Crypto & the collapse of FTX

[BamaNation]

This whole thing with Sam Bankman-Fried (aka SBF in crypto parlance) is totally fascinating to me from a business professor and rational personal finance champion. Blockchain is an awesome technology with many practical and innovative applications. Crypto, not so much.

Too many nefarious dark shadow creatures like SBF doing who-knows-what in this wild west of "anti-fiat" finance. My empathy gene is missing so my care for those who thought FTX was a safe place to place money and have lost everything they deposited is close to negative infinity.

I have tried, and failed, to understand why anyone would put money into crypto - other than a total speculative move. I have been tempted to buy one BTC and let it ride to 0 or the moon but haven't done so. Maybe if it gets below 10K I'll buy that lottery token

Beyond that, imagine being worth $16+ Billion (with a B) last Sunday and being bankrupt on Friday. Hopefully - for his sake - he has stashed some earnings somewhere where his family can get to it while he's in prison.

Below is a pic of the CEO of his Alameda Research company (and possibly his girlfriend) - which was doing derivative crypto trades using money borrowed from his FTX platform. If you read his mea culpa on twitter (language NSFW) it's obvious he's very sorry but also clueless (or soulless) for what he was doing with client money. There's also a touch of machiavellian brilliance from FTX/SBF's arch-rival Binance's CEO (named CZ in crypto parlance) for making aggressive moves causing the fall of FTX. Watch for the movie in 2025 on this whole thing.

Bankman-Fried’s Assets Plummet From $16 Billion to Zero in Days

(Bloomberg) -- The entire $16 billion fortune of FTX co-founder Sam Bankman-Fried has now been wiped out, one of history’s greatest-ever destructions of wealth.Most Read from BloombergMusk Warns Twitter Bankruptcy Possible as Senior Executives ExitMusk’s First Email to Twitter Staff Ends Remote...

finance.yahoo.com

 

[TexasBama]

It's not appreciably different from a pyramid scheme.

 

[whatsamatta U]

I have never understood nor been able to wrap my head around the crypto logic. It always seemed to be based on a supply/demand concept where the supply was stagnant and the demand was artificial. I have friends that have crypto and I don't understand why.

 

[PA Tide Fan]

It's always best to stay away from investments that have no earnings, and that even includes silver and gold. Crypto requires the "Greater Fool" theory to work. In my younger days I once tried to dabble in the FOREX market a bit and lost. Fortunately it was just a small amount.

 

[BamaNation]

Saw an interview with Carl Ichan yesterday. Love him or hate him, he's a brilliant guy. Said he spent quite a bit of time trying to learn about crypto and how it worked and how it was valued. Came away not being able to understand it and he doesn't invest in things he doesn't understand. A lesson all investors should learn.

 

[B1GTide]

IMO, the tech has value as an exchange system, but nothing else. My son make over $50k in crypto trading on an initial $3k investment and got out. He saw it as gambling and didn't care if he lost. But he won't touch it now.

 

[B1GTide]

Saw an interview with Carl Ichan yesterday. Love him or hate him, he's a brilliant guy. Said he spent quite a bit of time trying to learn about crypto and how it worked and how it was valued. Came away not being able to understand it and he doesn't invest in things he doesn't understand. A lesson all investors should learn.

Warren Buffett said the same thing.

 

[BamaNation]

IMO, the tech has value as an exchange system, but nothing else. My son make over $50k in crypto trading on an initial $3k investment and got out. He saw it as gambling and didn't care if he lost. But he won't touch it now.

The tech of blockchain is already being used in really cool ways - food supply chains, accounting/finance audit trails, medical chain of custody, etc. I expect it to be used more in legit banking transactions in near future as a security/verification method.

I do a session on personal finance for my senior students who are about to "get paid" ... most making 3-4X more per year than they've ever made in their lives ... basically talking about the same philosophy I've posted here in my personal finance posts. I always have one or two who try to convince me that crypto is the way of the future and I need to get in now, but not buy BTC and instead get some esoteric token because of the "features" that token offers over all others.

It's always an interesting philosophical discussion but at the end, I say to them that when their favored token does go to the moon, to not forget to pay it forward / give back. I hope they do make a mint but I don't expect it.

 

[BamaNation]

To further my thoughts here, I think the outcome of this is that crypto will now be regulated beyond anything they thought possible.

 

[BamaNation]

Here's some pretty interesting info from a CNBC interview of VC Anthony Scaramucci on the FTX investment in his Skybridge Capital (no comments on The Mucci's 7 days in the White House press room, please!)

Scaramucci talks FTX, Sam Bankman-Fried and 'the worst week in cryptocurrency history'

Anthony Scaramucci spoke about friend and business partner Sam Bankman-Fried on CNBC's "Squawk Box" on Friday morning.

www.cnbc.com

This is so rich ..
" Bankman-Fried said his first mistake was poor internal labeling of bank-related accounts, which meant that he was “substantially off” on his sense of users’ margin. 'I thought it was way lower.' "


also...from Scaramucci:

“When Three Arrows went down, it could be possible, Andrew, that Sam had difficulty then, and then he made some decisions that turned out to be disastrous for him and both sides of this business,” he said Friday, speaking to CNBC’s Andrew Ross Sorkin.

Scaramucci told “Squawk Box” that he went to the Bahamas to help Bankman-Fried as an investor and friend. When he got there, he says, it appeared beyond the point of a simple liquidity rescue.

In other words, the Three Arrows collapse caused SBF to be in a bad financial decision and since SBF thinks he's smarter than everyone else he put billions at stake in derivatives and hedge positions to try and get back. CZ/Binance called him on it and the house of cards began tumbling down and Humpty Dumpty had a great fall.

 

[dtgreg]

I have never understood nor been able to wrap my head around the crypto logic. It always seemed to be based on a supply/demand concept where the supply was stagnant and the demand was artificial. I have friends that have crypto and I don't understand why.

In my opinion, Crypto is the modern equivalent of a scarce commodity that proponents want to push as "Digital Gold". There are folks who again, in my opinion, have no concept of monetary history and the dumb luck that allowed the United States to become a world power. These people hate "Fiat Money" which is the ability of a government to print money with no hard asset to back it. These people want to be the masters who own the asset(s) that allow the governments to print money, thereby making said owners the defacto rulers.

Gold, stable and tangible as it is, really has no reason to be the sole medium of exchange. And, although it IS tangible, it is extremely difficult to transport. Also, it is not immune from being lost at sea or stolen. It can be hijacked, melted down and re-purposed without a trace of previous rightful ownership.

Crypto, in theory, can be instantly transmitted and stored the world over for basically free. Using blockchain ledgers, the preponderance of record-keeping the world over provides insurance of rightful ownership.

When I was a child I heard about the Great Depression. My grandfather had opened up a barbershop with his partner in Cordova and after less than a year, the Crash of 1929 happened. My family would say things like "folks didn't have money for haircuts". I naturally took this to mean they had to become frugal, which, of course, they did. What I didn't understand was that there was LITERALLY NO MONEY IN CIRCULATION. There were no pennies, dimes, nickels, quarters or dollars in the registers. It all was sucked up by the central banks when everybody's loans were called and when the over-inflated values of commodities came crashing down. It was AGAINST THE LAW for the Federal Government to print money to help pull us out of the Depression. Even though everyone knew that the land, buildings, products and labor in the United States and the world wasn't worthless overnight, there was nothing to be done legally. Hoover was stymied for four long years because his party was the party of not just "Sound Money" but gold, in particular. I can recommend some reading for those interested.

Roosevelt came in with a mandate to get us off the Gold Standard. It was 1968 before Nixon finally put the last stake through the heart of "Sound Money" and we stopped printing Silver Certificates and making coins from silver. Since then, we've had a good bit of inflation. It has benefitted the world and the poor especially. Inflation forces the rich to invest in that hard-working young couple at the end of the street and not bury their money in the back yard. We don't have to depend on the dumb luck of a huge gold strike to increase the money supply so that we can finance our heavy industry like steel and pay for our defense and infrastructure.

Crypto MAY have a place in finance or at least commodities, just like gold or silver or anything else. It should NEVER replace fiat money. Bad things can definitely happen when money is printed irresponsibly. But we are supposedly a government of the people, by the people, for the people. If we are irresponsible, we will pay a price. We should NEVER be captured by invisible, outside, unelected interests.

 

[BamaNation]

More thoughts .. this is EXACTLY why traditional financial institutions should not get involved in trading or transacting in crypto. Even the platforms / companies that are considered to be the safest/most established can cause contagion. Then we will all suffer because of snakes like SBF.

updated 12:22pm CT confirming my fear: CNBC just said the amount owed by FTX could be 2X what Enron owed at its implosion. Also reporting that SBF has "ghosted" those who were close to him and nobody knows where he is and he isn't responding or answering.

 

[dtgreg]

More thoughts .. this is EXACTLY why traditional financial institutions should not get involved in trading or transacting in crypto. Even the platforms / companies that are considered to be the safest/most established can cause contagion. Then we will all suffer because of snakes like SBF.

updated 12:22pm CT confirming my fear: CNBC just said the amount owed by FTX could be 2X what Enron owed at its implosion. Also reporting that SBF has "ghosted" those who were close to him and nobody knows where he is and he isn't responding or answering.

This is what happens when you are naive and you've no conception of a bank failure because you grew up post-1933. Folks are so willing to deposit their assets in "Fred's Bank" which is totally unregulated and then they are surprised to learn Fred was irresponsible, stupid or crooked and he lost / stole all their net worth. Just beggars belief until you think about how stupid and ignorant the average person is and then realize half the people you meet are more stupid / ignorant than that (HT to Carlin).

 

[Bamaro]

I have never understood nor been able to wrap my head around the crypto logic. It always seemed to be based on a supply/demand concept where the supply was stagnant and the demand was artificial. I have friends that have crypto and I don't understand why.

Same goes for non-fungible tokens

 

[crimsonaudio]

 

[whatsamatta U]

Once you get into monetary discussions, it’s amazing how many people don’t even understand the Federal Reserve. Most think the US gov print money as we need it. Then you get into crypto and most people get left behind real quick.
To me crypto is nothing more than a speculative day trade where you get in, make 10-20% gain, and get out quickly.

 

[TexasBama]

 

[4Q Basket Case]

There is no governmental taxing authority backing crypto.

It has almost no value as a medium of exchange — vendors willing to accept it as payment for anything tangible are few and very far between.

So it has value only because owners think someone else will come along and pay them for it — in dollars or some other currency which is backed by a governmental taxing authority and is universally accepted as payment for goods and services.

IOW, crypto is the book definition of a pyramid scheme.

In addition to not being backed by any taxing authority, there is no governmental regulation.

Because there is no governmental regulation, there is no lender of last resort — like the Federal Reserve is for American banks.

That’s why FTX is circling in amongst the normal contents of a toilet’s whirlpool, and nobody will step in to bail them out. When the dust settles on FTX’s Chapter 11, I‘ll be shocked if investors get 10 cents on the dollar — they might get nothing at all.

Love them or hate them, nobody ever called Carl Icahn or Warren Buffett stupid. Neither can understand crypto or how it derives value, and therefore don’t invest.

Let that sink In for a second….one of the greatest private equity minds in history (Icahn), and one of the greatest value investors of all time (Buffett), publicly state that it makes no sense to them.

Other than that, what could possibly go wrong?

This is the point at which the kid in the crowd says the emperor has no clothes.

If Bitcoin tanks further and you want to take a flyer, betting that you’re closer to the bottom of the pyramid than the top, just be honest with yourself (as BN is being) and call it gambling on being able to find that greater fool. Don’t bet more than you can accept a 100% loss on and still walk away saying, ”Well dang….but it sure was fun.”

Personally, if I’m going to gamble, I’m going to Las Vegas. At least there, so long as I’m playing, they don’t charge me for booze and it’s served by attractive women in scanty clothing.

 

[Elefantman]

I don't get it.
Why is this:

101111010101010101111010000101010010011110011110011110000111111010101010101

Not worth anything today?

I paid $1000 for it last month.

 

[selmaborntidefan]

GUILTY!!!

Sam Bankman-Fried found guilty on all seven criminal fraud counts (cnbc.com)