Is cryptocurrency the greatest market bubble of all time?

[Dona Ferentes]

A week* in the (truncated) life of a crypto exchange

Nov 2	News breaks that FTX token FTT makes up a huge portion of quant firm Alameda’s balance sheet
Nov 7	Binance CEO says he will sell $US580m in FTT tokens, irked by crossover of Sam Bankman-Fried owned businesses
	Alameda CEO says she will buy FTT at $US22, Bankman-Fried tries to calm markets saying “assets are fine”.
Nov 8	Investors panic and begin selling FTT, trying to get assets out of FTX. FTT falls 14%, bitcoin falls 5%, ETH falls 6%
Nov 9	Traders struggle to withdraw FTT from exchange, almost all bitcoin is withdrawn. FTX halts withdrawals. FTT falls close to 0.
Nov 10	Binance makes undisclosed offer for entire FTX exchange, which is accepted (subject to due diligence).
	Bankman-Fried wealth plummets $US16bn in four days
Nov 11	Binance rescinds takeover offer after seeing the books. Says “issues are beyond our control or ability to help”.
	SEC confirms ongoing investigations into FTX and Alameda
Nov 12	Bahamas authorities freeze FTX assets, open investigation
	FTX Australia placed in administration

Non-existent custody rules mean crypto exchanges can take their “deposits” anywhere they like. Unfortunately for the likes of Celsius and Bankman-Fried’s FTX, there is no government backstop to save the day.

* 10 days, but probably felt like a lifetime

 

[greggles]

The effects of the FTX collapse have still not been fully felt in the cryptoverse. It is still early days, and I'm sure there is a lot more to be revealed as investigations continue.

How can the government not intervene and regulate further now? The dream of all those idealistic cryptonauts about a currency free from government interference is going to come crashing down because of the greed of some big players in the industry.

First LUNA, now FTX. Who will be next?

 

[basilio]

Always a place for a scam or a con. If anyone played in the field they needed to be aware this was a giant shell game and that taking a profit and leaving early was the only certain way of staying in the black.

The collapse of FTX crystallizes the smokes and mirrors of this game. Ian Verrender outlines it in brutal detail.

https://www.abc.net.au/news/2022-11...-sam-bankman-fried-and-ftx-billions/101648914

 

[The Triangle]

The effects of the FTX collapse have still not been fully felt in the cryptoverse. It is still early days, and I'm sure there is a lot more to be revealed as investigations continue.

How can the government not intervene and regulate further now? The dream of all those idealistic cryptonauts about a currency free from government interference is going to come crashing down because of the greed of some big players in the industry.

First LUNA, now FTX. Who will be next?

Why should the government regulate a scam?

How much crypto money went into financing candidates in the 2022 US election? A lot.

How much crypto money has gone into Aussie politics? We'll probably never know.

 

[Trader X]

Always a place for a scam or a con. If anyone played in the field they needed to be aware this was a giant shell game and that taking a profit and leaving early was the only certain way of staying in the black.

The collapse of FTX crystallizes the smokes and mirrors of this game. Ian Verrender outlines it in brutal detail.

https://www.abc.net.au/news/2022-11...-sam-bankman-fried-and-ftx-billions/101648914

Good recap of a collapsing artificial edifice. Tend to disagree with this quote though with respect to FTX...

"It also has signaled the end of perhaps one of the most ludicrous financial booms in history, the great crypto kleptomania."

Ludicrous boom for sure but rather than theft it's better described as the great wealth transfer from the naïve to opportunists, whales, pump and dump merchants and con artists. The end is near, only a fraction of these digital tokens are likely to survive. The smart speculators bailed out a year ago while the hodlers are left holding a bag of practically worthless tokens.

All the hyperbole and sensational price forecasts duped millions into thinking that these tokens were going to make them rich. The hubris now is about reflecting on past performance to encourage the true believers that dematerialized gold will still be their financial salvation. It was always hopium and wishful thinking.

 

[greggles]

Why should the government regulate a scam?

How much crypto money went into financing candidates in the 2022 US election? A lot.

How much crypto money has gone into Aussie politics? We'll probably never know.

Is cryptocurrency itself a scam or is the industry infected by scammers?

If it's the former then yes, it should be shut down. If it is a scam then I would ask why it hasn't been shut down yet. Bitcoin has been around for more than decade. There are crypto ETFs and managed funds investing in crypto. It has made huge inroads into the mainstream and I doubt it will be regulated out of existence now.

If it's the latter than the scammers need to be driven out of the industry. But good luck with that. Scammers exist in plague proportion in the mainstream of financial services too. The real answer to this problem is regulation, and my feeling is this is the path the government will trod for two primary reasons:

1. There is now too much at stake to eliminate cryptocurrency entirely.
2. The government would like to profit from the industry, and more regulation is the best means to achieve that end.

 

[Trader X]

Is cryptocurrency itself a scam or is the industry infected by scammers?

If not all, many crypto projects are just conjured scams trying to capitalize on crypto mania. Ironically, SBF described how this scam works (applicable to FTT)...

 

[Value Collector]

If anyone played in the field they needed to be aware this was a giant shell game and that taking a profit and leaving early was the only certain way of staying in the black.

Yep, so many people have been enticed into crypto because of the early adopters flashing cash, Lamborghinis and high end life styles on social media.

But it’s an interesting thought to realise that Bitcoin and the other cryptos have never ever produced a single cent of earnings or income, So every single dollar you see spent on Lamborghinis by the people that have made capital gains in crypto has been provided by the other people investing their hard earned money.

The only way to pull out profits from crypto is to have other people putting in real hard earned cash, and the only way that second wave of people makes money is if a third wave pump even more in.

It’s not like a company that generates profits, or a piece of real estate that earns rent, there is no underlying asset generating the value that the owners can extract, it’s all just funded by more investors putting money in, it’s basically no different to a pyramid scheme or Ponzi scheme.

 

[Value Collector]

The effects of the FTX collapse have still not been fully felt in the cryptoverse. It is still early days, and I'm sure there is a lot more to be revealed as investigations continue.

How can the government not intervene and regulate further now? The dream of all those idealistic cryptonauts about a currency free from government interference is going to come crashing down because of the greed of some big players in the industry.

First LUNA, now FTX. Who will be next?

The saddest part is that so many people have wasted their time and money thinking they were “Investing” when they were really just gambling.

Unfortunately a lot of these people are going to come out the other side of this experience cynical and disheartened with the concept of investing, and will probably shy away from making any investments in the future, even the real ones.

 

[Value Collector]

Is cryptocurrency itself a scam or is the industry infected by scammers?

If it's the former then yes, it should be shut down. If it is a scam then I would ask why it hasn't been shut down yet. Bitcoin has been around for more than decade. There are crypto ETFs and managed funds investing in crypto. It has made huge inroads into the mainstream and I doubt it will be regulated out of existence now.

If it's the latter than the scammers need to be driven out of the industry. But good luck with that. Scammers exist in plague proportion in the mainstream of financial services too. The real answer to this problem is regulation, and my feeling is this is the path the government will trod for two primary reasons:

1. There is now too much at stake to eliminate cryptocurrency entirely.
2. The government would like to profit from the industry, and more regulation is the best means to achieve that end.

It’s a bit like saying “are tulip bulbs a scam”, well the answer is of course they aren’t. But when a large chunk of society starts to believe that the road to riches is to buy tulip bulbs pumping up their price to the moon I guess you can describe the people hyping it up a scammers.

There is nothing wrong with owning some tulip bulbs or even bit coin, but both were hyped up as a road to easy wealth and both are worth next to nothing in reality.

How much would bitcoin be worth if you took out all the people buying it that just wanted to make money, and left the only people in the Bitcoin market those that want to use it as a currency? I think it would be worth very little, and that’s it’s true value, everything else is froth.

 

[Dona Ferentes]

too true to all of the above. I never felt tempted.

at least with tulips, you could end up with a bulb.!

 

[Craton]

too true to all of the above. I never felt tempted.

at least with tulips, you could end up with a bulb.!

Lol, a bulb at worst and a pretty flower at best.

I looked at crypto mining in the early days and the numbers didn't add up i.e., electrical cost of running the miner versus the "pay off", so nah to that.
Then the hackers started pinching crypto wallets, so a big nah to that too.

Have ya luck if you've made money from crypto... commiserations if you've lucked out.

 

[Captain_Chaza]

I have always thought This was a Brilliant Pyramid Scheme
and that the last one holding "LOSES!"

 

[Sean K]

Yikes!!

 

[Smurf1976]

The only way to pull out profits from crypto is to have other people putting in real hard earned cash, and the only way that second wave of people makes money is if a third wave pump even more in.

Which is basically the actual definition of a pyramid scheme.

Crypto currency as a concept could work sure, from a technical perspective it’s doable, but it’s not a means to create wealth. Nothing’s actually being produced here indeed it’s arguably the most pointless use of large amounts of electricity anyone’s ever come up with.

 

[Sharkman]

i do agree that it's essentially gambling (hence my deliberate use of the word punted rather than invested in an earlier post), but i'm not averse to making speculative bets with a small % of capital, and crypto is just about the highest beta asset (or "asset" if you prefer) out there. i don't see an issue with having a bit of a punt, provided that it's money one can afford to lose and that one is well aware of the possibility that it could all go to zero. not all that different to a penny dreadful really.

only got into it at the start of this year, however one thing i quickly learned was the importance of self-custody. you can't trust any of these centralised entities to keep your assets safe and the FTX debacle has only driven home that point. deposit exactly however much you want to buy, make the transaction and quickly get your coins off the exchange and onto your self-custodial wallet before it's too late.

i haven't been buying on exchanges for a while though, just doing a bit of speculative mining on smaller alts for now. post-merge the fiat value of all alts is less than the cost of the electricity to mine them, but the mined coins go straight into your self-custodial wallet, no need to risk messing around with an exchange. and with the super high beta of the smaller alts, those could go 10x, 20x, maybe even 100x or more when the cycle eventually turns and the broader economy goes back into risk-on mode. people were mining ETH at a loss back in 2018 and 2019 too, in speculation that it would one day rise again.

yeah they may well all go to zero, i accept that, but at this point my crypto adventure has soaked up well under 1% of my overall capital, so i'm not particularly worried about it. i like building and tinkering with PCs anyway, been building my own PCs since i was a teenager, so if nothing else i have derived some enjoyment out of tweaking it to find the best balance between hashrate, power draw, and thermals/fan speed for a few algos i've tried so far.

 

[greggles]

Yikes!!

View attachment 149246

This is the real danger for crypto right now, a domino effect due to a collapse in confidence. What has happened with FTX is so damaging it has caused lots of people to start turning crypto into hard currency. As this drives prices down, more people will follow suit and things could easily spiral out of control.

A domino effect of insolvencies in the crypto space could result as some companies collapse due to a liquidity crisis and interlinked speculative leveraged positions. I have heard that it is common in the cypto space to have loans collateralised by crypto coins. As prices continue to fall, lenders are going to be calling in loans to avoid being the last one standing when the music stops.

We may have a house of cards moment approaching if panic sets in.

 

[Sharkman]

We may have a house of cards moment approaching if panic sets in.

i wasn't following the scene back then, but from what i've read, everyone was saying the same thing after Mt Gox, yet it's gone on to make all time highs, followed by a winter, followed by even greater all time highs.

i wouldn't mind a bit of a cleanout and reset though, particularly in the mining scene, the network difficulty has been ridiculously high across the board ever since the merge. if people become disillusioned and drop out, that means more yield for the rest of us.

the industry is still very much in its infancy, there's going to be growing pains like these. but those growing pains should bring about iterative refinements and improvements to processes/practices as people learn what does and doesn't work, making it more stable and functional over time. that's the hope anyway. whether it eventuates or not, who knows. that's why i only wanted to commit 1% of capital tops, but i did want some exposure for the huge potential if they can get it right. massive if though.

 

[Trader X]

i do agree that it's essentially gambling (hence my deliberate use of the word punted rather than invested in an earlier post)

The difference being legal gambling is regulated and the odds of winning in each type of game are known. When you speculate on crypto, it's all about price movement/momentum on those unregulated exchanges, there is no underlying business generating revenue or asset possessing intrinsic value. A bit like trading currency pairs on Forex exchanges except it's real "currency" and those trading it successfully are skilled leveraged risk managers (perhaps no more than 5% of all FX traders).

 

[Sean K]

This is the real danger for crypto right now, a domino effect due to a collapse in confidence. What has happened with FTX is so damaging it has caused lots of people to start turning crypto into hard currency. As this drives prices down, more people will follow suit and things could easily spiral out of control.

A domino effect of insolvencies in the crypto space could result as some companies collapse due to a liquidity crisis and interlinked speculative leveraged positions. I have heard that it is common in the cypto space to have loans collateralised by crypto coins. As prices continue to fall, lenders are going to be calling in loans to avoid being the last one standing when the music stops.

We may have a house of cards moment approaching if panic sets in.

Could have wider repercussions in some regions like Latin America who seemed to have invested heavily. El Salvador might be in trouble.