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The "before this week" column seems to be attempting to draw sympathy by saying "but everything was fine before, seriously!" when in reality it just proved that

by Shank 4y ago

The "before this week" column seems to be attempting to draw sympathy by saying "but everything was fine before, seriously!" when in reality it just proved that, even in the best of worlds, they had an extremely optimistic view of the entire crypto ecosystem, including its liquidity. I can't believe they seriously held that much of their total value in their own issued token. That's just preposterous. Imagine if JP Morgan Chase's entire value was in JP Morgan Chase stock, and they just reported that as their value in cash. It's like recursive valuation.

wumpus 4y ago
Remember the Wirecard collapse, where there was a fake bank account in the Phillipines that allegedly had $2.1 billion USD in it? This is the crypto equivalent.
- KirillPanov 4y ago
  Garnished with a dash of Bernie Madoff.
- wyclif 4y ago
  Yes, it was actually two accounts: BDO Unibank and Bank of the Philippine Islands.
- odiroot 4y ago
  I wonder if (some of) SEC will play the same role in this story as BaFin played in Wirecard's.
- _fat_santa 4y ago
  The hole in Wirecard's balance sheet almost doesn't seem that bad when you see what kind of hole FTX has.
- everybodyknows 4y ago
  Has there been any attempt at reform of BaFin in the aftermath -- or has bureaucratic inertia absorbed all such impulses?
kypro 4y ago
> Imagine if JP Morgan Chase's entire value was in JP Morgan Chase stock The value of JP Morgan Case is the total value of their stock, almost by definition. Buy backs are also basically a transfer of a company's cash to company stock and are regularly done by US corporates. The difference here is that they secured debt against their own company assets so that when the value of the company went down, they went into more debt relative to their asset value. They were also leveraging an asset which was highly volatile and which could be easily targeted by bad actors. Anyone with any experience in risk management understands that your leverage should be proportional to the volatility of the asset you're leveraging. This is why you get large loans backed assets like real estate, but not stocks. Stocks drop 20-30% every few years where as real estate is far more stable. If they were leveraging dogecoin instead of their own token the result would have been the same.
- andreareina 4y ago
  book value. Companies don't get to count the value of stock owned by other people as assets.
  - deleted 4y ago
    [deleted]
wolpoli 4y ago
> Imagine if JP Morgan Chase's entire value was in JP Morgan Chase stock, and they just reported that as their value in cash. It's like recursive valuation. While I think real world finance is on much more stable ground than crypto, I thought it'll be funny to point out that many of the world's central banks back their liabilities (the currency they issue) with own government's bonds. Luckily, the bonds are denominated in the same currency. There is no chance of the central bank going broke, as long as they hold the bonds to maturity.
- igorkraw 4y ago
  I wrote a whole post because I misread your first line as "while some people think" and set out to "tell people on the internet they are wrong", but since we seem to actually agree with another, I'll post the below as an agreeing addendum to make the point just how much more stable real economics and finance are than crypto BS. And also because I wrote it already. --- This is not "luckily", it's by design, and there's a couple of other key differences as well. 1.Modern central banking implements an artificial separation between government and CB (an imperfect one), that attempts to make this less recursive... 2. ...but the key difference here is that the value of the dollar ultimately derives from the fact you need to pay US taxes with it. If you want to do business in the US, you need to get some USD to pay taxes in which are then used to keep the US a place to do business in. It is exactly the same model as FTT except that instead of paying "taxes" to trade on one of many market places, the US is a giant nonfungible place, with lots of difficult to move assets and people, serving a fucknormous circular economy with a staggering amount of real world consumption - i.e., a place you want to or have to do business in even if there's shock... 3. ...and has a monopoly on the violence (in the form of laws, courts, police and military) that actually enables the notions private property that enables this all. If the US government collapses your dollars are worthless whether they are backed by a bond or not. 4. Finally, neither the CB nor the government are up for sale or needs to generate profits or shareholder value. All they need to care about is continuing the system in a way that its constituents want (I'm not specifying the aggregation method, oligarchs are still constituents) So overall, and with the fact that this is a system which has been iterated on for hundreds of years(thousands if you count legal code), yeah, it's a lot more stable
pakitan 4y ago
He's also being purposefully obtuse about his 2 largest regrets - the "poorly labeled" account and underestimating the size of the withdrawals. He's still behaving as if having billions of liabilities in real money backed by funny money "assets" is somehow acceptable and everything would have been fine if it wasn't for the "last week".
- bjornsing 4y ago
  But maybe it could have been? I’m a complete crypto skeptic who would never touch anything like FTT, but it’s not an obvious Ponzi scheme. I think one of the troubles with crypto is that it’s very easy to operate what is effective a Ponzi scheme, without fully realizing it yourself.
  - ShamelessC 4y ago
    Eh, it is _obviously_ a ponzi scheme after doing a bit of research. In this podcast he all but says it out loud. https://jaxandmartinshow.com/sam-bankman-fried-transcript/ https://jaxandmartinshow.com/sam-bankman-fried-transcript/
    - MarkPNeyer 4y ago
      This quote is very interesting because he seems to try and argue for its legitimacy at the end. “Is that even wrong,” he asks. You get the impression that he believes in something like a postmodern theory of value that says, you need nothing fundamental for a thing to have value. Mass appeal is sufficient. So he looks at dogecoin and thinks, like many of us: this serves no purpose and makes no sense. He simply concludes its nonzero price is evidence against prices being real, rather than a prediction of dogecoin’s future value.
      - jjeaff 4y ago
        He's not wrong about value. Plenty of valuable things in society have not fundamental value. High end art and luxury brand clothing are two examples. And no, a $50m van Gogh does not have utility because you can enjoy it. Because you could enjoy a $200 reproduction just as well.
deleted 4y ago
[deleted]
DebtDeflation 4y ago
>It's like recursive valuation. Exactly correct. Most of these crypto companies hold assets that are nothing but tokens they or an affiliated entity print on demand. Just like how most of Tether's assets are commercial paper yet they refuse to name whose commercial paper and no one who makes a market in that space has ever dealt with them - it's obvious the commercial paper was issued by other crypto companies and likely secured only by crypto. And how exactly do people think all of those staking/farming operations are generating those ridiculous levels of "yield"?
funstuff007 4y ago
> Imagine if JP Morgan Chase's entire value was in JP Morgan Chase stock, It's way worse. JPM stock pays dividends in dollars. The yield on FTT is more FTT.
- nroets 4y ago
  A predetermined percentage of FTX fees is used to buy back FTT which is then "burnt". Open market buy backs are equivalent to dividends. So FTT has a yield measured in dollars.
  - funstuff007 4y ago
    But you never get access to those dollars. You end up owning a scarcer magic bean. And dividends are not equivalent to share buy backs--both from a tax perspective and from a forced diversification perspective.
- HDThoreaun 4y ago
  FTT did buybacks which are much more popular than dividends because of their tax advantage.
doorman2 4y ago
I mean they do that. Companies issue, hold, and buy back stock all the time. The difference is that JPM stock is a thing that people want and has intrinsic value as it confers ownership over the company.

by Shank 4y ago

wumpus 4y ago

Remember the Wirecard collapse, where there was a fake bank account in the Phillipines that allegedly had $2.1 billion USD in it? This is the crypto equivalent.

KirillPanov 4y ago
Garnished with a dash of Bernie Madoff.
wyclif 4y ago
Yes, it was actually two accounts: BDO Unibank and Bank of the Philippine Islands.
odiroot 4y ago
I wonder if (some of) SEC will play the same role in this story as BaFin played in Wirecard's.
_fat_santa 4y ago
The hole in Wirecard's balance sheet almost doesn't seem that bad when you see what kind of hole FTX has.
everybodyknows 4y ago
Has there been any attempt at reform of BaFin in the aftermath -- or has bureaucratic inertia absorbed all such impulses?

kypro 4y ago

> Imagine if JP Morgan Chase's entire value was in JP Morgan Chase stock The value of JP Morgan Case is the total value of their stock, almost by definition. Buy backs are also basically a transfer of a company's cash to company stock and are regularly done by US corporates. The difference here is that they secured debt against their own company assets so that when the value of the company went down, they went into more debt relative to their asset value. They were also leveraging an asset which was highly volatile and which could be easily targeted by bad actors. Anyone with any experience in risk management understands that your leverage should be proportional to the volatility of the asset you're leveraging. This is why you get large loans backed assets like real estate, but not stocks. Stocks drop 20-30% every few years where as real estate is far more stable. If they were leveraging dogecoin instead of their own token the result would have been the same.

andreareina 4y ago
book value. Companies don't get to count the value of stock owned by other people as assets.
- deleted 4y ago
  [deleted]

wolpoli 4y ago

> Imagine if JP Morgan Chase's entire value was in JP Morgan Chase stock, and they just reported that as their value in cash. It's like recursive valuation. While I think real world finance is on much more stable ground than crypto, I thought it'll be funny to point out that many of the world's central banks back their liabilities (the currency they issue) with own government's bonds. Luckily, the bonds are denominated in the same currency. There is no chance of the central bank going broke, as long as they hold the bonds to maturity.

igorkraw 4y ago
I wrote a whole post because I misread your first line as "while some people think" and set out to "tell people on the internet they are wrong", but since we seem to actually agree with another, I'll post the below as an agreeing addendum to make the point just how much more stable real economics and finance are than crypto BS. And also because I wrote it already. --- This is not "luckily", it's by design, and there's a couple of other key differences as well. 1.Modern central banking implements an artificial separation between government and CB (an imperfect one), that attempts to make this less recursive... 2. ...but the key difference here is that the value of the dollar ultimately derives from the fact you need to pay US taxes with it. If you want to do business in the US, you need to get some USD to pay taxes in which are then used to keep the US a place to do business in. It is exactly the same model as FTT except that instead of paying "taxes" to trade on one of many market places, the US is a giant nonfungible place, with lots of difficult to move assets and people, serving a fucknormous circular economy with a staggering amount of real world consumption - i.e., a place you want to or have to do business in even if there's shock... 3. ...and has a monopoly on the violence (in the form of laws, courts, police and military) that actually enables the notions private property that enables this all. If the US government collapses your dollars are worthless whether they are backed by a bond or not. 4. Finally, neither the CB nor the government are up for sale or needs to generate profits or shareholder value. All they need to care about is continuing the system in a way that its constituents want (I'm not specifying the aggregation method, oligarchs are still constituents) So overall, and with the fact that this is a system which has been iterated on for hundreds of years(thousands if you count legal code), yeah, it's a lot more stable

pakitan 4y ago

He's also being purposefully obtuse about his 2 largest regrets - the "poorly labeled" account and underestimating the size of the withdrawals. He's still behaving as if having billions of liabilities in real money backed by funny money "assets" is somehow acceptable and everything would have been fine if it wasn't for the "last week".

bjornsing 4y ago
But maybe it could have been? I’m a complete crypto skeptic who would never touch anything like FTT, but it’s not an obvious Ponzi scheme. I think one of the troubles with crypto is that it’s very easy to operate what is effective a Ponzi scheme, without fully realizing it yourself.
- ShamelessC 4y ago
  Eh, it is _obviously_ a ponzi scheme after doing a bit of research. In this podcast he all but says it out loud. https://jaxandmartinshow.com/sam-bankman-fried-transcript/ https://jaxandmartinshow.com/sam-bankman-fried-transcript/
  - MarkPNeyer 4y ago
    This quote is very interesting because he seems to try and argue for its legitimacy at the end. “Is that even wrong,” he asks. You get the impression that he believes in something like a postmodern theory of value that says, you need nothing fundamental for a thing to have value. Mass appeal is sufficient. So he looks at dogecoin and thinks, like many of us: this serves no purpose and makes no sense. He simply concludes its nonzero price is evidence against prices being real, rather than a prediction of dogecoin’s future value.
    - jjeaff 4y ago
      He's not wrong about value. Plenty of valuable things in society have not fundamental value. High end art and luxury brand clothing are two examples. And no, a $50m van Gogh does not have utility because you can enjoy it. Because you could enjoy a $200 reproduction just as well.

deleted 4y ago

[deleted]

DebtDeflation 4y ago

>It's like recursive valuation. Exactly correct. Most of these crypto companies hold assets that are nothing but tokens they or an affiliated entity print on demand. Just like how most of Tether's assets are commercial paper yet they refuse to name whose commercial paper and no one who makes a market in that space has ever dealt with them - it's obvious the commercial paper was issued by other crypto companies and likely secured only by crypto. And how exactly do people think all of those staking/farming operations are generating those ridiculous levels of "yield"?

funstuff007 4y ago

> Imagine if JP Morgan Chase's entire value was in JP Morgan Chase stock, It's way worse. JPM stock pays dividends in dollars. The yield on FTT is more FTT.

nroets 4y ago
A predetermined percentage of FTX fees is used to buy back FTT which is then "burnt". Open market buy backs are equivalent to dividends. So FTT has a yield measured in dollars.
- funstuff007 4y ago
  But you never get access to those dollars. You end up owning a scarcer magic bean. And dividends are not equivalent to share buy backs--both from a tax perspective and from a forced diversification perspective.
HDThoreaun 4y ago
FTT did buybacks which are much more popular than dividends because of their tax advantage.

doorman2 4y ago

I mean they do that. Companies issue, hold, and buy back stock all the time. The difference is that JPM stock is a thing that people want and has intrinsic value as it confers ownership over the company.