4 ms·

This is a somewhat naïve view. Investing in high quality short term commercial paper or treasuries is essentially the same or less risk vs. letting $XX billion

This is a somewhat naïve view. Investing in high quality short term commercial paper or treasuries is essentially the same or less risk vs. letting $XX billion sit in some bank account. In accounting, these instruments are actually regarded the same as cash and called “cash equivalents”.

NationalPark 5y ago
If it’s the same risk then why does it pay more than T bills? Regardless, the issue is the misrepresentation, not the actual assets (which most people don’t believe add up to the total anyway, right?)
- AlexandrB 5y ago
  We haven't seen a true market crash in >10 years and everyone has forgotten why commercial paper is not the same as cash.
- kiklion 5y ago
  I have no crypto investments, but this is basically where the line is for me. If they took the 1 USD backing the coin and invested it in US government bonds so that only a fraction is immediately available (but a large enough fraction to cover the most likely withdrawal rates) then it would be fine with me though they should advertise that more clearly. If they take the money and invest it in ‘good’ companies, that is too much risk to the underlying assets. Though I’m American and could see foreigners not thinking US bonds were safe enough.
nonameiguess 5y ago
It's important to remember commercial paper tanked and almost took the global economy with it only 13 years ago. The only reason it's regarded as low risk, if you're AIG or Bank of America, is the US government has shown an extreme willingness to bail you out by buying them at face value even when they become worthless on the open market. The US government is extremely unlikely to bail out Coinbase.
- scarmig 5y ago
  > The US government is extremely unlikely to bail out Coinbase. Part of Coinbase's implicit strategy is to become the "too big to fail" of the crypto space. And if its collapse would threaten to destabilize the broader financial system, the US gov absolutely would bail it out. We've not reached that point yet (and hopefully never will), but it's important to understand the play here.
scarmig 5y ago
In 2006, the original money market fund, the Reserve Primary Fund, decided to purchase risk-free commercial paper, and by 2008 over half its assets were in this risk free, high quality commercial paper. Unfortunately, a significant part of this risk free, high quality commercial paper was issued by Lehman. And that risk free, high quality commercial paper turned out to be worthless, causing the oldest money market fund to fail and forcing it to liquidate, at well below $1.
ketzo 5y ago
“essentially the same” is… not as reassuring as you think it sounds, not when we’re talking $28 billion in circulation.

NationalPark 5y ago

If it’s the same risk then why does it pay more than T bills? Regardless, the issue is the misrepresentation, not the actual assets (which most people don’t believe add up to the total anyway, right?)

AlexandrB 5y ago
We haven't seen a true market crash in >10 years and everyone has forgotten why commercial paper is not the same as cash.
kiklion 5y ago
I have no crypto investments, but this is basically where the line is for me. If they took the 1 USD backing the coin and invested it in US government bonds so that only a fraction is immediately available (but a large enough fraction to cover the most likely withdrawal rates) then it would be fine with me though they should advertise that more clearly. If they take the money and invest it in ‘good’ companies, that is too much risk to the underlying assets. Though I’m American and could see foreigners not thinking US bonds were safe enough.

nonameiguess 5y ago

It's important to remember commercial paper tanked and almost took the global economy with it only 13 years ago. The only reason it's regarded as low risk, if you're AIG or Bank of America, is the US government has shown an extreme willingness to bail you out by buying them at face value even when they become worthless on the open market. The US government is extremely unlikely to bail out Coinbase.

scarmig 5y ago
> The US government is extremely unlikely to bail out Coinbase. Part of Coinbase's implicit strategy is to become the "too big to fail" of the crypto space. And if its collapse would threaten to destabilize the broader financial system, the US gov absolutely would bail it out. We've not reached that point yet (and hopefully never will), but it's important to understand the play here.

scarmig 5y ago

In 2006, the original money market fund, the Reserve Primary Fund, decided to purchase risk-free commercial paper, and by 2008 over half its assets were in this risk free, high quality commercial paper. Unfortunately, a significant part of this risk free, high quality commercial paper was issued by Lehman. And that risk free, high quality commercial paper turned out to be worthless, causing the oldest money market fund to fail and forcing it to liquidate, at well below $1.

ketzo 5y ago

“essentially the same” is… not as reassuring as you think it sounds, not when we’re talking $28 billion in circulation.