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> A cryptocurrency lender backed by Peter Thiel and Coinbase Global Inc. suspended withdrawals, trading and deposits on its platform, citing volatile market con

> A cryptocurrency lender backed by Peter Thiel and Coinbase Global Inc. suspended withdrawals, trading and deposits on its platform, citing volatile market conditions and financial difficulties facing key business partners. > The platform, Vauld, said Monday that it froze the operations after users pulled almost $200 million over the last three weeks. A sharp decline in cryptocurrency prices that began with the collapse of two cryptocurrencies in May has spooked traders and caused knock-on effects in the digital asset world. It's called "a bank run": > A bank run or run on the bank occurs when many clients withdraw their money from a bank, because they believe the bank may cease to function in the near future. ... https://en.wikipedia.org/wiki/Bank_run https://en.wikipedia.org/wiki/Bank_run Except this bank has no FDIC insurance, no backstop, nothing. Oddly enough, I think US tax policy may play a factor here in motivating people to ignore the repeated and loud warnings about how this was a really, really bad idea. When you're facing massive capital gains taxes, and have an inkling that those gains will turn to losses, the idea of lending out the asset, spending the cash without incurring tax, then getting the asset back starts to look attractive. Of course, the real problem was that those warnings got ignored. I mean, who reads something like this without alarm bells going off all over the place? > Our interest rates and trading fees are among the best in the industry. You can earn interest of up to 11.57% (APY) on your cryptocurrencies, and borrow tokens with our spread being as low as 1%. We don't charge deposit or withdrawal fees, or fix a cap on your daily withdrawals. You can check all our fees and rates here. https://www.vauld.com/home https://www.vauld.com/home

bshipp 4y ago
When an asset class increases in value for a long enough period of time there is no shortage of explanations for why it's different this time. Real estate, commodities, tech companies, it makes no difference, It's always the same.
- vecinu 4y ago
  Real estate is an outlier in your examples due to there being limited supply and people need shelter.
  - martincmartin 4y ago
    During the GFC of 2008, real estate values went down, despite the factors you mention.
    - lupire 4y ago
    - vecinu 4y ago
      Some markets were less impacted than others, San Diego for example went down a mere 20% at the trough. Over a longer timeline, housing has appreciated by hundreds of percentage points in SD.
  - jsemrau 4y ago
    WeWork was only possible because of 2008. This wouldn't have worked on that scale anywhere else.
  - IncRnd 4y ago
    > due to there being limited supply and people need Just like a commodity.
  - JumpCrisscross 4y ago
    > Real estate is an outlier in your examples due to there being limited supply and people need shelter People need lots of things. The principal constraints on real estate are political. (The entire concept of real estate is a social construct.) Not physical space.
    - andsoitis 4y ago
      > People need lots of things. The principal constraints on real estate are political. (The entire concept of real estate is a social construct.) Not physical space. Even if (the amount of) physical space isn't one of the main constraints on real estate, any particular location may be more desirable relative to others, e.g. a gorgeous view, away from factories or highways.
yieldcrv 4y ago
> Oddly enough, I think US tax policy may play a factor here in motivating people to ignore the repeated and loud warnings about how this was a really, really bad idea. When you're facing massive capital gains taxes, and have an inkling that those gains will turn to losses, the idea of lending out the asset, spending the cash without incurring tax, then getting the asset back starts to look attractive. Yeah, my Roth, and other domestic tax exempt entities trade much better with crypto. My Puerto Rico tax-free colleagues also make more holistic decisions, but are generally much better connected to begin with than normal crypto traders. My taxable accounts definitely trade differently, I want to make long-term capital gains but I never can hold that long, except by accident. Definitely more temptation to try to use the assets as collateral to hold longer, but then you have to pay back the collateral when it gets liquidated and you still have to report the capital tax treatment on the forced sell (gain or loss). But I do like tax-loss harvesting, and before this year there was no wash-sale rule applicable for crypto, so any random panic dip you could sell and get right back in the position and keep holding, locking in an offset for things you did sell at a profit too soon. There have absolutely been things that I didn't sell because I didn't want the tax yet. Things I couldn't use as collateral. I resorted to donating things in profit to my tax exempt entities, even if I didn't get a fair-market-value deduction (still got a cost-basis deduction, same deduction as just donating the initial cash instead of buying an investment to begin with), I was still fine letting the tax-exempt entity sell tax free and just have more cash, because there is still a massive delta between the purchase price and current price and the government doesn't get a cut (I don't get the impression that any of their security and infrastructure and courts helped in these trades, something I do factor in since I have more legal choices in which action generates a tax/revenue event for them). But I personally still missed out on simply having more money to spend. For me that's okay, slightly miss the idea of some more play money or pushing that into a dope house after paying the governments a tax, but mostly just an observation while on the topic.
cortesoft 4y ago
Matt Levine always likes to say that cryptocurrencies are relearning hundreds of years of financial lessons in just a few short years. He describes the current crypto crisis as a repeat of the 2008 financial crisis. Every single problem that cryptocurrencies face are extremely well known and studied phenomena in traditional economics. It is all very predictable.
- martincmartin 4y ago
  Seems more like the U.S. Bank Panic of 1907.[1] "The panic might have deepened if not for the intervention of financier J. P. Morgan, who pledged large sums of his own money and convinced other New York bankers to do the same to shore up the banking system. That highlighted the limitations of the US Independent Treasury system, which managed the nation's money supply but was unable to inject sufficient liquidity back into the market." This led to the creation of the Federal Reserve System. [1] https://en.wikipedia.org/wiki/Panic_of_1907 https://en.wikipedia.org/wiki/Panic_of_1907
  - evah 4y ago
    https://en.wikipedia.org/wiki/Wildcat_banking https://en.wikipedia.org/wiki/Wildcat_banking
- kareemsabri 4y ago
  Do you really think they're "learning" it? Nobody is all that surprised by these events. People have been pointing this stuff out all along.
- phailhaus 4y ago
  It's like crypto enthusiasts honestly believe that the problem with the financial system is that the buildings have the word "Bank" on them. Then they turn around and offer to take your money promising absurdly high interest rates. Surprise! The only way to do that is to invest in risky assets, except this time there is no FDIC insurance, no capital requirements, no regulations whatsoever to protect your money.
JumpCrisscross 4y ago
> this bank has no FDIC insurance, no backstop, nothing This was partly true in the S&L crisis [1]. And for depositors in e.g. Cyprus or Iceland in '08. The difference, however, was depositors in S&Ls and Cypriot and Icelandic banks were legally depositors. The banks' assets were insufficiently liquid to accommodate them en masse. But those assets had value. And that value went, almost first and foremost, to the depositors. In crypto, there is no such protection. It is likely creditors, employees, tax authorities and secured lenders get paid ahead of users, who are at the end of the day simply unsecured creditors. (And bad ones at that.) Night and day. (Given Coinbase's debt trades comparably to Russia's [2], the smart money is betting users will get nothing in a failure.) Aside: There is another way to look at it. Users' assets at these firms are CoCos [3]. After the crisis, regulators pushed these bonds which convert into equity when the borrower is distressed. Vauld is distressed. It has to make its loan payments, those lenders can shut it down if it defaults. But it doesn't have to pay users, or even let them withdraw their funds. So their funds "convert," in effect, into equity. Money Vauld can play with to buy time until their assets rally or right the ship with a lighter burn. [1] https://en.wikipedia.org/wiki/Savings_and_loan_crisis https://en.wikipedia.org/wiki/Savings_and_loan_crisis [2] https://markets.businessinsider.com/news/bonds/coinbase-crypto-debt-russia-bonds-price-sink-yields-2022-5 https://markets.businessinsider.com/news/bonds/coinbase-cryp... [3] https://www.investopedia.com/terms/c/contingentconvertible.asp https://www.investopedia.com/terms/c/contingentconvertible.a...
- gruez 4y ago
  >(Given Coinbase's debt trades comparably to Russia's [2], the smart money is betting users will get nothing in a failure.) The intention of your comment is to paint coinbase debt as worthless, but after doing some research I came to a different conclusion: that russian debt isn't as worthless as I thought. Right now 10 year russian bond yields are at 9.15%[1], which is only a little over 6 percentage points above the "risk free" rate of 2.96%[2] for US treasuries. For reference that's about the rate for B rated US corporate bonds[3]. [1] https://tradingeconomics.com/russia/government-bond-yield https://tradingeconomics.com/russia/government-bond-yield [2] https://www.cnbc.com/quotes/US10Y https://www.cnbc.com/quotes/US10Y [3] https://data.nasdaq.com/data/ML/BEY-us-b-rated-corporate-bond-index-yield https://data.nasdaq.com/data/ML/BEY-us-b-rated-corporate-bon...
SilasX 4y ago
>When you're facing massive capital gains taxes, and have an inkling that those gains will turn to losses, the idea of lending out the asset, spending the cash without incurring tax, then getting the asset back starts to look attractive. The better strategy (and the one used by the super rich) would be to borrow against the asset, as the loan isn't taxed. And if the lender's only recourse is your collateral, then you're insured against the cryptocurrency's collapse. With the strategy you've described, you're still keeping a long position in the cryptocurrency, and have increased its volatility.
deleted 4y ago
[deleted]

bshipp 4y ago

When an asset class increases in value for a long enough period of time there is no shortage of explanations for why it's different this time. Real estate, commodities, tech companies, it makes no difference, It's always the same.

vecinu 4y ago
Real estate is an outlier in your examples due to there being limited supply and people need shelter.
- martincmartin 4y ago
  During the GFC of 2008, real estate values went down, despite the factors you mention.
  - lupire 4y ago
  - vecinu 4y ago
    Some markets were less impacted than others, San Diego for example went down a mere 20% at the trough. Over a longer timeline, housing has appreciated by hundreds of percentage points in SD.
- jsemrau 4y ago
  WeWork was only possible because of 2008. This wouldn't have worked on that scale anywhere else.
- IncRnd 4y ago
  > due to there being limited supply and people need Just like a commodity.
- JumpCrisscross 4y ago
  > Real estate is an outlier in your examples due to there being limited supply and people need shelter People need lots of things. The principal constraints on real estate are political. (The entire concept of real estate is a social construct.) Not physical space.
  - andsoitis 4y ago
    > People need lots of things. The principal constraints on real estate are political. (The entire concept of real estate is a social construct.) Not physical space. Even if (the amount of) physical space isn't one of the main constraints on real estate, any particular location may be more desirable relative to others, e.g. a gorgeous view, away from factories or highways.

yieldcrv 4y ago

> Oddly enough, I think US tax policy may play a factor here in motivating people to ignore the repeated and loud warnings about how this was a really, really bad idea. When you're facing massive capital gains taxes, and have an inkling that those gains will turn to losses, the idea of lending out the asset, spending the cash without incurring tax, then getting the asset back starts to look attractive. Yeah, my Roth, and other domestic tax exempt entities trade much better with crypto. My Puerto Rico tax-free colleagues also make more holistic decisions, but are generally much better connected to begin with than normal crypto traders. My taxable accounts definitely trade differently, I want to make long-term capital gains but I never can hold that long, except by accident. Definitely more temptation to try to use the assets as collateral to hold longer, but then you have to pay back the collateral when it gets liquidated and you still have to report the capital tax treatment on the forced sell (gain or loss). But I do like tax-loss harvesting, and before this year there was no wash-sale rule applicable for crypto, so any random panic dip you could sell and get right back in the position and keep holding, locking in an offset for things you did sell at a profit too soon. There have absolutely been things that I didn't sell because I didn't want the tax yet. Things I couldn't use as collateral. I resorted to donating things in profit to my tax exempt entities, even if I didn't get a fair-market-value deduction (still got a cost-basis deduction, same deduction as just donating the initial cash instead of buying an investment to begin with), I was still fine letting the tax-exempt entity sell tax free and just have more cash, because there is still a massive delta between the purchase price and current price and the government doesn't get a cut (I don't get the impression that any of their security and infrastructure and courts helped in these trades, something I do factor in since I have more legal choices in which action generates a tax/revenue event for them). But I personally still missed out on simply having more money to spend. For me that's okay, slightly miss the idea of some more play money or pushing that into a dope house after paying the governments a tax, but mostly just an observation while on the topic.

cortesoft 4y ago

Matt Levine always likes to say that cryptocurrencies are relearning hundreds of years of financial lessons in just a few short years. He describes the current crypto crisis as a repeat of the 2008 financial crisis. Every single problem that cryptocurrencies face are extremely well known and studied phenomena in traditional economics. It is all very predictable.

martincmartin 4y ago
Seems more like the U.S. Bank Panic of 1907.[1] "The panic might have deepened if not for the intervention of financier J. P. Morgan, who pledged large sums of his own money and convinced other New York bankers to do the same to shore up the banking system. That highlighted the limitations of the US Independent Treasury system, which managed the nation's money supply but was unable to inject sufficient liquidity back into the market." This led to the creation of the Federal Reserve System. [1] https://en.wikipedia.org/wiki/Panic_of_1907 https://en.wikipedia.org/wiki/Panic_of_1907
- evah 4y ago
  https://en.wikipedia.org/wiki/Wildcat_banking https://en.wikipedia.org/wiki/Wildcat_banking
kareemsabri 4y ago
Do you really think they're "learning" it? Nobody is all that surprised by these events. People have been pointing this stuff out all along.
phailhaus 4y ago
It's like crypto enthusiasts honestly believe that the problem with the financial system is that the buildings have the word "Bank" on them. Then they turn around and offer to take your money promising absurdly high interest rates. Surprise! The only way to do that is to invest in risky assets, except this time there is no FDIC insurance, no capital requirements, no regulations whatsoever to protect your money.

JumpCrisscross 4y ago

> this bank has no FDIC insurance, no backstop, nothing This was partly true in the S&L crisis [1]. And for depositors in e.g. Cyprus or Iceland in '08. The difference, however, was depositors in S&Ls and Cypriot and Icelandic banks were legally depositors. The banks' assets were insufficiently liquid to accommodate them en masse. But those assets had value. And that value went, almost first and foremost, to the depositors. In crypto, there is no such protection. It is likely creditors, employees, tax authorities and secured lenders get paid ahead of users, who are at the end of the day simply unsecured creditors. (And bad ones at that.) Night and day. (Given Coinbase's debt trades comparably to Russia's [2], the smart money is betting users will get nothing in a failure.) Aside: There is another way to look at it. Users' assets at these firms are CoCos [3]. After the crisis, regulators pushed these bonds which convert into equity when the borrower is distressed. Vauld is distressed. It has to make its loan payments, those lenders can shut it down if it defaults. But it doesn't have to pay users, or even let them withdraw their funds. So their funds "convert," in effect, into equity. Money Vauld can play with to buy time until their assets rally or right the ship with a lighter burn. [1] https://en.wikipedia.org/wiki/Savings_and_loan_crisis https://en.wikipedia.org/wiki/Savings_and_loan_crisis [2] https://markets.businessinsider.com/news/bonds/coinbase-crypto-debt-russia-bonds-price-sink-yields-2022-5 https://markets.businessinsider.com/news/bonds/coinbase-cryp... [3] https://www.investopedia.com/terms/c/contingentconvertible.asp https://www.investopedia.com/terms/c/contingentconvertible.a...

gruez 4y ago
>(Given Coinbase's debt trades comparably to Russia's [2], the smart money is betting users will get nothing in a failure.) The intention of your comment is to paint coinbase debt as worthless, but after doing some research I came to a different conclusion: that russian debt isn't as worthless as I thought. Right now 10 year russian bond yields are at 9.15%[1], which is only a little over 6 percentage points above the "risk free" rate of 2.96%[2] for US treasuries. For reference that's about the rate for B rated US corporate bonds[3]. [1] https://tradingeconomics.com/russia/government-bond-yield https://tradingeconomics.com/russia/government-bond-yield [2] https://www.cnbc.com/quotes/US10Y https://www.cnbc.com/quotes/US10Y [3] https://data.nasdaq.com/data/ML/BEY-us-b-rated-corporate-bond-index-yield https://data.nasdaq.com/data/ML/BEY-us-b-rated-corporate-bon...

SilasX 4y ago

>When you're facing massive capital gains taxes, and have an inkling that those gains will turn to losses, the idea of lending out the asset, spending the cash without incurring tax, then getting the asset back starts to look attractive. The better strategy (and the one used by the super rich) would be to borrow against the asset, as the loan isn't taxed. And if the lender's only recourse is your collateral, then you're insured against the cryptocurrency's collapse. With the strategy you've described, you're still keeping a long position in the cryptocurrency, and have increased its volatility.

deleted 4y ago

[deleted]