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Ok again, I want to draw a distinction, are we talking about equity investments in banks? In which case, yes, by definition any asset has outperformed FRB which

Ok again, I want to draw a distinction, are we talking about equity investments in banks? In which case, yes, by definition any asset has outperformed FRB which went to 0, but no, that's not a reasonable way to value forward looking investments. Or are we talking about depositors. Because we need to be clear. For depositors the value of the regulation is very clear - when crypto exchanges are unregulated when they blow up their depositors money isn't safe. When regulated banks blow up, the customer deposits stay safe thanks to regulations. The thing that caused instability isn't the regulations, it's rate changes. The problem you have with crypto is very simple - you can't point at the value of bitcoin or FTT or ETH or Terra or Solana and say that it's safe, because alot of the time the people who were invested in it no longer have the asset! It's all well and good to say that BTC isn't down 100% but the people who had BTC on FTX don't have the bitcoin anymore so the nominal value of BTC is academic.

roenxi 3y ago
I'm talking about depositors - the regulations obviously didn't help because the regulators had to bail depositors out. If the regulators bailed out bitcoin institutions the people with crypto in those institutions would not lose any money either. Neither would be a planned action. The regulations are so useless that the regulators have to roll in and start handing out money to fix their own mess. The system under low regulation is more stable - it works without intervention and rules changes. The regulated system the regulators keep having to make up new rules on the fly to cope with the fact that they are fundamentally destabilising the system and causing enormous losses of value to happen along the way by removing the feedback loops and protecting people from their actions at cost to the bystanders. The regulations are net-negative value add and destabilising. The regulators are papering over that by unplanned cash infusions. Everyone in the regulated economy is assuming that the regulators fold and change the rules but they're all gambling on how the system will be broken. Nobody is behaving as though the regulations themselves are helping. The point I'm making is if the rules are going to dissolve anyway, Bitcoin is a better system to go around bailing people out, because at least it is low-friction. It isn't exactly true, but superficially since Bitcoin can reliably preserve value in a way that the banks can't, we should bail out the bitcoin firms in preference to the banks. It is a more fundamentally sound system. We aren't see the sort of cascading failures that happen under the regulators. FTX goes bust and that is kinda it, whereas we've just had 3 huge banks go bust in a more regulated system - likely with more to come and high risk of a cascade of failures through the whole banking industry if the regulators follow the official playbook. Everyone agrees that following the regulations would result in systemic collapse in the event of a crisis. Compare and contrast to the Bitcoin ecosystem where something like Tether has survived at least 2 depegs and carries on like it is nothing. If the banks had that sort of resiliency against a run, this current crisis would not require a response. The reason they don't is because everyone is playing the regulators.
- SilverBirch 3y ago
  But regulators haven't really bailed out depositors. Firstly, the vast majority of the assets have just gone with the sale of FRB, along with that there is some cost, but the costs associated with this sale are estimated to only be around $13Bn and that's going to come out of FDIC - so it's funded by the banks anyway. The reason this is possible is because FRB only holds a very tightly regulated set of securities, so at worst there would only be a small shortfall and that's what the FDIC is there for anyway. You say that the regulations are harming the system, but crypto gives us a perfect illustration of what happens without these regulations. You don't end up with companies that function better, you don't avoid duration mismatch, your exchanges go tits up and it turns out that the CEO was spending all the cash on his bahamian polycule. And you say FTX goes bust and that's it but that really only works because bitcoin is so tiny that when FTX goes bust it isn't all of our pensions and life savings on the line. And it wasn't just FTX, FTX was the last domino in a whole slew of failures over last summer - half of which it turns out were self-dealing and committing fraud. The whole point is that the government can step in and backstop a system where it's tightly regulated what these banks are doing, they can't step in and backstop a system where your bank may literally just be taking your deposits and spending it all on bahamian parties. There's just this massive disconnect between the unregulated world where a bank can be bust and pay back 99 cents on the dollar, and the deregulated world where a crypto exchange can be bust and it turns out it's only going to pay 10cents on the dollar, and it won't even do that because the CEO started siphoning off the remaining funds.

roenxi 3y ago

I'm talking about depositors - the regulations obviously didn't help because the regulators had to bail depositors out. If the regulators bailed out bitcoin institutions the people with crypto in those institutions would not lose any money either. Neither would be a planned action. The regulations are so useless that the regulators have to roll in and start handing out money to fix their own mess. The system under low regulation is more stable - it works without intervention and rules changes. The regulated system the regulators keep having to make up new rules on the fly to cope with the fact that they are fundamentally destabilising the system and causing enormous losses of value to happen along the way by removing the feedback loops and protecting people from their actions at cost to the bystanders. The regulations are net-negative value add and destabilising. The regulators are papering over that by unplanned cash infusions. Everyone in the regulated economy is assuming that the regulators fold and change the rules but they're all gambling on how the system will be broken. Nobody is behaving as though the regulations themselves are helping. The point I'm making is if the rules are going to dissolve anyway, Bitcoin is a better system to go around bailing people out, because at least it is low-friction. It isn't exactly true, but superficially since Bitcoin can reliably preserve value in a way that the banks can't, we should bail out the bitcoin firms in preference to the banks. It is a more fundamentally sound system. We aren't see the sort of cascading failures that happen under the regulators. FTX goes bust and that is kinda it, whereas we've just had 3 huge banks go bust in a more regulated system - likely with more to come and high risk of a cascade of failures through the whole banking industry if the regulators follow the official playbook. Everyone agrees that following the regulations would result in systemic collapse in the event of a crisis. Compare and contrast to the Bitcoin ecosystem where something like Tether has survived at least 2 depegs and carries on like it is nothing. If the banks had that sort of resiliency against a run, this current crisis would not require a response. The reason they don't is because everyone is playing the regulators.

SilverBirch 3y ago
But regulators haven't really bailed out depositors. Firstly, the vast majority of the assets have just gone with the sale of FRB, along with that there is some cost, but the costs associated with this sale are estimated to only be around $13Bn and that's going to come out of FDIC - so it's funded by the banks anyway. The reason this is possible is because FRB only holds a very tightly regulated set of securities, so at worst there would only be a small shortfall and that's what the FDIC is there for anyway. You say that the regulations are harming the system, but crypto gives us a perfect illustration of what happens without these regulations. You don't end up with companies that function better, you don't avoid duration mismatch, your exchanges go tits up and it turns out that the CEO was spending all the cash on his bahamian polycule. And you say FTX goes bust and that's it but that really only works because bitcoin is so tiny that when FTX goes bust it isn't all of our pensions and life savings on the line. And it wasn't just FTX, FTX was the last domino in a whole slew of failures over last summer - half of which it turns out were self-dealing and committing fraud. The whole point is that the government can step in and backstop a system where it's tightly regulated what these banks are doing, they can't step in and backstop a system where your bank may literally just be taking your deposits and spending it all on bahamian parties. There's just this massive disconnect between the unregulated world where a bank can be bust and pay back 99 cents on the dollar, and the deregulated world where a crypto exchange can be bust and it turns out it's only going to pay 10cents on the dollar, and it won't even do that because the CEO started siphoning off the remaining funds.