cryptocurrencies

Seattle said:
I'm not sure who you are addressing?
Click to expand...
Beaconator - the quote at the top of that post should have given it away? ;)
In reply to your #117 he posted #118: "So it’s an exchange that doesn’t pay for its own equity". It was that to which my reply #119 was aimed. Does it make sense in that context? :)
 
Last edited:
Saint said:
FTX will go bankrupt.
Click to expand...
Quite possibly.
All coins will burst.
Click to expand...
To a large extent they have already burst - at least those not pegged to a stable currency (i.e. the "stablecoins"). Bitcoin peaked at c.USD64k and is now at just c.25% of that.
Ditto for most of the rest. Many might now think that this is perfect time to buy into crypto for the long-term, but it may still sink further. Plus the global economy means people are steering clear of what they perceive as riskier assets/gambles, and with less disposable income (because of inflation, recession etc) there's no immediate sign of any recovery in the land of cryptos. What the long-term has in store, however, is anyone's guess.
 
Sarkus said:
Quite possibly.
To a large extent they have already burst - at least those not pegged to a stable currency (i.e. the "stablecoins"). Bitcoin peaked at c.USD64k and is now at just c.25% of that.
Ditto for most of the rest. Many might now think that this is perfect time to buy into crypto for the long-term, but it may still sink further. Plus the global economy means people are steering clear of what they perceive as riskier assets/gambles, and with less disposable income (because of inflation, recession etc) there's no immediate sign of any recovery in the land of cryptos. What the long-term has in store, however, is anyone's guess.
Click to expand...
"Rat poison squared." :D
 
Crypto currency seems like an near instant wealth or ruin. Way to risky for me.
 
Sarkus said:
Given enough time, rats may well develop a natural immunity to the poison, and for a while even flourish from the underlying food. ;)
Click to expand...
Yeah some will do very well and many others will lose their shirt, as with any pyramid scheme.
 
Sarkus said:
Beaconator - the quote at the top of that post should have given it away? ;)
In reply to your #117 he posted #118: "So it’s an exchange that doesn’t pay for its own equity". It was that to which my reply #119 was aimed. Does it make sense in that context? :)
Click to expand...
Sorry, that didn't show up as I apparently had him on ignore. My mistake.:)
 
The FTX collapse is such an amazing pit of doom.

$600 million ... heisted?

How does this keep getting worse?
 
How does anything keep getting worse? It's not that hard.

Lessons to be learned. Buy Bitcoin and self custody it and stay off exchanges.

The FTX situation is like a bank in the wild west. There is a run on the bank, due to fraction reserve banking, they can't meet the demand and they go bankrupt. It could happen to a bank today except that the government just takes the hit.
 
"Valuable"? They peaked at around USD80, and are now trading at c.USD1.80, and only looking to go further south.
In general, though, if the underlying purpose of the coin remains, despite the failure of an exchange, then the coin will/might remain valuable to those that still see value in their purpose. With FTT, they are seemingly exclusively used by the FTX platform, so have value while that platform remains alive. FTX have filed for bankruptcy, I believe, but there's still a slim chance they may find the necessary backers. But if the platform does close permanently then I would suspect the FTT coin will become worthless.
 
I remember the first time someone tried to explain blockchain to me, and at the time I thought I had the basic grasp, but cryptocurrency, which now seems an inevitable sort of, seemed like a good idea at the time except there isn't really any way to say that and not sound like an idiot, attempt to capitalize something that should be otherwise useful in some way. And it's kind of like the Underpants Gnomes:

Step 1: Create blockchain.

Step 2: ? ? ?

Step 3: Extract profit.​

Step two gets 'em, every time; watch out for that second verse.
 
The reason that the casual reader doesn't understand Bitcoin, crypto and blockchain isn't a shortcoming on the part of the reader. It's that the article describing Bitcoin (for example) just says something about it being a digital currency that is located on a blockchain and the blockchain is briefly described.

You read the description, think "OK.....so what is Bitcoin?" SNL even did a skit about it where they kept asking that follow-up question each time after the Bitcoin "expert" described Bitcoin.

What's missing is what isn't being discussed. You read the article and understand that Bitcoin, as a digital currency, could be used to pay for a hotdog (for example). You already know that you can use your debit card, not have to carry cash, and you can already pay for hotdog that way, so why use Bitcoin?

Upon further reading you understand that a Bitcoin transaction is almost instantaneous, the fees are low and there is no "clearing". The funds are cleared immediately. You are told that debit cards work fine in the U.S. but in a 3rd world banking isn't as developed and widely accessible and the local currency may not be stable so you begin to see how Bitcoin might be advantageous in that situation.

You also learn that many foreign workers in the U.S. remit funds back home, with small amounts at a time and in many cases the fees involved on both ends can drastically reduce the ultimate amount that gets to their families.

OK, all that sounds good but why would the average U.S. citizen care about this use case?

The answer is, they don't. The reason that many don't understand Bitcoin is because the only use cases being described don't necessarily apply to the reader. There are possible use cases in the future where it will be used as the standard internet currency but that's for later, for the most part.

For the average person buying and holding Bitcoin in the U.S., they aren't buying it to use it primarily as a currency. It is being held as a store of value, a commodity, sometimes described as "Gold 2.0".

It is held outside of a centralized institution. It is self-stored, outside of anyone else's control. It's also not devalued by government policies as the U.S. dollar is constantly being devalued. $100 today doesn't buy what $100 did in 1900. The government spends and spends and the U.S. debt, denominated in dollars, just goes up and up, thus devaluing the dollar.

Bitcoin can't be devalued this way. When Bitcoin is in self-storage the government can't take it, it can't be hacked, Sam Bankman-Fried can't misuse it, steal it, a centralized exchange can't keep you from withdrawing it because you aren't using a centralized exchange. If you have the "keys" it's your crypto.

This also means however that you have to be careful. No one can crack the blockchain code but if you aren't careful with how you store your password and recovery phrase, someone could hack that, move your crypto and no one can help you at that point.

The government through FDIC could guarantee your cash deposits in a bank but that's because there is a paper trail and they would/could eventually track down your funds if they were stolen. No one can recover crypto funds.

You could decide to pay a company to store your crypto but they have to keep it somewhere. If they decided to use an FTX like commercial storage facility that was trusted by institutional investors, a FTX like event could happen again.

Buy Bitcoin, self-store and it's likely to have long-term value. Most other cryptos are not limited and are centralized and are more like securities (stocks) with the risks inherent in stocks.
 
Last edited:
Seattle said:
The reason that the casual reader doesn't understand Bitcoin, crypto and blockchain isn't a shortcoming on the part of the reader. It's that the article describing Bitcoin (for example) just says something about it being a digital currency that is located on a blockchain and the blockchain is briefly described.

You read the description, think "OK.....so what is Bitcoin?" SNL even did a skit about it where they kept asking that follow-up question each time after the Bitcoin "expert" described Bitcoin.

What's missing is what isn't being discussed. You read the article and understand that Bitcoin, as a digital currency, could be used to pay for a hotdog (for example). You already know that you can use your debit card, not have to carry cash, and you can already pay for hotdog that way, so why use Bitcoin?

Upon further reading you understand that a Bitcoin transaction is almost instantaneous, the fees are low and there is no "clearing". The funds are cleared immediately. You are told that debit cards work fine in the U.S. but in a 3rd world banking isn't as developed and widely accessible and the local currency may not be stable so you begin to see how Bitcoin might be advantageous in that situation.

You also learn that many foreign workers in the U.S. remit funds back home, with small amounts at a time and in many cases the fees involved on both ends can drastically reduce the ultimate amount that gets to their families.

OK, all that sounds good but why would the average U.S. citizen care about this use case?

The answer is, they don't. The reason that many don't understand Bitcoin is because the only use cases being described don't necessarily apply to the reader. There are possible use cases in the future where it will be used as the standard internet currency but that's for later, for the most part.

For the average person buying and holding Bitcoin in the U.S., they aren't buying it to use it primarily as a currency. It is being held as a store of value, a commodity, sometimes described as "Gold 2.0".

It is held outside of a centralized institution. It is self-stored, outside of anyone else's control. It's also not devalued by government policies as the U.S. dollar is constantly being devalued. $100 today doesn't buy what $100 did in 1900. The government spends and spends and the U.S. debt, denominated in dollars, just goes up and up, thus devaluing the dollar.

Bitcoin can't be devalued this way. When Bitcoin is in self-storage the government can't take it, it can't be hacked, Sam Bankman-Fried can't misuse it, steal it, a centralized exchange can't keep you from withdrawing it because you aren't using a centralized exchange. If you have the "keys" it's your crypto.

This also means however that you have to be careful. No one can crack the blockchain code but if you aren't careful with how you store your password and recovery phrase, someone could hack that, move your crypto and no one can help you at that point.

The government through FDIC could guarantee your cash deposits in a bank but that's because there is a paper trail and they would/could eventually track down your funds if they were stolen. No one can recover crypto funds.

You could decide to pay a company to store your crypto but they have to keep it somewhere. If they decided to use an FTX like commercial storage facility that was trusted by institutional investors, a FTX like event could happen again.

Buy Bitcoin, self-store and it's likely to have long-term value. Most other cryptos are not limited and are centralized and are more like securities (stocks) with the risks inherent in stocks.
Click to expand...
I have to admit that when people speak of "digital" currency, I have never had explained to me what that means and why it is, supposedly, a good thing.

As for paying for a hot dog, or a newspaper, with bitcoin, I bet you can't in practice. So it's pretty hopeless as a substitute for the national currency in your (analogue??) bank account.

As you say, it's an investment commodity like gold, but more speculative. Many of us prefer to cover ourselves against inflation by investing spare funds in some kind of asset portfolio (stocks, property, bonds), with a more reliable performance record.
 
exchemist said:
I have to admit that when people speak of "digital" currency, I have never had explained to me what that means and why it is, supposedly, a good thing.
Click to expand...

A government issued digital currency isn't necessarily a good thing. When there is a USDC (official U.S. digital coin) backed 1-1 to the U.S. dollar that would be a "stable coin" but it would mean that the government would always know exactly how much money you have and what you are spending it on.

Most people who favor Bitcoin don't want a digital dollar. By the way that "stable coin" is only as stable as the dollar (which isn't very stable).

exchemist said:
As for paying for a hot dog, or a newspaper, with bitcoin, I bet you can't in practice. So it's pretty hopeless as a substitute for the national currency in your (analogue??) bank account.
Click to expand...

You can do it easily enough where that's what merchant and customer want to do. You can also do it in a country where you don't trust the local currency. Some currencies, due to inflation, are soon virtually worthless so you convert it to Bitcoin right away if you are working there and being paid in the local currency.

There is also the benefit of the blockchain as opposed to the currency use. There is the Lightning Network where you can use the blockchain seamlessly without even having to be aware that it's using Bitcoin.

You have the Lightning Network app on your phone, buy something priced in dollars, the merchants barcode reader swipes your phone and they get paid immediately with cleared funds. The LN app, in the background, converts the dollar price to Bitcoin, goes to your bank dollar bank account and pulls out that amount in dollars and converts to Bitcoin and Bitcoin travels on the Bitcoin blockchain.

Both customer and merchant have dollar accounts but the amount moved was Bitcoin on the Bitcoin blockchain. It's instantaneous and funds are cleared from the start.

You could hop on a plane and buy items from country to country and never have to deal with "cleared funds" or any time delays. In theory, you could live in Russia, hear a knock on your door in the middle of the night, grab your Ledger, sneak out the backdoor and hop on a plane to the U.S. with only the clothes on your back and your Ledger and when you got to the U.S. you could buy a house with cleared funds immediately (if you had all of your assets in Bitcoin in self-custody).

That's why, in some ways Bitcoin is better than stocks, bonds, and property. If you owned property in Russia and had to get out, you can't take that land that you owned with you. You also have to constantly pay property tax. Stocks and bonds have issuer risk, business risk and risk from whatever institution is holding your ownership rights. Schwab could go out of business, Amazon could default and the stock would be worthless, the government could suddenly devalue all government currency. Bitcoin avoids all that.

Of course the dollar would be the last currency to have to worry about along with the Euro, Pound, Yuan. Eventually there will probably just be those but look at how many countries' currency isn't very strong. Even with the dollar though, governments do what they always do which is devalue the currency.

If you held $20 for 100 years it would be virtually worthless. An ounce of gold would also still buy you " a fine man's suit" whether that was in 1900 or 2022. The dollar value of an ounce of gold in 1900 would have bought you a suit then but now it would buy you a fast food meal.

Anyway, it's an interesting subject.

exchemist said:
As you say, it's an investment commodity like gold, but more speculative. Many of us prefer to cover ourselves against inflation by investing spare funds in some kind of asset portfolio (stocks, property, bonds), with a more reliable performance record.
Click to expand...

Bitcoin has only gone up over a relatively short time period. When measured against the dollar it is certainly volatile over the short-term if you are looking at it as a currency. If you are using it as a currency you just keep a small amount for that purpose and the rest is an investment. That's what you do with cash as well since inflation eats away at cash.

The stock market has gone down this last year, so has Bitcoin. It's not that dissimilar. We know to just hold and forget about stock prices when there is a down market. It's the same with Bitcoin. You just have more control over Bitcoin with self-custody.
 
Last edited:
I thought (perhaps believed too) that when Bitcoin was launched, the idea was to have an online currency so the public could purchase some merch online without having to use a bank.

The value of Bitcoin was based entirely upon its secure encryption (by an algorithm!). Thus it became a fungible asset and, well, greed kicked in as people began to see it as an investment "opportunity". But that rule about the value of a thing being entirely in the minds of its beholders, also seems to have . . . kicked in.

I think this latest financial meltdown/ripoff thing won't ultimately spell the end of cryptocurrencies. I think it means that we might not see another FTX though. That didn't work out too well, eh?
 
arfa brane said:
I think this latest financial meltdown/ripoff thing won't ultimately spell the end of cryptocurrencies. I think it means that we might not see another FTX though. That didn't work out too well, eh?
Click to expand...
There was nothing inherently wrong with FTX, just in the way it was managed, and the fact that they seem to have violated their own terms of service.
At its core it should have been a simple operation: connect customers to buy/sell from each other and take a cut of the transaction. That slice of the transaction should then pay for the upkeep of the IT and general business operations. They would also allow customers to store tokens in wallets held by FTX. Their terms of service, I believe, were that no customer assets held by them would ever be used by FTX. Had this been the case then whenever a customer withdrew their assets from FTX, there should have been sufficient. And no issue. And if there was a run on customers wanting their tokens back, again this shouldn't have been an issue as they'd simply be in the FTX wallets waiting for the customer to transfer them.

Unfortunately they don't seem to have abided by their terms of service, though, such that when there was a run of customers asking for their tokens back, there was insufficient liquidity to do so. I.e. they should have had 100 Bitcoins in the wallets, but when people came asking for 80 of them, there were only 40 in the wallet to transfer out. That's almost certainly too simplistic, but it should give the general gist. The big question is why there was this insufficient liquidity - i.e. where have the funds gone, and have they ultimately been lost or just tied up in other investments. If the latter then whether there are any losses will depend on whether those assets have been transferred into USD (or other fiat currency). E.g. they had 100 Bitcoin in their wallets, sold 50 of them at 20,000 so they could loan USD 1M to another company. When the loan is returned, the USD 1M may only by 40 tokens. Or it may buy 60, in which case FTX might ultimately have done well. It may also be the former, e.g. the company they loaned the USD 1M to has since gone bust and unable to repay the money!

It's just too early to say exactly what has gone on, but it looks like a failure to abide by their own terms of service.
Other exchanges are specifically set up to utilise customer funds in order to generate further returns - through wise investment opportunities etc. But such companies have had mixed fortunes, with Celsius failing earlier this year.
 
The questions of where the funds went is probably, "nowhere". The market value just declined for the FTT tokens after the run on those tokens. I'm not taking about the several million dollar "hack" that occurred afterward.

The problem, it seems, is the Alameda Research (trading firm) and FTX were both owned by SBF. In the early days FTX didn't make enough in fees to stand on it's own and Alameda loaned it funds and took back FTT tokens as collateral.

Later FX could stand on it own and generated profits. FX used some of those profits to "bail-out" bad financial decisions by Alameda or to provide funds for an untimely margin call or that kind of thing.

The rest depends on the SBF spin regarding to whether he just didn't realize how large the debt was between the two firms due to bad accounting or whether he knew and it worked until it didn't work and he got caught this time with the run on assets that he couldn't cover.
 
You must log in or register to reply here.
Back
Top