero) cost for your
| production infrastructure you don't need to sell all of
| your product right away, and you thereby accumulate a
| future war chest to create a market 'bottom' anytime
| liquidity gets a little bit too loose for your liking:
| simply slow-roll selling new block rewards and voila, price
| stabilizes. Your carefully managed low public profile lets
| the media and public fill in their own self-serving
| explanation, which is that the public must be crazy about
| this stuff it cant stop buying it.
| andrepd wrote:
| Yeah, if it hadn't imploded or he managed to exit before it
| did, I'm sure he would have enjoyed the money. Well it didn't
| go so well, tough luck for what was essentially a gamble.
|
| I still feel bad but only in the measure that poor economic
| literacy contributes to people falling for these scams. That
| and old-fashioned greed :)
|
| 7% risk-free savings with negative interest rates... Come on.
| tombert wrote:
| I mentioned this in a sister comment, but in a bit of
| fairness to me, Gemini was claiming some degree of FDIC
| insurance on GUSD coins. I definitely should have read the
| fine print more thoroughly.
|
| Clearly I'm not the only one who was suckered by some of
| this verbiage though: https://www.sec.gov/news/press-
| release/2023-7
| nashashmi wrote:
| I'm not sure what the terms of the deal were. but I am sure
| if the payment for the 7% interest was to be made in the same
| coin and loans were to also be made at the same rate if not
| higher, then all of those coins would appreciate in value.
| what causes inflation and therefore depreciation is printing
| too much money. What causes appreciation for a coin is
| scarcity that can be created by interest rates, especially
| super high ones. When not enough coins are being minted And
| interest is accumulating Then it creates a deficiency in
| supply.
| nradov wrote:
| It's sort of bizarre to talk about "inflation" for an asset
| where the actual value was always zero.
| 3327 wrote:
| [dead]
| it_citizen wrote:
| Being a true passive investor is much harder than most people
| think. We are flooded with stories of "amazing opportunities"
| and "systemic risks".
| [deleted]
| [deleted]
| JumpCrisscross wrote:
| > _I'm really amazed you thought that 7% yield from savings
| at a time of 0% interest rates was anything other than a
| fabrication_
|
| Necessarily risky. Not necessarily fabrication. Between those
| two there is room for both productive gains and delusional
| optimism.
| mrguyorama wrote:
| Risk to return is non-linear, and at a system with a floor
| of 0%, 7% is an insane claim. Granted, this requires a
| reasonable amount of financial literacy, and plenty of
| people think they have that but don't.
| maccard wrote:
| > at a system with a floor of 0%,
|
| There's not a floor of 0%. Negative returns exist.
| TheOtherHobbes wrote:
| But are rarely promoted as an investor benefit.
| TuringNYC wrote:
| >> I'm sorry for your loss but I'm really amazed you thought
| that 7% yield from savings at a time of 0% interest rates was
| anything other than a fabrication.
|
| The guy (SBF) was hanging out with and appeared to be
| anointed by Gensler and crew
| https://www.sec.gov/about/commissioners/gary-gensler. How
| much due diligence does one expect common citizens to
| perform?
| mrguyorama wrote:
| Why do you think that made the financials viable?
| TuringNYC wrote:
| >> Why do you think that made the financials viable?
|
| Even a person with a finance background such as myself
| cannot realistically state what yield is "viable",
| especially without history.
|
| Commercial Real Estate is paying 8.5% preferred these
| days...is that viable? Not sure, but I can look at
| history across rate environments.
|
| Crypto has no history so I think a lot of people were
| going on trust of the players. Many investments are about
| trusting the managers.
| prepend wrote:
| These investments were comparable to money market funds.
| There's no way passive cash is viable at those returns.
|
| If Commercial Real Estate is paying 8.5% and someone
| starts offering "Crypto Commercial Real Estate" as a
| competing product for those same fundamentals but offers
| 400% return, would you still be unable to assess its
| viability?
| TuringNYC wrote:
| >> These investments were comparable to money market
| funds. There's no way passive cash is viable at those
| returns.
|
| Totally agree. But why would you compare crypto high
| yield accounts to MM funds, rather than, say, CLOs or CLO
| funds, or structured notes
| (https://pprcapitalmgmt.com/invest-in-a-real-estate-
| fund/) or factored receiveables funds
| robbywashere_ wrote:
| What's crazy is if this was so blatantly obvious too good to
| be true... why didn't the SEC stop it ?
| avar wrote:
| There isn't any prima facie problem with paying an
| extremely high interest rate.
|
| I'm sure you can find double digit interest rates for say
| bonds that represent payday loans, but you should expect
| the bondholders to default at a correspondingly high rate.
|
| But investors should be aware that higher rates imply
| higher risks.
| smileysteve wrote:
| Anecdotal, but btcJam was one of the first to the market of
| paying interest, and could offer 8% with significant
| reputation recourse.
|
| Btcjam were making the market between miners buying more
| equipment and capital much earlier.
|
| Eth staking was also in the plan this same time as FTX
| EVa5I7bHFq9mnYK wrote:
| Yup, i remember, I gave 3 loans of a few BTC there to three
| "AAA+++" borrowers, only one repaid the loan, partially :)
| Their "arbitration" decided in my favor, the catch was I
| needed to go find the debtors (with a fake Brazilian
| identity) myself :)
| geph2021 wrote:
| I'm really amazed you thought that 7% yield from savings at a
| time of 0% interest rates was anything other than a
| fabrication
|
| On the one hand, I agree with this: where was the 7% coming
| from?! There's a basic level of skepticism that should have
| raised alarm bells for the "average" person.
|
| On the other hand, this was an epic level of fraud. As an
| example, I was making ~8-10% off of peer-to-peer lending when
| rates were very low, done via very (seemingly) reputable
| lending platforms. Imagining if a SBF-level scammer was
| running one of these, and I very much feel for those that put
| trust in an overall system that generally doesn't have this
| scale of fraud.
| ska wrote:
| There doesn't even have to be a scammer involved. (Although
| is also clearly true that the entire ecosystem is a magnet
| for scammers)
|
| Any of these schemes had to involve a much higher risk than
| conventional investing. You can wave your hands as much as
| you want, but that doesn't hide the fact that there was
| (and still is) systemic risk that was by a) nature
| incredibly difficult to quantify and b) probably pretty
| high, given the returns. There is no free lunch.
| tombert wrote:
| Well, there was some hand-waviness claiming that GUSD was
| FDIC insured [1], and they kept comparing it to bank
| accounts. I will admit that I should have done more research
| before putting it in, but I just assumed that since Gemini
| was ostensibly working with regulators and they were
| plastering the safety of GUSD everywhere, I guess I just
| didn't do my due diligence. I'll accept my share of the
| blame.
|
| [1] https://www.gemini.com/dollar It still mentioned "FDIC"
| stuff in small print, but it was much more prominent in
| earlier stuff.
| ww520 wrote:
| 10 months ago when Voyager blew up, I've pleaded with
| people not to believe the FDIC status these crypto firms
| were claiming [1]. The misrepresentation by these firms was
| straight fraud.
|
| [1] https://news.ycombinator.com/item?id=31954115
| JumpCrisscross wrote:
| > _there was some hand-waviness claiming that GUSD was FDIC
| insured_
|
| This should be piercing-the-veil fraud if true.
| tombert wrote:
| They're actually being sued by the SEC over this,
| claiming it's an unregistered security.
| JumpCrisscross wrote:
| > _being sued by the SEC over this, claiming it 's an
| unregistered security_
|
| Good, but insufficient. Misleadingly using the FDIC's
| brand should open a criminal investigation.
| the_gastropod wrote:
| It's really unfortunate so many VC's and people in the tech
| industry lent credibility to such naked fraud. It made (and
| continues to make) regulation politically untenable. One of
| our political parties _continues_ to insist the crypto
| industry is "innovation!" and it'd be a mistake to stifle
| such incredible innovation. It's all bs.
|
| I'm sorry you fell victim to this. It's a shame the
| regulators, meant to protect consumers from this exact
| thing, weren't able to do their jobs. Don't take it as a
| personal failure. This was systemic, and you were served up
| by lots of deeply monied interests.
| hibikir wrote:
| But it's precisely that handwaviness that should make you
| not have to do research at all and smell a rat, as
| ultimately rate of interest and risk come hand in hand. It
| doesn't matter whether the instrument is based on crypto,
| real estate or pokemon cards.
|
| If someone is offering a high interest, very liquid
| investment with returns so high that you are better off
| taking a larger mortgage, and putting the extra money into
| the investment, there has to be a hidden risk component:
| Otherwise, why would anyone issue mortgages, instead of
| investing in this very liquid instrument? It's too good to
| be true.
|
| It's not unlike the people that spent money ordering
| cryptominers from butterfly labs: The expected return from
| buying them (pay the whole thing off in two months, and
| afterwards it's all profit!") just doesn't line up,
| regardless of the justification. Extraordinary returns
| exist, but they either require that you discover them
| yourself, or have to carry significant risks. So when
| someone is selling the opportunity to you, and you are told
| there's no risk, you have to know you are being lied to, no
| due diligence necessary.
| JeremyNT wrote:
| OK, now you're moving from the realm of genuine curiosity
| and into the realm of victim blaming.
|
| Before the collapse, FTX and crypto had a veneer of
| respectability. They had ads everywhere and the
| mainstream press treated them like legitimate financial
| investments.
|
| The failure here isn't of the individuals who get
| suckered with crypto bullshit, it's a failure in our
| ability to regulate and tamp down that kind of crap.
| Shame on the press, government institutions, and of
| course tech sector VCs, for either shilling for,
| investing in, or looking the other way while these frauds
| were taking people to the cleaners.
| graeme wrote:
| I talked to a lot of people at the time. You could say
| things like:
|
| * There is no free money. Why would there be free money?
|
| * It isn't FDIC insured. Look, it is a lie
|
| * It has ponzi economics, etc
|
| And it would get hand waved away. Agree that authorities
| dropped the ball, but the way a good con works is the
| mark _wants_ to get conned, they want to believe there is
| something too good to be true.
|
| This is not aimed at OP, who opened up, admonished
| themself, etc.
| SoftTalker wrote:
| Yes, it often boils down to recognizing that "this person
| is telling me what I want to hear" because we're very
| vulnerable to that.
|
| The world is full of liars, something one learns as one
| gets older.
| spacemadness wrote:
| They know this. Why are you trying to make them feel
| worse? I really don't like the culture around finance
| issues where everyone is treated like an irredeamable
| fool.
| prepend wrote:
| It's better to treat people like the redeemable fools we
| are.
| tombert wrote:
| I mean, I know. I lost my money. I wrote the post
| explaining that I feel stupid about it.
| bloppe wrote:
| [flagged]
| gumby wrote:
| The gender of posters is rarely clear so "nerdsplaining"
| is the appropriate term
| conradfr wrote:
| What does that have to do with anything?
| sally_glance wrote:
| Just wanted to chime in and say thank you for sharing. If
| everyone was too ashamed of sharing past stupidness we
| would have no guideposts at all for gauging our own
| inevitable stupidness.
| Xeoncross wrote:
| Sorry, we all make mistakes. Some people do dumb things
| with money, others with relationships, some with their
| health, and others with their time.
|
| It's hard to be successful at everything. Ask the friends
| of anyone here, they'll point at the things someone did
| right and the things they messed up to get their.
|
| Glad you're doing better.
| diversionfactor wrote:
| Don't sweat it. I've invested multiple hundreds of
| thousands in venture-backed startups over the past two
| decades, and lost all of it. None of the startups was
| successful. These were all audited venture-backed with
| experienced founders many of whom I've known personally
| in the Austin tech scene. Losing money is the rule in any
| kind of investing beyond the prevailing real interest
| rate. It's all speculation. By the sound of it your
| diversification is paying off. Actually you're quite
| smart in that regard, you didn't put it all into startups
| like me.
| fshbbdssbbgdd wrote:
| There were people in the comments here 11 months ago who
| thought the same thing:
| https://news.ycombinator.com/item?id=31434052
| tombert wrote:
| You know, it's very possible that I read this exact
| thread when it was fresh. I should have listened to you!
| prepend wrote:
| But that's so simple to validate. I mean, I have funds in a
| few accounts and every one of them shows up in FDIC's
| bankfind tool and "member fdic" is advertised by the banks.
|
| The link you posted does mention fdic but it says Gemini's
| deposits are fdic insured (probably true as what kind of a
| crazy company keeps cash in uninsured accounts). Definitely
| shady of them to word it like that as it's likely meant to
| confuse and mislead. But again, pretty easy to validate and
| disprove before sending any funds.
|
| I hope you get something back and I guess the good news is
| that you only make this mistake once in life and teach
| everyone in your family how to avoid.
| johnmaguire wrote:
| > But that's so simple to validate.
|
| Simple to who? Simple to you? I didn't invest in Gemini
| and also thought these returns were obviously bunk, but
| I've never heard of "FDIC's bankfind tool" before your
| comment.
|
| The guy already said he accepts his share of the blame
| for not doing DD, but I'm not sure why you're so
| insistent that it's entirely his fault when SBF was
| clearly committing fraud.
| prepend wrote:
| Simple to anyone with significant sums of money to
| invest.
|
| Either someone is competent enough to earn thousands to
| hold with FTX or competent enough to inherit win and not
| have it wasted away.
|
| Either way, if I have $10-100k or whatever and this isn't
| simple for me then the issue isn't FTX, it's me and I'm
| going to eventually lose it.
|
| I'm saying it is OP's fault because he invested in
| magical thinking. Of course it's also SBF's fault for
| committing fraud. But this is an entirely avoidable fraud
| as it's not a complicated con.
|
| If I buy magic beans from a traveler whose fault is it?
| It's certainly the traveler's fault for claiming they
| will grow into a beanstalk to heaven, but it's also my
| fault for believing such a tale.
| [deleted]
| SoftTalker wrote:
| > Simple to anyone with significant sums of money to
| invest.
|
| Remember Bernie Madhoff?
| prepend wrote:
| Hedge funds are quite different than cash accounts. And
| Madoff at least had a story with fake statements and
| whatnot.
|
| FTX was patently impossible.
| [deleted]
| tombert wrote:
| Yep, no argument that I should have checked the FDIC's
| bankfind tool, which I do make liberal use of now. I
| guess I just made the mistake of thinking that Gemini
| wouldn't have been able to do this for so long if it were
| a scam, especially since they repeatedly claimed they
| were working with regulators.
|
| I'm also reasonably sure that the FDIC insurance stuff
| was more prominently displayed on their site, though I'm
| having trouble confirming that so maybe I'm just
| misremembering.
|
| And indeed, I have helped a few people avoid these scams
| now. When friends of mine ask me about investing in
| crypto now, I tell them "I think you should buy Treasury
| Bills directly from the government for safe short term
| stuff, and probably just find a good low cost index fund
| from a registered broker for longer term stuff".
| johnmaguire wrote:
| You're not crazy that it used to[1] be less clear what
| exactly FDIC insurance applied to.
|
| Originally:
|
| > Gemini is a U.S. company regulated by the New York
| Department of Financial Services. GUSD reserves are
| eligible for FDIC insurance up to $250,000 per user while
| custodied with State Street Bank and Trust.1
|
| Later:
|
| > Gemini is a U.S. company regulated as a limited purpose
| trust company by the New York State Department of
| Financial Services. Each GUSD corresponds to a U.S.
| dollar held by Gemini in accounts at U.S. FDIC-insured
| bank accounts and money market funds holding short-term
| U.S. treasury bonds and maintained at a custodian. The
| cash portion of these GUSD reserves may be eligible for
| FDIC "pass through" insurance for Gemini customers, in
| the event of the failure of a bank holding the U.S.
| dollar deposit portion of the GUSD reserves.
|
| [1] https://web.archive.org/web/20211201224824/https://ww
| w.gemin...
| jesuspiece wrote:
| > What was your thought process in putting funds here? hope.
| desperation.
| londons_explore wrote:
| > I could have liquidated for money, but the market was pretty
| far down so I would have had to take a big haircut.
|
| Humans in general cannot 'time the market'. To think that you
| can is a fool's errand. Therefore, the fact your stocks are
| down isn't a good reason not to sell them.
| tombert wrote:
| I actually did end up selling some to pay the mortgage. It's
| not fun to realize a loss in my portfolio no matter what
| though!
| robocat wrote:
| Blaming SBF is almost pointless because you obviously
| needed the lesson - you did not learn previously by seeing
| the mistakes of others. You would have been taught the
| lesson eventually by some other random, and fortunately
| your lesson didn't take you to zero in your retirement.
|
| That said, you clearly also get a lot of other things
| right: admitting _your_ error, long term savings in a home,
| a good job, understanding what a portfolio is, plus other
| obviously smart decisions.
|
| Hopefully we all learn from your mistake - it is so easy to
| screw up or be beguiled into screwing up.
| thunky wrote:
| > Humans in general cannot 'time the market'. To think that
| you can is a fool's errand.
|
| OP wasn't trying to time the market. They had a liquidity
| issue and needed cash.
|
| > Therefore, the fact your stocks are down isn't a good
| reason not to sell them.
|
| Realizing a loss is the perfect reason not to sell. This is
| why smart people recommend having an emergency fund, so you
| don't have to take a hit and damage your long term goals when
| you find yourself in a short term pinch. Not selling is
| actually the most important part of owning stocks.
| latchkey wrote:
| Interestingly, even today you can still get much better than 7%
| in DeFi. No need to give your money to a curly haired dude
| living in a condo on an island. Who, at the time, was making a
| lot more than that on your funds.
|
| In DeFi, you give your money to a "smart" contract, which can
| of course still get hacked or what not. Always assess your
| risk/reward ratio.
|
| Where does the yield come from? Collateralized
| lending/borrowing markets. People are still gambling with
| crypto and they can do it better, if they can borrow funds. It
| got a lot smaller after the collapse of FTX, but hasn't stopped
| at all.
|
| Aave still has $7.5b locked up.
| xapata wrote:
| > the market was pretty far down
|
| If you're an efficient-market believer, there's no such thing
| as a "down" market, because the price is always correct.
| mrguyorama wrote:
| If you believe the efficient market hypothesis can actually
| apply to an existing stock market, I would like to offer you
| an incredible price to buy the Eiffel Tower! Hurry up! This
| offer is only valid for a few hours! People are lining up to
| get this offer
| kelnos wrote:
| I think it's reasonable to believe in efficient markets, but
| also understand that pricing in markets is a) made up of
| imperfect information, and b) subject to outside influences
| like emotion, propaganda, etc.
| xapata wrote:
| Those are inconsistent beliefs, if we're talking about
| Eugene Fama's hypothesis.
| gist wrote:
| > I sincerely hope that I never meet Sam Bankman Fried, because
| if I did I do not know what I would do but it certainly
| wouldn't be legal.
|
| You are insinuating physical violence (I will assume) which is
| never acceptable.
|
| And in your case you made a mistake ie
|
| 'I put a chunk of money in there'
|
| and further SBF had no control over this: 'because this all
| unfolded right after I got fired from my last job, when I
| really needed my liquid money to pay for things like "my
| mortgage" and "food".'
|
| The takeaway for others is events happen in life. Could be
| someone's fault could be nobody's fault.
|
| Having all your eggs (or no eggs) in one basket can and does
| lead often to disaster.
|
| Sorry for the harsh way of putting this. What you are
| indicating is that you had no cushion and made the mistake of
| being lured by a high return and ignored potentially any
| downsides. (Gemini is not and did not claim to be an FDIC
| insured bank. Also crypto can and does lose value unlike money
| in a bank. Even if you had been able to get 7% return if crypto
| loses value you lose money. Same as or similar to a dividend
| paying stock).
| tombert wrote:
| > You are insinuating physical violence (I will assume) which
| is never acceptable.
|
| I mean, the guy stole about more than ten thousand dollars
| from me. I wouldn't _actually_ hurt him, I was engaging in a
| bit of hyperbole (which I feel you 're deliberately refusing
| to understand), but fundamentally I am not going to lose a
| ton of sleep if something bad happens to SBF.
|
| > and further SBF had no control over this: 'because this all
| unfolded right after I got fired from my last job, when I
| really needed my liquid money to pay for things like "my
| mortgage" and "food".'
|
| No, but it is why I am especially upset over this stuff. If
| it had happened when I was gainfully employed at the time I
| would obviously be upset to have thirteen grand stolen from
| me, but it especially hurt because I was a victim of all the
| layoffs that happened last year. I didn't claim there was
| some divine rationality, which I also think you are
| deliberately not understanding.
|
| > Having all your eggs (or no eggs) in one basket can and
| does lead often to disaster. > Sorry for the harsh way of
| putting this. What you are indicating is that you had no
| cushion
|
| In the post that you are responding to, I mention that I
| _did_ have a cushion, and I didn 't put all my eggs in one
| basket. I had a fair bit of stock and ETFs. I had to sell in
| a down market, so that wasn't fun, but I feel like you didn't
| finish reading the post.
|
| > Also crypto can and does lose value unlike money in a bank.
| Even if you had been able to get 7% return if crypto loses
| value you lose money
|
| This was GUSD, which was ostensibly pegged 1-to-1 to the US
| dollar, so it wasn't supposed to be able to "lose value" in
| any substantial way.
|
| > Gemini is not and did not claim to be an FDIC insured bank.
|
| No, but the verbiage on this was less clear on this in the
| past: https://web.archive.org/web/20211201224824/https://www.
| gemin.... Thanks johnmaguire in this post:
| https://news.ycombinator.com/item?id=35907642
| gist wrote:
| I looked at that archive.org page. That is the marketing
| page for the GUSD. (And separate the actual signup page my
| guess is it goes into a bit more detail.) Also that is not
| the page for geminiearn - that is where the issue was with
| losing money.
|
| This page: https://web.archive.org/web/20211201212024/https
| ://www.gemin...
|
| Now I will note that on that page it does say this:
|
| "Gemini is partnering with accredited third party borrowers
| including Genesis, who are vetted through a risk management
| framework which reviews our partners' collateralization
| management process. Additionally, on a periodic basis we
| will conduct an analysis of our partners' cash flow,
| balance sheet, and financial statements to ensure the
| appropriate risk ratios and healthy financial condition of
| our partners."
|
| But the thing is this. There is literally no way to prevent
| against outright fraud of a counter party. (See the Crazy
| Eddie story where they were shifting inventory from store
| to store when they were being audited).
|
| Look one thing I will tell you here let's call it 'the
| bottom line'. I am an old timer. And I right off saw crypto
| involved risk and as such I did not either make or lose any
| money on crypto. As an again 'old timer' it just didn't
| make sense to me. I would have never gone down this road
| because being around for so many years right off it had the
| potential for issues. Plus again there is always
| counterparty risk.
| alexb_ wrote:
| It's easy to say it's never acceptable when it's not _your_
| life savings that have been stolen.
| cwkoss wrote:
| FTX failure isnt a cryptocurrency problem, its a plain old
| boring case of financial mismanagement and fraud.
|
| Good reminder to all here that if you don't hold they private
| keys to your crypto, all you have is an IOU from a risky new
| business.
| lazide wrote:
| It's a crypto issue. You can figure that out by restating
| their advertising/business model using 'cash' instead of
| crypto, and asking yourself how long they could go before
| getting shut down.
|
| Hint: they likely could never have even gotten to the point
| of taking customer deposits, or would have been shut down
| within weeks or months at most by regulators.
| dragonwriter wrote:
| > It's a crypto issue. You can figure that out by restating
| their advertising/business model using 'cash' instead of
| crypto
|
| Yeah, I think it falls down pretty quickly; if nowhere
| sooner, then at the point where "We issue our own
| cryptocurrency" turns into "We issue our own cash".
| dlubarov wrote:
| Then the issue isn't with crypto itself, but with the
| regulation of crypto.
| phone8675309 wrote:
| Which is a philosophical issue with crypto - the first
| cryptocurrencies were designed specifically to avoid
| government regulation.
| grey-area wrote:
| And if you do hold the private keys to your crypto, all you
| hold is an IOU from a risky market full of fraud and rug
| pulls.
|
| Many coins have failed, many more will fail, and many if not
| all will drop to zero as the mania subsides. When that
| happens it doesn't matter where your keys are if the market
| turns illiquid in seconds during a crash.
| lesuorac wrote:
| I mean it still kind of matters where your keys are if the
| market turns illiquid. Its the difference between losing an
| asset and not.
|
| I can definitely see a lot of cryptocurrencies losing a ton
| of a value but they do have a legitimate use for
| remittances. If you're transferring $1000 it doesn't matter
| if you convert it into 1 bitcoin or 100 bitcoins since your
| wife is cashing it out the next day for 20,000 pesos.
| everfree wrote:
| You hold "an IOU from a market"? I'm not sure that's how
| that works.
| prepend wrote:
| In FTX's case it's impossible to hold your keys, right. The
| condition to get interest payments is to allow them to manage
| your funds and invest/loan/etc.
|
| Is there any crypto "bank" that promises to pay interest
| while you hold your own keys?
| cwkoss wrote:
| There are decentralized staking mechanisms, but you do take
| risk in exchange for the interest rewards.
| CapstanRoller wrote:
| How would holding keys to a crypto wallet full of FTT prevent
| large-scale fraud via currency manipulation and subsequent
| devaluation of your holdings?
|
| This is indeed a failure of crypto, because FTX was the one
| primarily in control of the coin supply.
| EGreg wrote:
| Bitcoiners ask the same thing about holding a bank account
| full of dollars, or in many other countries (like Lebanon,
| etc.) even worse currency, or they can just freeze your
| account, etc.
|
| Anyway, it should be clear to people that the 7% _in an
| outside currency_ has to come from somewhere. And most of
| this stuff has been a zero-sum game so the money comes
| from:
|
| 1) Investors who bought the top
|
| 2) Traders who got liquidated
|
| 3) IPO investors who bought shares in a money-losing
| business model like WeWork
|
| 4) Advertisers whose ads didn't pay off (yes, advertising
| is a zero-sum game too)
|
| Sadly, most people do not realize it's a zero sum game and
| the bagholder class only grows and grows until the
| speculative bubble pops.
| ebiester wrote:
| If you have enough money, you will not be immune to
| rubber hose decryption attacks or other shows of force.
|
| Either you live in a country where you can trust your
| money system, or you don't.
| [deleted]
| 3327 wrote:
| [dead]
| jmyeet wrote:
| I'm sorry for your loss but I hope you take this as a lesson
| that crypto is just snake oil. Some in these comments try and
| paint this as just an FTX problem but it's not.
|
| For cryptoskeptics such as myself it's been fascinating to
| watch as the crypto world speedruns the lessons of debt,
| finance and the banking system that led them to work the way
| they do. A lot of otherwise smart people in other areas
| discovered those smarts don't automatically transfer to
| disrupting the financial system.
|
| What ultimately underlies the financial system-- _including
| crypto_ --is trust and, beyond that, the military might of
| governments.
|
| To your specific case, I saw a quote (that I can't find) that
| basically said that any investment consistently offering above-
| market returns is eitehr a scam or has risks that you cannot
| see.
|
| Bear Stearns returned above market returns every month until it
| didn't, and that was that.
| tombert wrote:
| Yep, I replied in a sister comment [1], I am _wholly_ turned
| off by cryptocurrency at this point.
|
| I was kind of enamored with the tech behind blockchains (and
| to some extent I suppose I still kind of am), and saw the
| insane growth it was going through, and drank the stupid
| kool-ade.
|
| Seeing it all go pear-shaped has really highlighted _why_ we
| regulate banks in the way that we do. It 's not perfect, but
| I sleep better knowing that an actually-insured bank won't
| really run away with my money.
|
| [1] https://news.ycombinator.com/item?id=35907377
| e63f67dd-065b wrote:
| This reminds me of an old finance joke my professor told me
| (this was when rates were 0): if somebody offers you 20%
| interest p.a. on an FDIC insured account, and you put in
| $1,000,000 today, how much money will you have in 5 years?
|
| The correct answer is 0, because you're being scammed.
| yieldcrv wrote:
| [flagged]
| tombert wrote:
| "never learn", give me a fucking break.
|
| Cryptocurrency is just slow, bad, unregulated, pretend money.
| That's the reason it's so rife with fraud. If I had put my
| money into a boring FDIC insured bank I'd still have all of
| it right now. I thought cryptocurrency was a good idea, put
| my money into one of the more trusted exchanges, and now it's
| gone. I guess I could have stored my wallet on a hard drive
| or something, just like I could have withdrawn all my cash
| and put it under my mattress, but I really don't consider
| that progress.
|
| So I _did_ learn; the banks are regulated for a reason.
| mrguyorama wrote:
| You could have literally had your money in SVB and come out
| better.
| yieldcrv wrote:
| Its funny how you did it again, so once again, its weird
| how you don't feel like an idiot for ever thinking that
| custodying your money in mismanaged opaque businesses was
| the problem.
|
| yes, you should have stored your self-custodied your assets
| and cryptocurrency does not exist for any other reason.
| unlike banks and brokerage houses, crypto exchanges exist
| for passing through to your destination: self custody.
|
| who said anything about "progress"? so now you want to
| pretend like you adopted some ethos about a cryptocurrency
| future but ignored _everything_ about how to use crypto and
| pretend you burned because "you believed", but only in a
| mismanaged business that catered to your greed? okay that's
| a legitimately hilarious take.
|
| as the late steve jobs said: you're holding it wrong.
| tombert wrote:
| What lesson should I be learning here exactly? Again, if
| I had "custody'd my money in an opaque business" like,
| you know, A BANK, I would have been fine. Clearly the
| "opaqueness" isn't an issue.
|
| But I agree, if you want to have your digital monopoly
| money, it's probably better to play with that on a hard
| drive and never actually do anything with it.
| yieldcrv wrote:
| Its really just the reductiveness of your arguments.
|
| I'm wondering if its it even worth listing the various
| strawman arguments and rebuttals because its not even
| clear if you realize they are strawman nonsequiturs. But
| I'll continue on good faith.
|
| The most obvious observation being that you wouldnt have
| received your 7% in a bank, so taking the least risk isnt
| really the gotcha alternative you present it as.
| Similarly there are many autonomous crypto services that
| function without incident, that also offer yield,
| exchanges and "staking services" like Gemini/FTX/etc were
| using behind the scenes alongside other things they
| shouldnt have been using. Many people use stable value
| assets to earn yield in those autonomous platforms and
| they are still fine. This has nothing to do with storing
| it on a hard drive and doing nothing with it. But we can
| talk about that too, people just use separate addresses:
| savings, spending, speculation. Savings would be the
| perpetually offline crypto.
|
| Its really analogous to how you have the rest of your
| cash and portfolio. The reductive part is that you
| mentally had a "crypto" position (parked in mismanaged
| businesses) instead of using crypto. Like people would
| say they're "using cash".
|
| People are trying to point that out to you, you saying
| you were an idiot for considering cryptocurrency when you
| never actually did.
| fundad wrote:
| It takes a big person to admit it and I think this is the
| first.
| jokoon wrote:
| I'm not american, but sometimes I wonder if those things happen
| because a smart evil person manages to convince another negligent
| and unintelligent person to do a bad thing and take
| responsibility for it.
|
| I mean I don't think we need full communism to prevent and solve
| this kind of crazy finance thing, but it's really weird how
| americans will often fight against common sense regarding
| finance, safety and risks.
|
| There are days I want to believe capitalism can be "reformed" and
| made better, but other days, I tend to think finance should be
| managed and tightly controlled by the government to limit the
| level of damage foul play can do. And yet I can already hear
| armchair economist answering me about the invisible hand, the
| collective intelligence of the free market, decentralized
| decision making, etc.
|
| It is really weird how currency and economics have been hijacked
| by politics. Such a weird phenomenon.
| libraryatnight wrote:
| As an exasperated American who does have occasional
| conversations with other exasperated Americans, I know a lot of
| us see this and are stuck in our social/cultural current of
| people repeatedly informed that they should be angry and scared
| at reform of any kind.
|
| You can't suggest anything without being browbeaten to death
| with someone's "Freedom" ideal that generally excludes solving
| any problems.
|
| We're being shot. Don't ask about gun control, if we do that
| we'll spiral into a tyrannical hellscape (the irony)
|
| People can't afford to get sick. Don't mention socialized
| medicine, you'll just end up footing the bill for illegals.
|
| The capitalist class is abusing the working class, unions have
| their own problems so "ehh," and then there's people bending
| over backwards to take the perspective of the billionaires.
|
| I expect any drastic finance reform would be met with similar
| fear from a class of people only ever abused by the thing
| they're protecting.
| vxNsr wrote:
| I'd be happy to engage: please suggest a better system that
| does a better job of channeling people's selfishness vs
| capitalism.
| fallingknife wrote:
| Because governments have a great track record of preventing
| harm when they take things over.
| AllegedAlec wrote:
| All we can hope for is that the entire policule is crucified.
| These financial criminals keep getting away with stealing absurd
| sums and we need examples to be made.
| phone8675309 wrote:
| It's always wild to me when people bring up the polycule. The
| people who defrauded you are criminals. Who cares who they
| slept with and how they decided that unless you're a bitter
| baby virgin who is jealous they got your money and they got sex
| and you're left with just your right hand and an empty bank
| account?
| GCA10 wrote:
| The IRS has been signaling hard the past few years -- to all
| employers, big and small -- that the "contractor" category only
| works if you meet a bunch of tests. Anyone with a Gusto account,
| or a working HR department, knows this.
|
| From a social-equity standpoint, I'd rather see FTX depositors
| get some cash, instead of having the IRS book the biggest
| recoveries. But in terms of what the law is, if we're looking at
| total FTX contempt for the right way to classify people on its
| payroll, it's hard to argue against the IRS coming down hard on
| this one.
| phone8675309 wrote:
| Maybe if they break FTX's finances and spirit with this
| enforcement action it will both give the people willing to pull
| shenanigans like this pause to do so and also give investors
| pause from putting their money into obvious scams.
| thesausageking wrote:
| You can't paint it with such a broad brush. Employment laws are
| very fact specific and differ state to state. California was
| pretty sure Uber drivers were contractors, they brought an
| action, and the courts found against them. You really can't say
| unless you drill into a number of hairy specifics.
|
| Not to mention, FTX was in the Bahamas and Alemada Research was
| based in Hong Kong, so people working there may not even be
| covered by US employment law.
|
| This claim is the IRS to making up the biggest plausible number
| it can and then using that to review the facts and make a case
| to the bankruptcy judge.
| Trias11 wrote:
| I guess IRS has bigger elbows than other creditors to put itself
| in front of a judgement.
|
| Many others can pretty much pack and go
| [deleted]
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