Anyone following the crypto meltdown?

[aja8888]

Never into Crypto, but don't understand how you can go from $32B (or whatever they are reporting now) to ZERO in days.

Well, it didn't just evaporate. It's in a secret bank account(s).

 

[joesxm3]

How come the mods are not shutting down this thread which violates the policy against discussing crypto?

 

[MarieIG]

Yes, I have been following it.

I never considered myself smart enough to invest in crypto - it always has made me nervous. Accordingly, I never made any $ in crypto either.

I don't feel any "schadenfreude: - whatsoever, as a result of the collapse. I don't know the extent of the people who have been harmed by this.

 

[MichaelB]

How come the mods are not shutting down this thread which violates the policy against discussing crypto?

The previous cryptocurrency discussion was closed because “ the topic of cryptocurrency has been covered and exhausted”. The moderator team discussed this thread and felt there was enough new information to allow it. It’s fine long as the discussion remains on topic and doesn’t fall back to a replay of the previous thread.

 

[joesxm3]

OK.

Just so we are clear, is this thread limited to the fraud committed by Sam Bankman-Fried and his companies FTX and Alameda Research?

Some crypto assets such as Solana have dropped considerably due to SBF selling to attempt to stop the run on the bank. Is this what we are referring to as a meltdown?

If so, I can see that this is a new topic. However, a lot of the posts so far seem to be the same old "crypto is a pile of dung ponzi scheme" comments that we had in the thread that was closed.

 

[MichaelB]

OK.

Just so we are clear, is this thread limited to the fraud committed by Sam Bankman-Fried and his companies FTX and Alameda Research?

Some crypto assets such as Solana have dropped considerably due to SBF selling to attempt to stop the run on the bank. Is this what we are referring to as a meltdown?

If so, I can see that this is a new topic. However, a lot of the posts so far seem to be the same old "crypto is a pile of dung ponzi scheme" comments that we had in the thread that was closed.

Most of the comments are on topic so far, thanks. Let’s please just let the discussion develop.

 

[Fermion]

Oh yes, I am sorry if I came across as bashing crypto, I just find this fascinating that so much money can move so quickly.

Some recent news: https://www.yahoo.com/finance/news/funds-disappear-imploding-crypto-exchange-213514063.html

“It does look as if the liquidators didn’t act fast enough to stop some kind of siphoning off of funds from FTX after it filed for bankruptcy, and that’s bad, but it just shows how complex this thing is,” Coppola said.

Initially, some people were hoping that perhaps all the missing funds were liquidators or bankruptcy administrators trying to move assets to a more secure spot. But it would be unusual for that to happen on a Friday night, said Molly White, cryptocurrency researcher and fellow with the Library Innovation Lab at Harvard University.

"Exactly how much money is involved is unclear, but analytics firm Elliptic estimated Saturday that $477 million was missing from the exchange. Another $186 million was moved out of FTX’s accounts, but that may have been FTX moving assets to storage, said Elliptic’s co-founder and chief scientist Tom Robinson."

“It looked very different from what a liquidator might do if they were trying to secure the funds,” she said.

White also said there are signs of possible insider involvement. “It seems unlikely that someone who is not an insider could have pulled off such a massive hack with so much access to FTX systems.”

The collapse of FTX highlights the need for cryptocurrency to be regulated more like traditional finance, Coppola said.

“Cyrpto isn’t in the very early stages anymore,” she said. “We’ve got ordinary people putting their life savings into it.”

 

[Markola]

Rather than dismiss a new asset class, I, for one, have chosen to be curious. I’ve put in the time to understand the difference between Bitcoin, which the IRS and CFTC define, uniquely, as a commodity, much like gold, vs. every other thing in crypto, which the SEC defines as a sea of unregulated securities, much like penny stocks. Simple. I’ve been buying Bitcoin (and only Bitcoin) while prices have declined this year, which I am holding and never trading in off-line wallets, as my chosen volatile risk asset within my much larger traditional index fund portfolio. If it simply continues its trajectory, my few percent allocation of BTC will make a large difference in my returns. I have a minimum ten year horizon and am more than comfortable with my choice, excited really, as is Fidelity, BlackRock, Goldman Sachs, BNY Mellon, etc., etc. You do you, though. DM me if you want quality resources to read, because the group here as a whole is clearly not interested.

Bitcoin (BTC) 3 and 5 Year returns vs stocks and bonds:

 

[RobbieB]

No, didn't even know it melted until I saw it here.

 

[aaronc879]

Never heard of FTX until earlier today. I have a friend who timed Bitcoin well and bought a Tesla with his earnings. This is a guy who has no degree and likely less than 6 figure net worth in his 40's until he got lucky with Bitcoin. Luckily I did not join in as I would have been too late and lost a lot like many others have. I hope this is the end of digital currency.

 

[Popeye]

Looks like Mr. SBF was smart enough to buy himself some insurance.

Mr. Bankman-Fried embarked on a campaign to amass regulatory licenses. He surprised many of his fans when he came to a December 2021 Capitol Hill hearing on cryptocurrencies, wearing a suit and tie. Soon, he was a frequent visitor to Washington, meeting with regulators and others. [mod edit]

(From the article linked above)

 

[Graybeard]

Only as a distant observer. I never got on the crypto bandwagon. I still don't understand it's value.

Some click bait site said Tom and Geselle had 3/4 of the asserts in FTX.

Schadenfreude at its most enjoyable.

Sent from my LM-Q850 using Early Retirement Forum mobile app

I broke out LOL at that!

 

[joesxm3]

For those who have not been following, here is a short summary.

Sam Bankman-Fried is a young billionaire whose companies FTX, FTX.us and Alameda Research (among others) are the main players. FTX is a crypto exchange and Alameda is a trading company or hedge fund.

[mod edit]

The CEO of Alameda Research is the daughter of the head of economics at MIT. Her father was the boss of Gary Gensler when he taught at MIT.

SBF has been heavily lobbying and working with Gensler on the pending crypto regulation bill.

There is a Chinese guy called CZ who runs the Binance exchange. He found out that SBF was using his political connections to stick it to his competitors with his lobbying.

A while ago there was a company called Celsius Network that was basically a ponzi scheme where people deposited crypto for large interest rates. Celsius was found out and went bankrupt along with another company called 3 Arrows Capital.

Unknown to the world, Alameda Research had gotten into trouble with the Celsius meltdown and had liquidity problems. It seems that SBF committed fraud or some other crime by sending FTX customer deposit funds to prop up Alameda Research.

FTX had printed its own money called the FTT token out of thin air and was using this as collateral for loans. CZ had been the initial investor in FTX and had a large amount of FTT token from the split up.

CZ got mad at SBF and tweeted that he was going to sell millions of FTT tokens. This caused a bank run on the FTX exchange, which did not have enough customer deposit funds to meet the withdrawals. A crypto exchange is not allowed to do fractional reserve banking. It is required to maintain a 1 to 1 backing of customer deposits.

As everyone owning the FTT token freaked out and started selling, the price crashed and since FTX held a large amount of its reserves as FTT token it became illiquid or insolvent. FTX had to start selling its other assets to prop up the price of the FTT token.

Note the similarity between various countries having to sell U.S Treasuries to buy their own currency to prop it up due to U.S interest rate hikes.

Of course SBF told everyone that things were rosy.

Then he had to ask CZ to help him. CZ signed a non-binding letter of intent to buy FTX but then backed out.

Next thing you know FTX, FTX.us, Alameda Research and over 100 subsidiaries filed for bankruptcy.

Friday night at 10pm, massive amounts of crypto assets were sent out from FTX and FTX.us. FTX said they were being hacked. User accounts were drained along with FTX reserve accounts.

The Kraken crypto exchange has very good technicians and is claiming to know the identity of the person that did the transfer because they used Kraken as a transfer point for some of the assets.

The general feeling is that this was an inside job, either SBF with associates or some other employees.

So, basically, this is not a meltdown of crypto, but it is an instance of criminal activity by a centralized finance firm. I think it was Larry Summers that said this was more like an Enron event than a Lehman Brothers event.

At the moment there are rumors that SBF has been taken into custody in the Bahamas where where he lives and runs the FTX international company from.

I find this very interesting how CZ was able to trigger the run on the FTT token and the FTX withdrawals. The All-In Podcast this week said that this is similar to what hedge funds will do to each other when one is caught off balance with a heavy short position.

 

[Closet_Gamer]

I don't own crypto and don't intend to.

The FTX meltdown is like watching a car accident though. I can't look away.

Fortunately this doesn't appear to be large enough to cause any systemic issue.

 

[aja8888]

For those who have not been following, here is a short summary.

Sam Bankman-Fried is a young billionaire whose companies FTX, FTX.us and Alameda Research (among others) are the main players. FTX is a crypto exchange and Alameda is a trading company or hedge fund.

SBF's mother is a lawyer and a leading fund raiser for the DNC. SBF has been the second largest donor to the Democrat party in the past five years, second only to George Soros.

The CEO of Alameda Research is the daughter of the head of economics at MIT. Her father was the boss of Gary Gensler when he taught at MIT.

SBF has been heavily lobbying and working with Gensler on the pending crypto regulation bill.

There is a Chinese guy called CZ who runs the Binance exchange. He found out that SBF was using his political connections to stick it to his competitors with his lobbying.

A while ago there was a company called Celsius Network that was basically a ponzi scheme where people deposited crypto for large interest rates. Celsius was found out and went bankrupt along with another company called 3 Arrows Capital.

Unknown to the world, Alameda Research had gotten into trouble with the Celsius meltdown and had liquidity problems. It seems that SBF committed fraud or some other crime by sending FTX customer deposit funds to prop up Alameda Research.

FTX had printed its own money called the FTT token out of thin air and was using this as collateral for loans. CZ had been the initial investor in FTX and had a large amount of FTT token from the split up.

CZ got mad at SBF and tweeted that he was going to sell millions of FTT tokens. This caused a bank run on the FTX exchange, which did not have enough customer deposit funds to meet the withdrawals. A crypto exchange is not allowed to do fractional reserve banking. It is required to maintain a 1 to 1 backing of customer deposits.

As everyone owning the FTT token freaked out and started selling, the price crashed and since FTX held a large amount of its reserves as FTT token it became illiquid or insolvent. FTX had to start selling its other assets to prop up the price of the FTT token.

Note the similarity between various countries having to sell U.S Treasuries to buy their own currency to prop it up due to U.S interest rate hikes.

Of course SBF told everyone that things were rosy.

Then he had to ask CZ to help him. CZ signed a non-binding letter of intent to buy FTX but then backed out.

Next thing you know FTX, FTX.us, Alameda Research and over 100 subsidiaries filed for bankruptcy.

Friday night at 10pm, massive amounts of crypto assets were sent out from FTX and FTX.us. FTX said they were being hacked. User accounts were drained along with FTX reserve accounts.

The Kraken crypto exchange has very good technicians and is claiming to know the identity of the person that did the transfer because they used Kraken as a transfer point for some of the assets.

The general feeling is that this was an inside job, either SBF with associates or some other employees.

So, basically, this is not a meltdown of crypto, but it is an instance of criminal activity by a centralized finance firm. I think it was Larry Summers that said this was more like an Enron event than a Lehman Brothers event.

At the moment there are rumors that SBF has been taken into custody in the Bahamas where where he lives and runs the FTX international company from.

I find this very interesting how CZ was able to trigger the run on the FTT token and the FTX withdrawals. The All-In Podcast this week said that this is similar to what hedge funds will do to each other when one is caught off balance with a heavy short position.

Great summary. The bottom line is none of this money that bought coins (electronic digits) evaporated. The money of investors on deposit went somewhere.

I'll bet some of it ($39,000,000+) went to the politicians........none of it was mine though!

This crypto stuff is so unregulated and widespread that it has become a target for scammers and many of those scammers are the ones in control of the MONEY and the DIGITS. This is so obvious.

 

[Breedlove]

We been down this road once or twice before Where did that 39 million go ? I wanted to buy some earlier but I seen Charlie Munger when asked on Fox News called Crypto ( Rat Poison )
I chickened out. Now Charlie is saying Real returns in the market are going to be lower for the next decade. ..He talks of a 5% return and with 7% inflation you actually have a neg 2 return..Oh Charlie .

 

[NW-Bound]

What is this $39 million?

From Reuters:

The exchange's founder Sam Bankman-Fried secretly transferred $10 billion of customer funds from FTX to Bankman-Fried's trading company Alameda Research, the people told Reuters.

A large portion of that total has since disappeared, they said. One source put the missing amount at about $1.7 billion. The other said the gap was between $1 billion and $2 billion.

Source: https://www.reuters.com/markets/cur...ng-failed-crypto-firm-ftx-sources-2022-11-12/

...Now Charlie is saying Real returns in the market are going to be lower for the next decade. ..He talks of a 5% return and with 7% inflation you actually have a neg 2 return..Oh Charlie .

Well, at -2%/year, you still have 82% left after 10 years.

 

[jollystomper]

This FTX situation aligns with my adage "when celebrities and athletes start endorsing financial investments, run the other way" . More than a few besides the Bradys invested and did marketing for FTX.

 

[Fielding]

Apparently yesterday FTX was hacked and some customers' crypto was just spirited away somewhere.

It's possible this was actually a hack, but there have been many other examples in crypto failures where 'hack' is just the weak cover story for a "rug pull" or inside job of embezzlement.

An egregious recent example is Martin Shkreli:

https://futurism.com/the-byte/martin-shkreli-crypto-dump-crash

(Shkreli just got out of prison for securities fraud. He's simply not credible.)

 

[SecondAttempt]

I was critical of crypto in teh now infamously closed threads. But my reading of the current situation with FTX is that it about an immature and inexperienced guy failing big time. I do not think it is an indictment of crypto in general. But I do think it will lead to more regulation which will not benefit crypto exchanges. It would be simple enough for Congress to require traceability of transactions to individuals. Exchanges could argue it is technically impossible. A response could be debarrment of anyone involved in the business or owning crypto from entering the US. Harsh and hard to enforce, yes. But the USG carries a big stick.

 

[NW-Bound]

The media talks about the founder of FTX creating 130 companies which are mentioned in the bankruptcy filing. What/where are these companies, and what do they do?

Financial Times has a chart showing the structure of these companies.

 

[luckydude]

...

FTX had printed its own money called the FTT token out of thin air and was using this as collateral for loans. CZ had been the initial investor in FTX and had a large amount of FTT token from the split up.

CZ got mad at SBF and tweeted that he was going to sell millions of FTT tokens. This caused a bank run on the FTX exchange, which did not have enough customer deposit funds to meet the withdrawals. A crypto exchange is not allowed to do fractional reserve banking. It is required to maintain a 1 to 1 backing of customer deposits.

As everyone owning the FTT token freaked out and started selling, the price crashed and since FTX held a large amount of its reserves as FTT token it became illiquid or insolvent. FTX had to start selling its other assets to prop up the price of the FTT token.

...

It sounds like FTX took its clients' money to invest in other stuff, and then use the FTT tokens it created as collateral, so when the value of the FTT tokens plummeted and clients wanted their money back, FTX had no liquidity to meet client demands.

So what exactly did FTX do with its clients' money? Did it all go to Celsius Network, or did it go somewhere else?

Also, the fact that FTX could simply create a new token such as FTT and it then magically acquires some value in terms of fiat currency, and subsquently CZ could drive down the value of FTT simply by announcing that he would sell these tokens is a perfect of example of why a lot of people think crypto is just a house of cards.

 

[FLSUnFIRE]

And how do people value Bitcoins? Answer: in $'s.

Ding, ding, ding!


I'll consider crypto as a currency/asset when I go to the store and a gallon of milk is selling for 2 Cryptothingies (and the price is no more volatile than USD quoted milk). Until then, I'll transact with USD and invest in companies that hopefully are using my funds to produce goods and services at a profit of which I'll get a share.


A related digression: I walk past this place somewhat regularly: https://stpetecatalyst.com/inside-st-petes-first-crypto-themed-boutique-hotel/

 

[latexman]

Yes, I'm following. I love a good comedy.

Who lost more money faster? SBF or Ye?

 

[freedom2022]

Late in the game, but I can’t resist to join the discussion while sipping a cup of coffee. I saw an interview on CNBC about the difference between Lehman Bro. collapse and FTX meltdown.
Lehman Bro. had their money invested and the government didn’t bail them out. In case of FTX, the causes have been discussed here.

My big worry is at what point Uncle Sam can’t bail out the dollar anymore? 100 Trillion dollar?
We all assume, the whole world will keep buying treasury and bonds no matter what.