Demetri Kofinas just did a great podcast on how much of crypto is a criminal conspiracy (the premium feed doesn't cost that much). His guest was pretty suspicious of most (not all) actors in the crypto space and from what he's saying it doesn't sound like wild conspiracies to me. For anyone currently in crypto, you may wish to be very careful of your counterparty risk, particularly if you have money in anything related to DCG (Coindesk) or Binance.
https://open.spotify.com/episode/23SQvNadhusNfzf8OH610C?si=f491dcfdab124a0a is the link, but it will be behind a paywall.
the potential winners of this crypto mess may be V and MA. embeds that highly profitable (unholy) duopoly for several more years
Cryptocurrency crash: FTX saga is just an old-style failure of a new asset (afr.com)
Opinion
The product at the heart of the collapse may be high-tech, but the details of how we got here mirror many aspects of the 2008 financial crisis, and other periods of financial speculation.
by Rana Foroohar, Contributor, AFR (today)
Last Updated: Nov 21, 2022 – 12.51pm,
first published at 11.38am (Monday 21st Nov 2022)
If the bankruptcy of FTX and the subsequent meltdown of all things crypto have shown us anything, it is that this time still isn’t different when it comes to the financial sector and risk.
The product at the heart of the current market collapse may be high-tech, but the details of how we got here mirror many aspects of the 2008 financial crisis, and other periods of financial speculation such as the dotcom bubble, or even the run-up to the 1929 market collapse.
While FTX trafficked in the digital, its demise was entirely analogue. Alamy
Start with the catalyst for the crisis. FTX is hardly “too big to fail”, but as with the banks in the subprime crisis, it was an internal trading operation, Alameda Research, making opaque deals that set the collapse in motion. Plain vanilla lending or market making becomes boring; the temptation for greater profit and risk via trading looms large.
That Alameda was able to make its crypto trades on the FTX platform, potentially benefiting from information that other traders on the platform didn’t have, also calls to mind the ways in which big banks can trade, for example, commodity assets, but also buy up the physical goods being traded, which in essence gives them preferential information.
This sort of conflict of interest came to the fore several years ago during the Goldman Sachs aluminium hoarding scandal of 2013. It is also omnipresent in the tech platform arena, where companies such as Amazon act both as trading platforms and purveyors of their own goods.
But it is even more problematic in the fintech space, which blends all the risk of complex financial transactions with the algorithmic opacity of Big Tech.
This is especially true in the crypto market, where the goods being traded are completely disconnected from the real economy. How can any investor hope to see into such a black box?
While FTX trafficked in the digital, its demise was entirely analogue. Once it became clear that the company was in trouble, there was a classic run on deposits. FTX investors wanted to withdraw $US5 billion ($7.5 billion), but the platform had only $US900 million worth of sellable assets against $US9 billion in liabilities. That in itself is inexcusable.
Given that FTX is an exchange, there was theoretically no reason (aside from bad judgment) why it shouldn’t have been holding enough to return 100 per cent of its clients’ money at any given time.
But the crypto industry isn’t the only part of the financial sector that likes to hold as little capital against the risks of daily business as possible. While large banks in the US today hold about 13 per cent capital against assets (meaning loans) versus 8 per cent back in 2008, they are lobbying hard to have those capital requirements loosened.
Some regulators are inclined to let the banks have their way, in the hope that they will be able to better prop up the US Treasury bill market, which is in need of buyers in an age of trade and currency decoupling. Never mind that the US is likely to be heading into a recession and that investors such as Paul Singer are warning of a coming market environment unlike anything we’ve seen since the Great Depression.
All of which suggests a larger question: what is all this speculative trading, whether in crypto or derivatives, actually for?
Does it have any relation at all to the traditional role of the financial industry, which is the funnelling of productive savings into productive investment? Or is it mainly moving around existing assets (real or virtual) in a closed loop of financialisation which largely benefits a tiny handful of rich traders?
And if it’s the latter, why do we continue to allow it? There seems to be little social use for it.
This is a question that is particularly relevant to the private cryptocurrency markets. I am supportive of central bank efforts to create sovereign digital currencies, which I think will ultimately create a more efficient and productive financial system. But the idea, espoused by many cryptocurrency advocates, that private digital coins are somehow a great hedge for a post-quantitative-easing world in which loose monetary policy and fiscal stimulus together will create even more massive inflation has always struck me as a bit backwards.
Would anyone have been trading this stuff if we weren’t at the end of a long cycle of easy money?
The answer seems to be no, given that we’re now seeing a domino effect of problems with crypto assets — from the Winklevoss twins being forced to halt withdrawals from their crypto-lending programme to the trouble at other big lenders such as BlockFi, and numerous other crypto brokers and hedge funds.
In yet another parallel with past financial crises, even the audit groups that were supposed to vet the books of such institutions are looking shaky, which isn’t a surprise given that the accounting rules for crypto are sketchy at best.
As in the 2008 crisis, both regulation and private sector responsibility were lacking. The formal banking sector, and even more so shadow banks, have managed to persuade government officials for decades now that they are a “special” sector capable of managing risk that others cannot.
Why do we keep allowing such obviously speculative bubbles to grow and collapse? Perhaps because financial alchemists are so good at selling their spin to politicians.
Before his company imploded, FTX’s founder Sam Bankman-Fried was a big donor to the Democrats and was engaged in a significant Washington charm offensive designed to legitimise crypto. As always, money and power are two sides of the same coin.
Source: Cryptocurrency crash: FTX saga is just an old-style failure of a new asset (afr.com)
Had a small settlement due today on Commsec, turns out there is an OSKO problem that is being kept quiet and instant transfers are on hold. If only there was a simpler and instant peer-to-peer way of transferring currency. CBA can wait for my spare change for now.