FTX

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dyqik
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Re: FTX

Post by dyqik » Fri Nov 25, 2022 11:31 pm

plodder wrote:
Fri Nov 25, 2022 9:49 pm
by all means clarify what it is you're vehemently opposed to rather than slightly in favour of.
Non legal tender "currencies" that aren't backed by national economies. Also "currencies" with high costs of transactions.

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Re: FTX

Post by Bewildered » Sat Nov 26, 2022 12:31 am

Bird on a Fire wrote:
Fri Nov 25, 2022 2:12 pm
Highly financialised late-stage capitalism with state backing is a Ponzi scheme run by sociopathic bros who take advantage of "morons" who pay no attention to the man behind the curtain.

By all means lets criticise crypto for having the same failings, but lets be realistic about the context.
I know you already got a lot of rage or condescension for this, but since I came into this thread to say I don’t like calling all of crypto a ponzu scheme, I feel honour bound to say this is even sillier. I understand why they are calling all crypto a ponzi scheme (because they are speculative assets that seems to be in a bubble, which has a resemblance to a Ponzi scheme, but it is also just how markets work for speculative assets and bubbles, whereas a Ponzi scheme is an intentional scam where someone deliberately returns new investors money as “investment returns”). I have no idea in what way you think capitalism as a whole can be seen as a Ponzi scheme though.

I agree there are “sociopathic bros” around in capitalism taking advantage of people they view as morons (I guess that’s the meaning of putting moron in quotes), but I also think they don’t run it in the end. Though I do see you later clarify that you mean that the influence is not equally distributed and people at the bottom feel powerless as it changes to their disadvantage, which is kind of true. But this was hardly a good way to explain that point of view and I think is taking off on a huge tangent to the discussion of crypto honestly.

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Re: FTX

Post by Bewildered » Sat Nov 26, 2022 12:40 am

Woodchopper wrote:
Fri Nov 25, 2022 3:20 pm
Bird on a Fire wrote:
Fri Nov 25, 2022 2:12 pm
Highly financialised late-stage capitalism with state backing is a Ponzi scheme run by sociopathic bros who take advantage of "morons" who pay no attention to the man behind the curtain.
To start with it isn’t a Ponzi scheme.

A Ponzi scheme is one in which the sole source of returns paid to investors is money coming from more recent investors. If this was explained it would be obvious that investing in the scheme would be a very bad idea, so a Ponzi scheme also involves an element of fraud.

Capitalism is different because returns come from business developing products or services and selling them. The most obvious manifestation is when firms innovate and develop new products, such as whatever you are using to read this.
The middle paragraph is perfect. But I wish you had posted this below some of LPM’s earlier posts ;).

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Re: FTX

Post by lpm » Sat Nov 26, 2022 1:08 am

If an early investor in some crypto token decides to cash in profits and buys a Porsche, where is that money coming from if it's not coming from more recent investors?
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Re: FTX

Post by Bewildered » Sat Nov 26, 2022 1:21 am

lpm wrote:
Fri Nov 25, 2022 2:56 pm
Bird on a Fire wrote:
Fri Nov 25, 2022 2:27 pm
lpm wrote:
Fri Nov 25, 2022 2:17 pm

No I don't.
If you personally have divested than that's very cool, and I'd be interested in hearing more about the process.

Nevertheless, pensions are often brought up when I mention fossil fuel investments. Many high street retail banks are routinely backing new fossil fuel extraction projects as part of their portfolio. Is the market just decades behind the science in issuing a correction, or do enough of the market bros just have so little faith in humanity that an outcome involving the deaths of millions of people, and displacement of billions, seems like a good investment?
Mate, you were arguing for government subsidises of fossil fuel burning just a few weeks ago, so you can basically f.ck off.

As for the process of investing in ESG funds, it's as simple as clicking the ESG fund options. Because pensions are tightly regulated and have industry best practice guidelines, there's transparency where every investment fund gets an ESG rating and has to disclose what it is doing. Anyone can read the ratings or pick and choose or just click the funds with the best ratings.

And it may well pay off financially, because research suggests the higher ranked ESG investments outperform the lower ranked. For example
https://www.fidelityinternational.com/e ... ce135-en5/
That’s research made by the company to promote their own products right? And it’s focussed on the 2020 V shaped covid dip if I’m not mistaken from the quick skim I did.

I am skeptical of the claim that you do better in general. It depends on precisely which one anyway since eithical investments vary a lot in what they are doing, but I think most are more weighted to the technology and health sectors and did well in 2020 but badly more recently in the inflation crisis.

Looking at my own pension I see that over the recent year (ie during the inflation crisis) the ethical options did considerably worse, dropping considerable more (> 5%) compared to their non-ethical equivalents, though over 10 years roughly equal.

I think in the end all you are doing is slightly damaging the index tracking, so I would not do this for financial reasons, though I am investing in ESG funds so I am certainly in favour of them.

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Re: FTX

Post by Bewildered » Sat Nov 26, 2022 1:26 am

lpm wrote:
Sat Nov 26, 2022 1:08 am
If an early investor in some crypto token decides to cash in profits and buys a Porsche, where is that money coming from if it's not coming from more recent investors?
It’s the fraud bit where your argument is failing. The porshe argument above works for any speculative investment, also startups yet to make a profit, etc.

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Re: FTX

Post by lpm » Sat Nov 26, 2022 1:46 am

So you accept that "the sole source of returns paid to investors is money coming from more recent investors".

Presumably this also means you accept "If this was explained it would be obvious that investing in the scheme would be a very bad idea".

But you have decided it's not a fraud. Why?

A decentralised Ponzi scheme is the perfect description of it. No single Mr Ponzi, usually, but a group of elites mutually reinforcing the prole belief in the inflated value in order to extract profit.
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Re: FTX

Post by Bewildered » Sat Nov 26, 2022 3:49 am

lpm wrote:
Sat Nov 26, 2022 1:46 am
So you accept that "the sole source of returns paid to investors is money coming from more recent investors".
I think so, yes. But I am trying to figure out what part of that we’ll end up disagreeing over the meaning, since I disagree with the rest.
lpm wrote:
Sat Nov 26, 2022 1:46 am
Presumably this also means you accept "If this was explained it would be obvious that investing in the scheme would be a very bad idea".
No. The first statement I agreed with, does not imply the second one here and is not a sufficient condition for a Ponzi scheme. As I read it, for example, any company which is not yet making money and is being invested in based on speculation for future earnings can be describe this way, but that does not make it obvious it’s a bad idea. Early investors can sell out before it ever makes a penny, based on increased belief/speculation that it will yield large future profits. That money comes solely from new investors who are paying a much higher price for shares in the same company based on a belief that those shares are worth that value.

In general you have cases like this where the company does in the end deliver and the valuations turn out to be correct, cases where it fails for unforeseen reasons and cases where it was a bad idea from the start and the investors were making a bad judgement. All of those are different from cases where there was actually fraud because the people running the company lied about details of the company (assets, security, profits etc) to mislead investors and gave the misleading information.

The latter is certainly fraud and is that one case that maybe can be called a Ponzi scheme, though really afaik a classic Ponzi scheme is where the investors are being paid an “investment return” out of the money new investors have paid in by the person running scheme, not simply by selling up their shares directly to a third party.

My main point is that speculative investments can be a bad idea if evaluated rationally, but that doesn’t make them a Ponzi scheme where people should go to jail.

lpm wrote:
Sat Nov 26, 2022 1:46 am
But you have decided it's not a fraud. Why?


A decentralised Ponzi scheme is the perfect description of it. No single Mr Ponzi, usually, but a group of elites mutually reinforcing the prole belief in the inflated value in order to extract profit.
I think there are plenty of “elites” who made money out of this but are actually true believers. There will also be plenty of people who don’t believe it but are exploiting the bubble. However if that is all they do and everyone has access to the same information then I don’t think it is fraud.

Maybe the whole thing was set up with the intention of skinning fools, but I don’t think it’s established by evidence we have, since we don’t even know who wrote the original paper etc.

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Re: FTX

Post by Millennie Al » Sat Nov 26, 2022 4:20 am

plodder wrote:
Fri Nov 25, 2022 10:43 am
Thanks for explaining what a loan is EAC, it's clear you have a firm grasp of this subject. What is the interest for exactly? Where does it come from? What does it do? Where does it go? Feel free to use baby talk if that helps.
A borrower benefits by getting a loan. They pass some of this benefit to the lender. You can view this as fairness or as an incentive to lend.

In the case of the example of a loan to buy a house, the borrower benefits by being able to live in the house without having paid for it, so they consume the benefit directly. The lender benefits through interest payments, which they do whatever they like with.

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Re: FTX

Post by Millennie Al » Sat Nov 26, 2022 4:30 am

Bird on a Fire wrote:
Fri Nov 25, 2022 2:13 pm
Currently all of you have pensions and insurance products based on investments in quantities of fuel fuels that, if burned, would render the planet effectively incompatible with what we call civilisation, and quite possibly humanity itself.
That is complete nonsense (though not the most extreme version of scaremongering as some people claim that there is a need to save the planet). There is no reason to suppose that humanity cannot survive even implausibly large changes consistent with the models, and civilisation is both widely distributed and extremely resilient. While there may be a need for considerable adaptation, and rich people may be greatly inconvenienced by having their expensive properties rendered unusable (e.g. Trump's golf course in Scotland), that's nowhere near causing the fall of civilisation.

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Re: FTX

Post by Millennie Al » Sat Nov 26, 2022 4:43 am

IvanV wrote:
Fri Nov 25, 2022 4:19 pm
what advantage crypto would have over traditional banks
The intended advantage of crypto is to remove the need for trust. When you use a bank you need to trust the bank (and, generally, an infrastructure around it which includes at least one government). Some people feel that it is dangerous to rely on a central authority. And they may be right. For example, the American gold seizure shows that governments should not be trusted and might take advantage of any privileged position. General capitalism does not need a central regulatory authority - and that is why it works so well. Crypto currencies are an attempt to have a currency which avoids the need for a central authority which might abuse its position.

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Re: FTX

Post by bjn » Sat Nov 26, 2022 7:35 am

dyqik wrote:
Fri Nov 25, 2022 11:31 pm
plodder wrote:
Fri Nov 25, 2022 9:49 pm
by all means clarify what it is you're vehemently opposed to rather than slightly in favour of.
Non legal tender "currencies" that aren't backed by national economies. Also "currencies" with high costs of transactions.
Add to that a complete lack of regulation.

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Re: FTX

Post by plodder » Sat Nov 26, 2022 8:54 am

Millennie Al wrote:
Sat Nov 26, 2022 4:20 am
plodder wrote:
Fri Nov 25, 2022 10:43 am
Thanks for explaining what a loan is EAC, it's clear you have a firm grasp of this subject. What is the interest for exactly? Where does it come from? What does it do? Where does it go? Feel free to use baby talk if that helps.
A borrower benefits by getting a loan. They pass some of this benefit to the lender. You can view this as fairness or as an incentive to lend.

In the case of the example of a loan to buy a house, the borrower benefits by being able to live in the house without having paid for it, so they consume the benefit directly. The lender benefits through interest payments, which they do whatever they like with.
Oh sure, we have to go to a bank and so they charge us a fee. But the interest rate is compound, and it’s also built on top of what a central bank decides, and banking is essentially a monopoly in terms of who gets to magic money out of thin air to lend to people, plus the infinite supply of credit that has led us to some very interesting places in terms of consumerism, bail outs, inter generational wealth gaps, the 1% etc, so it’s way more complex and involved than the simple transactional relationship you’re describing here.

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Re: FTX

Post by plodder » Sat Nov 26, 2022 8:55 am

bjn wrote:
Sat Nov 26, 2022 7:35 am
dyqik wrote:
Fri Nov 25, 2022 11:31 pm
plodder wrote:
Fri Nov 25, 2022 9:49 pm
by all means clarify what it is you're vehemently opposed to rather than slightly in favour of.
Non legal tender "currencies" that aren't backed by national economies. Also "currencies" with high costs of transactions.
Add to that a complete lack of regulation.
Who regulates a central bank, and which banking regulations are you particularly in favour of? Or is this just a generalisation?

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Re: FTX

Post by lpm » Sat Nov 26, 2022 9:43 am

Bewildered wrote:
Sat Nov 26, 2022 3:49 am
Snip
Sorry Bewildered, but that's just a lengthy post proving my earlier assertion: [owning shares is] so commonplace it feels like the natural ordering of the financial world.

An early investor in Tesla who takes profit after the company has only made heavy losses is not getting their money from new investors. (Except in the irrelevant trivial sense of where the money transfer comes from.) That early investor is actually extracting profit out of the future.

This is because money has its weird time shifting power.

It is commonplace to pay money now in return for a future stream of money back. Or the reverse, the UK government issued Napoleonic War bonds with no maturity date, converting cash flows stretching into the infinite future into upfront cash.

An investor in a Tesla share is buying a share of Tesla's net cash flows to infinity (colloquially future profits but really future cash flow). That estimate of the future is obviously where the challenge lies. But it is a freaky thing where cash from the future arrives into today's reality. This isn't unique to humans: animals and plants can foresee the future and gain real world benefit today from events that will happen in the future.

If an early Tesla investor buys at $1 and sells for $100, that profit is not coming from later investors. The profit is coming out of the future and into today's reality. Sure, the mechanical money comes from new investors in the pedantic sense, but the $99 profit does not. The expected discounted future cash flows have risen by 100x so the profit flows accordingly.

Now do it for Bitcoin. It's an easy calculation. Somebody buying at $1 is getting a share of all future returns to bitcoin holders, which is zero. When they sell at $15,000 the future returns to bitcoin holders is unchanged at zero. The entirety of the profit has come from new investors, nothing had come out of the future.

And what of over excited speculation, the South Sea Bubble and the like? A share in Unilver is dull and boring, so gains and losses are mostly from the future with a bit of stock market froth and pessimism. A share in Tesla is a bit meme stockish, with over excitable fan boys pushing the price up, allowing for early investors to take profit at the expense of naive later investors as well as from future higher cash flows. Gamestop was even more do, with most of the profit to early investors coming from later speculators. Pump and dump takes it into fraud territory, with future cash flows deliberately misrepresented. And crypto takes it into Ponzi territory, with there being zero future cash flows and 100% of profits must come from speculation as there's no other route.

It's a spectrum, from boring Unilever type stocks, to more speculative like Tesla, all the way through to zero future cash flow "investments" like Scrut Coins. It's the ebb and flow of expected future cash flows that makes speculative share investments like Tesla very different to speculative zero future cash flow products like bitcoin.
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Re: FTX

Post by bjn » Sat Nov 26, 2022 11:32 am

plodder wrote:
Sat Nov 26, 2022 8:55 am
bjn wrote:
Sat Nov 26, 2022 7:35 am
dyqik wrote:
Fri Nov 25, 2022 11:31 pm


Non legal tender "currencies" that aren't backed by national economies. Also "currencies" with high costs of transactions.
Add to that a complete lack of regulation.
Who regulates a central bank, and which banking regulations are you particularly in favour of? Or is this just a generalisation?
That really is at the level of an 8 year old going “why”.

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Re: FTX

Post by plodder » Sat Nov 26, 2022 11:41 am

No it really isn’t. There’s nothing stopping a crypto currency from being bound by rules. What’s so special about the status quo? Who regulates the Bank of England or the Treasury? They’re currently costing us a fortune through incompetence - how come they get a free pass?

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Re: FTX

Post by dyqik » Sat Nov 26, 2022 1:01 pm

plodder wrote:
Sat Nov 26, 2022 11:41 am
No it really isn’t. There’s nothing stopping a crypto currency from being bound by rules. What’s so special about the status quo? Who regulates the Bank of England or the Treasury? They’re currently costing us a fortune through incompetence - how come they get a free pass?
At that point, a cryptocurrency has most of the claimed disadvantages of a central currency, plus higher transaction costs than the central currency.

And still isn't backed by anything, and so will be much more volatile. Or in the case of "stable" coins, is backed by something much smaller and less stable than the UK economy, and so is still more volatile. They are also subject to BoE and Treasury decisions (effective regulation implies that your regulated stable coin is a UK only thing). Volatility means added costs, as everyone has to price in the risk of the value dropping before they can use that currency.

The status quo of one single* somewhat independent central bank that issues legal tender bank notes has been constantly challenged for 3 centuries. That's the only thing that's special about it. It can be challenged in a few ways, but cryptocurrency really doesn't bring anything new to the table beyond a digital signature on a share in a null company.

*Complicated in the UK by Scottish and Northern Irish banknotes, but not very much

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Re: FTX

Post by lpm » Sat Nov 26, 2022 1:21 pm

Plodder, you keep saying X is bad, Y isn't X, therefore Y is good. You haven't gone beyond that yet. Whenever someone says Y has problems, you merely say X has problems.

And there's little point imagining a non existent crypto currency, then claiming the non existent crypto would be good therefore the existing crypto must be good. That's as silly as a bloke in the Weimer Republic saying other currencies work fine therefore the German mark cannot be evaporating into nothingness.
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Re: FTX

Post by plodder » Sat Nov 26, 2022 1:24 pm

Lpm I am responding to you and others calling crypto “a scam” and other silly ideas. It’s some hell of a corny rhetorical trick to claim I need to come up with a perfect technical system in order to demonstrate that you’re talking horseshit.
Last edited by plodder on Sat Nov 26, 2022 1:25 pm, edited 1 time in total.

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Re: FTX

Post by dyqik » Sat Nov 26, 2022 1:24 pm

In addition, your well-regulated UK crypto coin will be subject to the same international exchange rate changes as the pound, as they will be tightly correlated together, if not directly pegged to each other. This is because the international exchange rate basically reflects the value of holding UK specific currency at a particular time, which in turn is based on how much demand there will likely be for UK specific currency to carry out trade in the future.

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Re: FTX

Post by dyqik » Sat Nov 26, 2022 1:26 pm

plodder wrote:
Sat Nov 26, 2022 1:24 pm
Lpm I am responding to you and others calling crypto “a scam” and other silly ideas.
You're not responding to anything people have actually written explaining that though.

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Re: FTX

Post by lpm » Sat Nov 26, 2022 2:56 pm

"Scam" in the looser meaning of storytellers and elites using fiction to extract cash from gullible plebs. Not necessarily illegal, although the FTX scam clearly was. More akin to "the Catholic priests scammed illiterate peasants by selling them indulgences" or "she was scammed out of a hundred quid by a reiki healer who healed her pet cat over the phone".
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Re: FTX

Post by dyqik » Sat Nov 26, 2022 3:45 pm

lpm wrote:
Sat Nov 26, 2022 2:56 pm
"Scam" in the looser meaning of storytellers and elites using fiction to extract cash from gullible plebs. Not necessarily illegal, although the FTX scam clearly was. More akin to "the Catholic priests scammed illiterate peasants by selling them indulgences" or "she was scammed out of a hundred quid by a reiki healer who healed her pet cat over the phone".
A chunk of calling it a scam is also the way it channels money from little people to elites at rates even higher than traditional capitalism.

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Re: FTX

Post by Bird on a Fire » Sat Nov 26, 2022 4:01 pm

I can see the value of the regulation underlying the pound, which I reckon must be a pretty stable currency by global standards? (Thank you for the explanations of economics folks, it's not my area.)

But there might be quite a large market for people who would prefer to take their chances with a stable-ish crypto than trust their assets to the central bank of their own country. There are some quite populous economies that occasionally have big swings against e.g. USD. Also, some central banks are untrustworthy. (Or can everyone everywhere invest in foreign stuff pretty easily?)

You might also expect bet hedging away from central banks during times of crisis, such as during a pandemic or region-wide conflict. Once such cycles were predictable, they would become self-reinforcing.

If a government or economy collapsed, as they occasionally do, it wouldn't take that many people to accept some crypto coin of choice for a country's economy to slowly move online to a parallel economy, rendering the central bank defunct. This could also be a cool "bloodless coup" method, e.g. in Iran. They could do it over Starlink.

Would it be completely unreasonable for people to opt for crypto if the central bank they're forced to use has been long-term sh.t? Or put, say, 10% in a crypto and 90% in your central bank, just in case? Could've been a decent move around the Brexit referendum, for instance ;)
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