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The powers that be aren't trying to crash it all on purpose, nobody wants another 2008. They have produced a pretty hands-off response, because of a number of f

The powers that be aren't trying to crash it all on purpose, nobody wants another 2008. They have produced a pretty hands-off response, because of a number of factors. Crypto has an explicit project to escape US regulation, so lots of money is in e.g. the Bahamas and difficult to target. Many companies are trying really hard to avoid even having US customers, so that's a hands-off win for regulation as the feds have nobody to protect from e.g. Binance directly. The big companies that do operate in the US have led a mostly successful campaign to position themselves as innovators and deserving of a long leash, IMO too successfully as only now is the SEC feeling the pressure to clamp down. There is a long tail of complex regulatory actions to take against really quite small individual operations. Finally I think a lot of this has been influenced to a huge degree by the cheapness of cash, and increasing interest rates will do a lot of the work people want to see from regulation by forcing people to make better investments and making bonds/deposits more appealing as people look for an alternative to the apparent huge risk that they're discovering they've been given a premium for taking on until now. The answer on regulation is a mix, then. Some of it has been effective (if only at scaring off potential investor dangers completely), some of it is difficult, some of the response is underwhelming. So far there hasn't been a 2008-scale meltdown because it hasn't been a big enough market to have a domino effect, and I still don't think it is yet, so really now's the time to take preventive measures but it's not too late for that. It is too late to protect all the people who've lost big so far, but that is a much smaller number than those who suffered in 2008. In my opinion the movers and shakers who care about worldwide financial stability are tuning in around the right time and are overwhelmingly accepting that regulation is going to be necessary. I predict the EU and the US will both push some pretty solid efforts soon; EU through explicit regulation, US through maybe some legislation but definitely through better enforcement.

pvarangot 4y ago
Wouldn't regulating crypto need an influx of dollars from the exchanges or other liquidity providers back into the government? If that money doesn't exist or is hidden well enough regulation is only going to crash down liquidity providers and screw this people you are saying it should be designed to help. The US is already very much ahead of most countries in regulating but not outright banning crypto. It's closer to banning it than let's say Switzerland. With the way they consider any sale a taxable event if US regulations were better for let's say the retail crypto trader as a whole they would all massively move to US regulated exchanges like Coinbase but that would remove a lot of "natural" circuit breakers like bots or manual arbits.
- cormacrelf 4y ago
  A lot of what people are talking about is the 90% of securities regulation that lives in the information space, regulating what must be disclosed when & to whom, and ensuring people are not deceived en masse by those running an enterprise on their behalf. 2008 was largely one of these crises -- there was fraud in the creation and marketing of mortgage-backed securities, about what was in them and what the risks were. If you have enough of those, and enough big institutions dressing up these terrible securities in even more incomprehensible instruments, big ribbons & glossy materials, and marketing them to retail, then the original fraud is compounded in effect and more and more people start being exposed to it. Imagine there are 200 active Ponzi schemes and you sell a financial product offering 10-20% returns against a background Fed cash rate of effectively zero, and you manage to keep it up by investing in Ponzi after Ponzi, reaping the yield they give and propping them up with VC money when they teeter. If enough of them fail, so do you. If you think that sounds a lot like 2008, well, yes it is. Fortunately this time it's not gone even close to under the radar. Remember 2008 was built on a much safer financial product. Like, there were a lot of good mortgages in America, and for a while there was a healthy market for packaging them up in bonds, it just turned very sour when the bad mortgages started making up the bulk of new bonds issued to meet huge demand and more was wrung from the sponge in derivative products at the same time. The idea of a collapse was unheard-of; the market had quietly undergone huge changes with only a dozen or something people worldwide really taking notice. We're in here with a thread every few days on HN talking about the possibility of a 2008. That's a difference. Some of the discussion of crypto regulation is more about the "prudential" side i.e. talking about some crypto entities as if they're deposit-taking institutions (like retail aka commercial banks). That's quite recent, I think it's what you're referring to by "influx of dollars ... back into government" i.e. getting them on the Federal Reserve system, getting deposit insurance, and having to be so heavily scrutinised any crypto CEO would have a heart attack in the first 20 minutes. In 2008, some commercial banks got too far into mortgage securities, failed and got bailed out. Some commercial banks doing deposits & loans got bailed out, and some even got nationalised. That protection mostly just worked as planned. Given the fact of bailouts, the risk of bailouts had to be readjusted, of course, so the new laws were about what commercial banks couldn't invest in. Lehmann was of course an investment bank. The main message is that the root causes of the crisis were not perpetrated by commercial banks, so all the new regulation around them was about trimming the risk of bad securities turning into systemic meltdowns. That's a relevant thing to worry about today but note that actual banks are pretty well protected and not really allowed to freewheel like some did in 2008. If your normal bank is investing your deposits in crypto, I would be surprised. People worry about Coinbase because it's seen as a kind of commercial bank but not regulated as one, so it (1) gets to freewheel on investments & capital requirements like no other commercial bank in the country, and (2) has no deposit protection for those who use it. So risky twice over. Frankly I don't think Coinbase could survive with its current business model as a regulated bank, same way Uber wouldn't survive if it were forced to compete without favour & VC dried up, so forcing Coinbase to to be might trigger the very collapse being protected against (by stopping it investing in all the schemes that make it money, killing those schemes and causing knock-on), and look kinda bad. It's a tricky one. Maybe if there's enough securities enforcement against the things that are keeping the party going, the fraudulent portions can gracefully collapse on their own and the government won't have to cop the blame for bringing on the death of a pretty popular industry by prudential regulation.
unityByFreedom 4y ago
> So far there hasn't been a 2008-scale meltdown because it hasn't been a big enough market to have a domino effect Isn't it more that the crypto + companies with cult followings + chinese real estate bubbles simply have not yet popped? These assets are big enough to cause a sell-off in other areas. Maybe they haven't dipped low enough yet, or maybe the dips are gradual enough to be absorbed.

pvarangot 4y ago

Wouldn't regulating crypto need an influx of dollars from the exchanges or other liquidity providers back into the government? If that money doesn't exist or is hidden well enough regulation is only going to crash down liquidity providers and screw this people you are saying it should be designed to help. The US is already very much ahead of most countries in regulating but not outright banning crypto. It's closer to banning it than let's say Switzerland. With the way they consider any sale a taxable event if US regulations were better for let's say the retail crypto trader as a whole they would all massively move to US regulated exchanges like Coinbase but that would remove a lot of "natural" circuit breakers like bots or manual arbits.

cormacrelf 4y ago
A lot of what people are talking about is the 90% of securities regulation that lives in the information space, regulating what must be disclosed when & to whom, and ensuring people are not deceived en masse by those running an enterprise on their behalf. 2008 was largely one of these crises -- there was fraud in the creation and marketing of mortgage-backed securities, about what was in them and what the risks were. If you have enough of those, and enough big institutions dressing up these terrible securities in even more incomprehensible instruments, big ribbons & glossy materials, and marketing them to retail, then the original fraud is compounded in effect and more and more people start being exposed to it. Imagine there are 200 active Ponzi schemes and you sell a financial product offering 10-20% returns against a background Fed cash rate of effectively zero, and you manage to keep it up by investing in Ponzi after Ponzi, reaping the yield they give and propping them up with VC money when they teeter. If enough of them fail, so do you. If you think that sounds a lot like 2008, well, yes it is. Fortunately this time it's not gone even close to under the radar. Remember 2008 was built on a much safer financial product. Like, there were a lot of good mortgages in America, and for a while there was a healthy market for packaging them up in bonds, it just turned very sour when the bad mortgages started making up the bulk of new bonds issued to meet huge demand and more was wrung from the sponge in derivative products at the same time. The idea of a collapse was unheard-of; the market had quietly undergone huge changes with only a dozen or something people worldwide really taking notice. We're in here with a thread every few days on HN talking about the possibility of a 2008. That's a difference. Some of the discussion of crypto regulation is more about the "prudential" side i.e. talking about some crypto entities as if they're deposit-taking institutions (like retail aka commercial banks). That's quite recent, I think it's what you're referring to by "influx of dollars ... back into government" i.e. getting them on the Federal Reserve system, getting deposit insurance, and having to be so heavily scrutinised any crypto CEO would have a heart attack in the first 20 minutes. In 2008, some commercial banks got too far into mortgage securities, failed and got bailed out. Some commercial banks doing deposits & loans got bailed out, and some even got nationalised. That protection mostly just worked as planned. Given the fact of bailouts, the risk of bailouts had to be readjusted, of course, so the new laws were about what commercial banks couldn't invest in. Lehmann was of course an investment bank. The main message is that the root causes of the crisis were not perpetrated by commercial banks, so all the new regulation around them was about trimming the risk of bad securities turning into systemic meltdowns. That's a relevant thing to worry about today but note that actual banks are pretty well protected and not really allowed to freewheel like some did in 2008. If your normal bank is investing your deposits in crypto, I would be surprised. People worry about Coinbase because it's seen as a kind of commercial bank but not regulated as one, so it (1) gets to freewheel on investments & capital requirements like no other commercial bank in the country, and (2) has no deposit protection for those who use it. So risky twice over. Frankly I don't think Coinbase could survive with its current business model as a regulated bank, same way Uber wouldn't survive if it were forced to compete without favour & VC dried up, so forcing Coinbase to to be might trigger the very collapse being protected against (by stopping it investing in all the schemes that make it money, killing those schemes and causing knock-on), and look kinda bad. It's a tricky one. Maybe if there's enough securities enforcement against the things that are keeping the party going, the fraudulent portions can gracefully collapse on their own and the government won't have to cop the blame for bringing on the death of a pretty popular industry by prudential regulation.

unityByFreedom 4y ago

> So far there hasn't been a 2008-scale meltdown because it hasn't been a big enough market to have a domino effect Isn't it more that the crypto + companies with cult followings + chinese real estate bubbles simply have not yet popped? These assets are big enough to cause a sell-off in other areas. Maybe they haven't dipped low enough yet, or maybe the dips are gradual enough to be absorbed.