I am not trying to convince anyone to buy crypto. I do not own any and I never would. As an investment it is far too fraught to be worthwhile.
I am pointing out that there can be situations where it might make sense to use as a currency. I was taken to task for the “zombie apocalypse” quip so I gave real world examples where people do use it because it makes the most sense for them when the local currency has crashed hard. In the US there is no need unless you are a migrant worker who needs to send money back to one of those countries.
And, even western countries can be have their currency tank. See hyperinflation during the Weimar Republic in Germany after WWI.
The fact that “liquidity crunch” is being used to describe organizations whose only purpose is to hold what ostensibly is a currency… kind of says it all about the reality of that “currency”, doesn’t it.
Eh, not really. Again: completely ordinary banks can face exactly the same issue. If all of their depositors come asking for their money at once, with no new depositors coming in, then 90% of them will lose their money. That is, excepting FDIC insurance.
What’s interesting about FDIC is that its very existence makes itself unnecessary. Bank runs happen when depositors lose confidence. And there’s no quicker way to lose confidence than to see everyone else start withdrawing money, such that you’ll lose everything if you don’t pull out yourself. But that doesn’t happen if you know you’re insured, and so the bank run doesn’t happen in the first place.
FTX was of course fraudulent in many other respects. Just not the one where an organization dedicated to holding currency can’t face a liquidity crisis. The whole point to banks and bank-like entities is that you can make money off the deposits while the depositors aren’t using them.
But FTX wasn’t a bank-like entity. Its terms of service prohibited loaning customers’ assets.
From this article:
FTX.com’s terms of service make it clear that the company promised users it would not do what it is recently alleged to have done.
“You control the Digital Assets held in your Account,” says Section 8.2 of the terms. “Title to your Digital Assets shall at all times remain with you and shall not transfer to FTX Trading.”
The terms continue: “None of the Digital Assets in your Account are the property of, or shall or may be loaned to, FTX Trading; FTX Trading does not represent or treat Digital Assets in User’s Accounts as belonging to FTX Trading.”
And yet here we are . It certainly appears that FTX lied about loaning out customer assets (or somehow converting them to some other asset type). My point is just that the existence of a liquidity crunch does not inherently mean that cryptocurrencies (or crypto exchanges) are fraudulent, because the same could be said of normal banks. The fraud was in all the lies about what they were doing, not so much the situation itself.
But when an exchange that promised not to loan out customers’ assets finds itself in a liquidity crunch because it did exactly that, “fradulent” seems an appropriate adjective.
How do you send money back to your family in Argentina from the US?
Remember, places like Argentina limit how much money can be exchanged (USD $200). After that you need to use the black market which is hugely expensive (about twice the going exchange rate).
I’m not understanding this. I was recently in Argentina, where the official exchange rate is ~177 Pesos to the US dollar. The “street” rate varies, but it’s fairly easy to get 320 Pesos per USD (when presented in the form of $100 bills). This can be done in a small store, dealing with a non-sketchy-seeming guy behind a counter.
So how does it work when sending USD to Argentina?
@Straight_man said in effect “The bank run at FTX proves crypto currencies are all a scam.” To which @Dr.Strangelove said in effect “Yes, there was a big scam at FTX, but your conclusion doesn’t follow from that.”
IOW some crypto currencies may be scams, some may be legit. But the bog-standard “empty vault” scam at FTX says nothing about that pro- or con-.
It’s obvious that the failure of FTX does not prove crypto currencies are all a scam - no one failure could do that.
But the number of failures, scandals and major problems ought to make any sensible person skeptical. Recent major problems include FTX, Luna, Celsius, Moonshot & Save the Kids. No doubt there are plenty more.
Agree completely. The whole of cryptocurrency is what we’d call “unregulated finance”. Which amounts to a license to fleece rubes, and little more. Bad actors will drive out good in any unregulated environment. The fact we’re talking finance just means the rate of drive-out and the scale of crimes gets really, really big really, really fast.
Yep, and thanks for elaborating. My comment was just a narrow reply to what @straight_man had said. FTX is still a complete fraud, of course. I skimmed the indictment against SBF, and it’s all pretty much variations on:
Misappropriating funds
Transferring funds illegally
Lying about it
All bog-standard financial crimes that have been performed since time immemorial. That’s why we have laws for them, after all.
Agreed that “unregulated finance” is inevitably a breeding ground for these kinds of crimes, but that the main differentiator against other environments is that the scale can get so huge.
What am I saying; of course I’ll comment. This is a man whose entire worldview appears to revolve around not wanting to be subject to the authorities. And yet as soon as his precious bitcoins are stolen, he whines that the authorities are not helping him. One of the commenters found this old tweet, which I’d say “aged like milk,” except that milk usually lasts longer than a week and a half:
That a core bitcoin developer still could not protect his assets against hackers should be a bit of a hint that maybe cryptocurrencies don’t actually achieve the security they claim to, and in exchange get no real legal protections. Sort of a bad trade.
Having now watched a fair amount of the guy talking, I have to come to an inescapable conclusion; Sam Bankman-Fried is stupid.
I don’t mean he’d score poorly on an IQ test. He is educated and by all accounts is talented in math. I mean he’s stupid; he doesn’t actually know very much, and he’s not really good at anything. He is just stunningly dumb. I cannot find evidence he has ever said anything insightful, and he’s staggeringly oblivious. I don’t just mean since FTX collapsed; I thought he was dumb BEFORE. I wouldn’t have trusted him to come over and feed my cat.
The fact this dipshit fooled so many people for as long as he did is not a good sign.
When someone talks to you and what they’re saying doesn’t make any sense, generally one of two things is assumed.
The person is an idiot and they don’t know what they’re talking about.
The person is a genius and you are too stupid to understand them.
His skill was getting people to believe the second scenario, when all along it was the first.
I think he also might have that rare skill that certain people possess, particularly criminals and/or politicians (and I won’t name names because this isn’t P&E). But some people have this almost animal-like cunning that gets people to trust them, even practically deify them, without actually being smart. They just know what to say to get people to trust them. They are devious and shrewd, and look for and use people to get what they want. They gather large amounts of wealth illicitly and then lose it all when they finally get caught and exposed.
SBF first tried to convince people he was a genius, then he tried to convince people that he was naive and didn’t understand what was happening when money got “misplaced”. “Aw shucks, I dunno where that eight billion dollars went, I swear fellas! It was an honest mistake.” All of that was BS. He was an intentional criminal from the start, seeing a financial system he could exploit. I think he hoped that he’d get away with it all, because crypto is unregulated, he operated outside of the US, and he moved things around between different companies and accounts/wallets enough that people wouldn’t be able to figure out what happened. Unfortunately for him, he got caught, and he’s going to pay immensely for it.
"Some of his assertions contradict federal prosecutors and Mr. Bankman-Fried’s own former associates. At the end of the post, Mr. Bankman-Fried wrote, “All of which is to say: no funds were stolen. Alameda lost money due to a market crash it was not adequately hedged for.”
“The Wall Street Journal has previously reported that FTX lent billions of dollars’ worth of customer assets to fund risky bets by Alameda, and that the hedge fund’s chief executive and senior FTX officials knew about that decision to send user funds to Alameda.”
Amusingly, SBF’s Substack originally came with an option for paid subscriptions/financial support, but that was dropped after attention was called to it. Kind of an oops moment for SBF.
. It certainly appears that FTX lied about loaning out customer assets (or somehow converting them to some other asset type). My point is just that the existence of a liquidity crunch does not inherently mean that cryptocurrencies (or crypto exchanges) are fraudulent, because the same could be said of normal banks. The fraud was in all the lies about what they were doing, not so much the situation itself.