BITCOIN, Heists, Thefts, Hacks, Scams, and Losses

[Office_Shredder]

Cryptocurrency, stonks, or diseased cattle. I'm trying to decide what is the better investment.

Hey, he's still a billionaire, approximately. Even after this crypto has been very kind to SBF.

 

[Drakkith]

Cryptocurrency, stonks, or diseased cattle. I'm trying to decide what is the better investment.

I've got snake oil that will cure your diseased cattle! Only 11.99 a bottle! Free shipping and handling for purchases over fourteen tons!

 

[russ_watters]

Cryptocurrency, stonks, or diseased cattle. I'm trying to decide what is the better investment.

How diseased?

Hey, he's still a billionaire, approximately. Even after this crypto has been very kind to SBF.

Good for him (Kanye notsomuch), but I'm not so losing 96% of my net worth would smart a little more.

I've got snake oil that will cure your diseased cattle! Only 11.99 a bottle! Free shipping and handling for purchases over fourteen tons!

"Shipping and handling" is such a ripoff.

In seriousness: I'm not totally clear on what happened here. Is it simply that a major holder pulled all their money from the bank at once - with a loud public announcement - triggering a run and loss of liquidity? Is that legal how it went down? What happens if Bill Gates says "I don't think Citibank is solvent so I'm withdrawing all my money?"

And what happens to the account holders? Are they going to be able to keep/recover their holdings? If google serves, FTC is/was the 3rd largest exchange. That's a really big bank failure.

 

[Office_Shredder]

In seriousness: I'm not totally clear on what happened here. Is it simply that a major holder pulled all their money from the bank at once - with a loud public announcement - triggering a run and loss of liquidity? Is that legal how it went down? What happens if Bill Gates says "I don't think Citibank is solvent so I'm withdrawing all my money?"

And what happens to the account holders? Are they going to be able to keep/recover their holdings? If google serves, FTC is/was the 3rd largest exchange. That's a really big bank failure.

First, it's not a bank. Some people might think of it like one, but the difference is important to keep in mind when making decisions about your risk.

I don't know the details here, but here are some possible ideas
1.) Crypto venues explicitly have a murky relationship with their customers. Ftx might have used customer funds to fund their earlier acquisitions and overextended themselves.

2.) ftx let's customers have leverage. If you deposit 10,000 dollars, ftx will key you spend 100,000 dollars on bitcoin. You pay interest for this. If bitcoin drops more than 10%, ftx loses money. They protect themselves by selling your bitcoin immediately if it drops, (picking a random number here) 5%. In theory this makes the lending safe, but they allow up to 20x leverage, so they might have lost some money on this if they weren't able to close everyone out during a bitcoin crash. In order to lend like this you need to have extra cash on hand to cover the losses. If they didn't have enough cushion, they can't pay out if their customers start withdrawing money.

3.) If you put 10k dollars in ftx, that money doesn't sit there as dollars. A safe thing to do with it would be to invest it in short term treasuries, earning ftx a little bit of interest (which they may or may not give some back to you as an incentive to park your money in ftx) of course that doesn't earn a lot. If you think crypto only goes up, you might put it in bitcoin, or lend it to a crypto venture, and make a lot not money that you keep for yourself. If those investments go bust, in theory you should have a cushion of extra cash at the exchange to cover it, but if you lose too much then you can't pay back your customers.

#3 has basically happened to a ton of crypto places this year. Ftx is somewhat famous for stepping in and covering the customer losses while acquiring the bankrupt business, which is why this failure is so surprising and ironic.

In this particular case, speculation is that ftx was using its ownership of its own tokens as equity/cash to cover possible losses as listed above, vand binance kind of announced they thought those tokens weren't worth very much, which meant ftx didn't have enough money anymore to cover those losses because the announcement made those tokens go down in the market.

What happens to account holders depends a lot on the facts. For a real bank, the central regulator would try to convince another bank to buy them and cover all the accounts. If that doesn't work, in the US and I assume other places accounts are insured - your first 250k dollars are covered. Beyond thatyou might lose money, you would be a claimant in bankruptcy proceedings and get whatever you can get.

Here, there is no regulator or insurance. Binance has announced they are going to make sure all account holders are made whole, so customers might be fine. If that didn't happen though, a couple scenarios could play out
1.) Ftx s shuts itself down and pays out as much money as possible. This was kind of happening - they had already paused anyone withdrawing money it sounds like, which is a key step to making sure that when you figure things out everyone gets a fair cut instead of the fastest people to withdraw getting their money and everyone else getting nothing.

2.) You just ride it out and see what happens. A lot of people will withdraw money as they find out there are issues, and eventually you will have nothing left. Whoever didn't withdraw gets nothing. In some outside chance, maybe you make enough money back or get additional investments and you end up not actually having a problem.

2 is kind of illegal in the US (ftx is not a US company) as you are required to declare bankruptcy if you can't pay back your liabilities instead of paying them back in a random fashion. That way a court decides the fairest way to split the money.

 

[Astronuc]

FTX: Cryptocurrency market rocked by near-collapse of exchange
https://www.bbc.com/news/business-63564364

Just before the US markets open on Wednesday

Symbol	Last Price	Change	% Change
Bitcoin USD	17,584.50	-1,991.19	-10.17%
Ethereum USD	1,210.69	-249.05	-17.06%
Tether USD	0.9989	-0.0013	-0.1306%
BNB USD	296.73	-27.54	-8.49%

There must have been a rally last night, since yesterday, Bitcoin was about $18,566.46, or up ~$980 from this morning's $17,584.50

Jeff John Roberts's (Fortune) take on the situation
https://finance.yahoo.com/news/hell-just-happened-crypto-q-005458676.html

The two of them used to be pals, you see, and this included CZ investing in SBF's new cryptocurrency exchange. In time, CZ decided he didn't want to own it anymore, and, when he sold his stake in FTX, he took payment in a crypto token called FTT. Those tokens are used by customers on the FTX exchange to obtain trading discounts, but, unlike Bitcoin, are not especially liquid.

In hindsight, this was a foolish arrangement by SBF because it resulted in CZ owning a huge amount of FTT tokens, thus giving him power over FTX. It's as if Pepsi gave Coca-Cola a big chunk of shares that Coke could sell off any time it wanted. And that's what happened: CZ got mad at SBF and flooded the market with loads of FTT tokens.

This was devastating because SBF also owns a trading fund that has a whole lot of FTT tokens on its balance sheet. When the price of FTT tokens began to crater, SBF tried to defend its value by selling other assets in order to buy up the FTT tokens flooding the market—but it didn't work, and, as the value of FTT tanked, SBF discovered his liabilities began to exceed his assets. By Tuesday, his companies were facing insolvency, and he had to turn to his rival to take them off his hands.

 

[russ_watters]

Thanks @Office_Shredder. Current price: $16,500. Seems this has shaken the market badly.

 

[Astronuc]

At 1400 EST

ymbol	Last Price	Change	% Change
Bitcoin USD	16,685.47	-2,063.76	-11.01%
Ethereum USD	1,168.28	-194.40	-14.27%
Tether USD	1.00	-0.00	-0.11%
BNB USD	280.93	-44.94	-13.79%

I'm not sure how Yahoo is calculating the change, but it's definitely negative.

https://finance.yahoo.com/crypto

 

[kyphysics]

I was thinking of investing up to 1% of portfolio in BTC. Hadn't gotten around to it and GLAD I did not.

I think I might pass forever. This is fun watching it burn.

 

[kyphysics]

First, it's not a bank. Some people might think of it like one, but the difference is important to keep in mind when making decisions about your risk.

I don't know the details here, but here are some possible ideas
1.) Crypto venues explicitly have a murky relationship with their customers. Ftx might have used customer funds to fund their earlier acquisitions and overextended themselves.

2.) ftx let's customers have leverage. If you deposit 10,000 dollars, ftx will key you spend 100,000 dollars on bitcoin. You pay interest for this. If bitcoin drops more than 10%, ftx loses money. They protect themselves by selling your bitcoin immediately if it drops, (picking a random number here) 5%. In theory this makes the lending safe, but they allow up to 20x leverage, so they might have lost some money on this if they weren't able to close everyone out during a bitcoin crash. In order to lend like this you need to have extra cash on hand to cover the losses. If they didn't have enough cushion, they can't pay out if their customers start withdrawing money.

3.) If you put 10k dollars in ftx, that money doesn't sit there as dollars. A safe thing to do with it would be to invest it in short term treasuries, earning ftx a little bit of interest (which they may or may not give some back to you as an incentive to park your money in ftx) of course that doesn't earn a lot. If you think crypto only goes up, you might put it in bitcoin, or lend it to a crypto venture, and make a lot not money that you keep for yourself. If those investments go bust, in theory you should have a cushion of extra cash at the exchange to cover it, but if you lose too much then you can't pay back your customers.

#3 has basically happened to a ton of crypto places this year. Ftx is somewhat famous for stepping in and covering the customer losses while acquiring the bankrupt business, which is why this failure is so surprising and ironic.

In this particular case, speculation is that ftx was using its ownership of its own tokens as equity/cash to cover possible losses as listed above, vand binance kind of announced they thought those tokens weren't worth very much, which meant ftx didn't have enough money anymore to cover those losses because the announcement made those tokens go down in the market.

What happens to account holders depends a lot on the facts. For a real bank, the central regulator would try to convince another bank to buy them and cover all the accounts. If that doesn't work, in the US and I assume other places accounts are insured - your first 250k dollars are covered. Beyond thatyou might lose money, you would be a claimant in bankruptcy proceedings and get whatever you can get.

Here, there is no regulator or insurance. Binance has announced they are going to make sure all account holders are made whole, so customers might be fine. If that didn't happen though, a couple scenarios could play out
1.) Ftx s shuts itself down and pays out as much money as possible. This was kind of happening - they had already paused anyone withdrawing money it sounds like, which is a key step to making sure that when you figure things out everyone gets a fair cut instead of the fastest people to withdraw getting their money and everyone else getting nothing.

2.) You just ride it out and see what happens. A lot of people will withdraw money as they find out there are issues, and eventually you will have nothing left. Whoever didn't withdraw gets nothing. In some outside chance, maybe you make enough money back or get additional investments and you end up not actually having a problem.

2 is kind of illegal in the US (ftx is not a US company) as you are required to declare bankruptcy if you can't pay back your liabilities instead of paying them back in a random fashion. That way a court decides the fairest way to split the money.

Anyone care to do a single paragraph (5 sentence maximum) Cliff Notes/tldr/"For Dummies" version of what the heck is happening across crypto for those of us who aren't super deep into the news/space/technical details?

Is there some insolvent crypto lender or trust that's causing a lot of losses for people?

 

[russ_watters]

Anyone care to do a single paragraph (5 sentence maximum) Cliff Notes/tldr/"For Dummies" version of what the heck is happening across crypto for those of us who aren't super deep into the news/space/technical details?

You mean with the price right now? It's lack of confidence due to the failure of a large exchange.

 

[Drakkith]

I think I might pass forever. This is fun watching it burn.

It's less fun watching your holdings go down in value, trust me.

 

[russ_watters]

Binance has changed its mind and is declining to save/buy FTX:

...beyond our control or ability to help.

https://www.cnn.com/2022/11/09/business/bitcoin-crypto-prices-fall-ftx-binance-ctrp/index.html

Whoa.

 

[Bystander]

Anyone care to do a single paragraph

Binance has changed its mind and is declining to save/buy FTX:

Here you go...

 

[kyphysics]

You mean with the price right now? It's lack of confidence due to the failure of a large exchange.

So is the reason this FTX exchange insolvent because of leverage it has in its finances?

Why the random implosion? (been watching lots of CNBC vids and still am not sure I get the technical details of what is happening - I get the broad picture, though)

 

[Vanadium 50]

was thinking of investing up to 1% of portfolio in BTC

was thinking of investing gambling up to 1% of portfolio in BTC.
Fixed it for you.

Despite prodding, you have never explained what your investing goals are. Therefore, you are not investing. At best, you are hoping the asset will grow by an unspecified amount in some unspecified time frame. That isn't what investing is. (Putting a bet on 18 Red fits that description, and nobody will say that's investing)

1% of BTC in your portfolio is unlikely to make sense in any portfolio. If you believe that it is going to go up by a large factor, why only 1%? If you don't, why are you investing anything in it? If you believe there is a complex set of probabilities that result in expectation values that warrant a 1% investment and not a 1/2% or 2% investment, what are they? And how do alternatives compare?

 

[Astronuc]

was thinking of investing gambling losing/burning up to 1% of portfolio in BTC.

Crypto traders with remaining funds on FTX are attempting to sell their account balances for fractions of their face value.

Telegram chats facilitating small over-the-counter (OTC) markets viewed by CoinDesk reveal buyers are bidding about 10 cents to 15 cents on the dollar for the locked-up funds, while sellers are generally looking to offload their balances at around 20 cents to 33 cents.

https://finance.yahoo.com/news/hostaged-ftx-funds-sold-pennies-195751906.html



Meanwhile - (Bloomberg) -- "Amazon.com Inc. is the world’s first public company to lose a trillion dollars in market value as a combination of rising inflation, tightening monetary policies and disappointing earnings updates triggered a historic selloff in the stock this year."
https://finance.yahoo.com/news/amazon-becomes-world-first-public-191725519.html

So it was overvalued?

 

[russ_watters]

So is the reason this FTX exchange insolvent because of leverage it has in its finances?

Why the random implosion? (been watching lots of CNBC vids and still am not sure I get the technical details of what is happening - I get the broad picture, though)

It's not random, it culminated with a fight or just sabotage of FTX by Binance. Shady business practices and leverage were precursor problems. Cliffs notes will only take you so far. You should read @Office_Shredder's post and more:
https://qz.com/binance-goes-to-war-on-ftx-tokens-then-sweeps-in-to-bu-1849756069

 

[russ_watters]

1% of BTC in your portfolio is unlikely to make sense in any portfolio. If you believe that it is going to go up by a large factor, why only 1%? If you don't, why are you investing anything in it? If you believe there is a complex set of probabilities that result in expectation values that warrant a 1% investment and not a 1/2% or 2% investment, what are they? And how do alternatives compare?

There's no need for a complex analysis of the exact buy-in. The amount is arbitrarily small because it's a lottery ticket. Not enough bet to hurt badly if you lose, but if you win the lottery you're rich. Like betting on 18 red 3x in a row (if you keep winning).
[edit] Although at this point it's more like betting on 18 red once, since I don't think I've seen bulls predicting more than a $1m price.

 

[Vanadium 50]

Shady business practices

One day it's "Keep your stinking regulations off my crypto!" and the next it's "Shady business practices! Someone should protect us!"

 

[russ_watters]

One day it's "Keep your stinking regulations off my crypto!" and the next it's "Shady business practices! Someone should protect us!"

Ultimately when the users figure out that you can't have both, it's what will finally cause crypto to die.

 

[Astronuc]

Hey, he's still a billionaire, approximately. Even after this crypto has been very kind to SBF.

'Was' is the operative verb.

FTX CEO Sam Bankman-Fried has vanished from the Bloomberg Billionaires Index after his estimated personal wealth plummeted nearly 94% to $991.5 million in a single day.

https://www.yahoo.com/finance/news/sam-bankman-fried-no-longer-014407946.html

 

[BWV]

Tom Brady, FTX spokesman, lost big, guess he has to keep playing a while longer

 

[BWV]

Seriously, think the death spiral for crypto started today

Crypto was a MLM for people who thought they were too smart for a MLM

 

[Office_Shredder]

'Was' is the operative verb.https://www.yahoo.com/finance/news/sam-bankman-fried-no-longer-014407946.html

991 million dollars is approximately a billionaire. He's fine

 

[russ_watters]

Seriously, think the death spiral for crypto started today

Maybe. What might and probably should have cryptobros worried is Binance, not FTX itself. I mean, a top 5 exchange failing isn't nothing, but Binance is bigger than the next 7 combined. At best, Binance acted unethically here. That alone should shake confidence that they are trustworthy with their customers' money. But if what they did was illegal they could be shut down. This could be like 2008 except instead of Bank of America maybe buying and then backing out of buying Lehman, they cut Lehman off at the knee, then got their own run because nobody trusts them anymore, then got shut down by the government.

 

[nsaspook]

That's today.

991 million dollars is approximately a billionaire. He's fine

Two days ago this was a 'safe investment' with him talking to capital hill leaders.

Today, some large fraction of his remaining net worth in is Robinhood stock. He's fine.

 

[BWV]

No one would believe this if it appeared in an episode of Silicon Valley

https://www.sequoiacap.com/article/sam-bankman-fried-spotlight/

 

[Vanadium 50]

I was thinking of investing up to 1% of portfolio in BTC

The more I think about it, the less sense this makes.

Suppose you think that BTC will go back to its peak. That may sound improbable, but let's assume it That means your investment will go from 1.00 to 1.03. A whopping 3%. You can do better than this risk-free by buying T-bills.

Now if you say, "No, no, I am counting on returns from the other 99%", why are you taking 1% out of that?

 

[Office_Shredder]

The more I think about it, the less sense this makes.

Suppose you think that BTC will go back to its peak. That may sound improbable, but let's assume it That means your investment will go from 1.00 to 1.03. A whopping 3%. You can do better than this risk-free by buying T-bills.

Now if you say, "No, no, I am counting on returns from the other 99%", why are you taking 1% out of that?

This is just how diversified returns work? It makes perfect sense to put small parts of your portfolio in different uncorrelated assets.

 

[russ_watters]

Two days ago this was a 'safe investment' with him talking to capital hill leaders.

Video says that's a year ago. If I were him I'd stay in the Bahamas or find a warm non-extradition country.

[waves to the fbi agents who just started following me after I googled that]

 

[russ_watters]

The more I think about it, the less sense this makes.

Suppose you think that BTC will go back to its peak. That may sound improbable, but let's assume it That means your investment will go from 1.00 to 1.03. A whopping 3%. You can do better than this risk-free by buying T-bills.

Huh? BTC's peak was $64,000. Did you mean to say 3.03? And cryptobros obviously don't think that was anywhere close to the ceiling.

This is just how diversified returns work? It makes perfect sense to put small parts of your portfolio in different uncorrelated assets.

Yes, and the higher the risk and return, the smaller the investment. @Vanadium 50 I don't get your take here.

Full disclosure: I bought a powerball ticket on Sunday. And I may have last Wednesday too...

 

[Drakkith]

Huh? BTC's peak was $64,000. Did you mean to say 3.03? And cryptobros obviously don't think that was anywhere close to the ceiling.

1% x 3x = 3% = 1.03 of your original portfolio amount.

 

[russ_watters]

1% x 3x = 3% = 1.03 of your original portfolio amount.

Thanks. Should have seen what he meant. But I thought he was talking about the BTC investment itself, not the total account. Obviously, if someone believes BTC will only return to its former peak (vs strong odds of going to zero), that would be a terrible bet. Obviously, cryptobros don't believe that:

Reaching $1,000,000 per Bitcoin by 2030 is a pretty popular projection.

• Crypto-trading platform BitMEX's ex-CEO, Arthur Hays, made precisely that prediction four months ago.
• Famous growth investor Cathie Wood set the same target in April 2022.
• Serial entrepreneur Anthony Pompliano took the stage at the same Bitcoin 2022 event to say that Bitcoin could reach $500,000 or $1,000,000 in the near future -- but anything beyond that would require a social collapse and total meltdown of the U.S. dollar.
• In early June, MicroStrategy (MSTR -19.58%) chairman Michael Saylor doubled down on his bullish price predictions in a CNBC interview: "It's not going to zero. If it's not going to zero, it's going to a million because it's obviously better than gold at everything that gold wants to be."

https://www.fool.com/investing/2022/09/11/can-bitcoin-reach-1-million/

I other news, I'm starting a company to commercialize bitcoin-plated electronics since bitcoin is better than gold at that.

 

[Astronuc]

Apparently, SBF is warning that without cash, FTX will be forced into bankruptcy. But they have all those bitcoins (cryptocurrency). Why do they need cash?

Bloomberg reported Wednesday,

FTX investors have been warned that the crypto exchange may be forced to file for bankruptcy protection if it doesn't get a cash infusion.
. . .
Bloomberg reported the FTX exchange faces an $8 billion shortfall.

 

[fluidistic]

Apparently, SBF is warning that without cash, FTX will be forced into bankruptcy. But they have all those bitcoins (cryptocurrency). Why do they need cash?

Bloomberg reported Wednesday,

How do you know FTX owns any bitcoin? An estimator website showed a slight negative amount of btc left in that exchange.