FTX

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Bewildered
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Re: FTX

Post by Bewildered » Sun Nov 27, 2022 12:06 pm

lpm wrote:
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.
That’s an awful lot of verbiage that really just means you think the difference is that the expected future profits, which justify the valuation, make the difference between a company that will succeed and one that won’t. I guess you think phrasing it in terms of future cash flows makes it easier to swallow that "the sole source of returns paid to investors is money coming from more recent investors" applies only to companies which will not give a future return. But honestly its a big stretch however you word it.

You didn’t try to tackle the difference between a company whose value goes to zero due to problems that cannot be foreseen with that long reply. I assume the argument would be there is an expectation value based on the information we have today which distinguishes them though I don’t know how you’ll phrase that with your future cash flows way of discussing it.

Anyway I think accusations of fraud and being a Ponzi scheme based on this won’t stand up. You could try it in court and see if you can get someone sent down for it if you were right.

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Re: FTX

Post by dyqik » Sun Nov 27, 2022 12:37 pm

bjn wrote:
Sun Nov 27, 2022 11:46 am
In practice the whole eco-system doesn't remove the need for trust. Most crypto-tokens are traded on exchanges, not directly wallet to wallet. This is to get around the inability of distributed ledgers' ability to do anything at scale and how crappy they are to actually operate. Most people end up having to trust the exchanges. FTX, which this thread is all about, shows how wise an idea that is.

Governments do bad things at times, no sh.t. The crypto eco-system does bad sh.t all the time.

Focusing on the technology as opposed to how it's actually used is a common mistake. Given that the whole point of crypto is to circumvent regulation and oversight of financial transactions, who the f.ck do you think it's going to enable and attract?

From the original paper...
Satoshi The c.nt wrote:Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model. Completely non-reversible transactions are not really possible, since financial institutions cannot avoid mediating disputes. The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transactions, and there is a broader cost in the loss of ability to make non-reversible payments for non-reversible services.
No 'mediation' and non reversibility means limited ability to regulate and enforce oversite. These are seen as bad things. f.cked if I want to use such a thing.
In particular, distributed ledger systems can be forked, by making different additions to different copies of the ledger. You are then in a situation where you have to trust that the version you are carrying out a transaction on is the one that will be deemed the correct one for future transactions.

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Re: FTX

Post by noggins » Sun Nov 27, 2022 2:27 pm

Yeah, bitcoin isnt a ponzi, its tulip madness but the tulip isn't even real, just an entry on a register saying “one e-tulip”.

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Re: FTX

Post by dyqik » Sun Nov 27, 2022 3:10 pm

noggins wrote:
Sun Nov 27, 2022 2:27 pm
Yeah, bitcoin isnt a ponzi, its tulip madness but the tulip isn't even real, just an entry on a register saying “one e-tulip”.
Bitcoin in particular has some elements of Ponzi, in the sense that it relies on miners trying to earn a new Bitcoin, with each one requiring more expenditure to get.

The earliest miners are/were making profit off of the latter ones in a pyramid* shaped system of returns vs effort required.

* Pyramid sides may not be linear

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Re: FTX

Post by bjn » Sun Nov 27, 2022 3:11 pm

Also note another criticism of financial institutions the Satoshi paper…
limiting the minimum practical transaction size and cutting off the possibility for small casual transactions
I regularly pay for items costing pennies using a debit card without any problems. Try doing that with crypto wallet to wallet where the transaction costs are orders of magnitude greater.

b.llsh.t all the way down. Libertarian b.llsh.t at that.

By His Noodley Appendages I really hate crypto.

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Re: FTX

Post by bjn » Sun Nov 27, 2022 3:15 pm

dyqik wrote:
Sun Nov 27, 2022 3:10 pm
noggins wrote:
Sun Nov 27, 2022 2:27 pm
Yeah, bitcoin isnt a ponzi, its tulip madness but the tulip isn't even real, just an entry on a register saying “one e-tulip”.
Bitcoin in particular has some elements of Ponzi, in the sense that it relies on miners trying to earn a new Bitcoin, with each one requiring more expenditure to get.

The earliest miners are/were making profit off of the latter ones in a pyramid* shaped system of returns vs effort required.

* Pyramid sides may not be linear
Bitcoin does the equivalent of print money to pay for the cost of someone validating a transaction. That is due to stop somewhen in the future. Once you actually have to cover it out of your BTC holdings it should be interesting.

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Re: FTX

Post by bjn » Sun Nov 27, 2022 8:04 pm

I like this. Bankman-fried as an Effective Altruist, his genius self-sacrifice was there to highlight the problems in broader finance and bring in regulation. (/s)

https://cepr.net/sam-bankman-frieds-tru ... -teaching/

Crypto, all the greed and grifting in traditional finance, but more so, without any regulation to stop them.

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Re: FTX

Post by Millennie Al » Mon Nov 28, 2022 2:04 am

...loans...
plodder wrote:
Sat Nov 26, 2022 8:54 am
Oh sure, we have to go to a bank and so they charge us a fee. But the interest rate is compound,
Is it not immediately obvious why interest is compound?
and it’s also built on top of what a central bank decides,
That depends on who you go to to get a loan. People find it very easy and convenient to get loans from banks, so they do, but there is no reason in principle why they couldn't get a loan from a non-bank. e.g. from an individual like Bill Gates or from a foreign company.
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
credit is not infinite - it just doesn't have a definite, known limit.
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.
Of course it is. finance and economics are so complicated that it is impossible to understand them fully - even in theory. A small example, such as I can give, can only serve to shed a little light on a tiny corner using a very simplified model.

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Re: FTX

Post by Millennie Al » Mon Nov 28, 2022 2:28 am

Bird on a Fire wrote:
Sat Nov 26, 2022 4:01 pm
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,
That's not the risk. Or, at least, not the direct risk. The risk is that of the government stealing your money. Governments have a long tradition of doing this, and I referred to one instance here recently: Executive Order 6102 which forced people in America to sell almost all gold to the government at a discount to its market value. It is quite routine for governments to restrict the use of foreign currency and demand that exchanges be done at some official rate which is considerably worse than the open market rate. In addition, capital controls have been enforced - limiting the amount of money (or other money-like valuables) that can be exported or imported. These sorts of restrictions are typically imposed during a decline, so that by the time a complete collapse has occurred the government has stolen and squandered its citizens' wealth. See Foreign exchange controls for a list of countries currently doing this.

To defeat the risk of the givernment stealing your money, you need to use a form of money which is very difficult to detect and trace. This means that you use something which prevents the Democratic President-for-life from taking your money to pay for a bigger extension to the grand presdential palace. Try to come up with a system which can do that. Bear in mind that the president's enforcers do not feel restrained by human rights.

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Re: FTX

Post by lpm » Mon Nov 28, 2022 1:25 pm

Bewildered wrote:
Sun Nov 27, 2022 12:06 pm
That’s an awful lot of verbiage that really just means you think the difference is that the expected future profits, which justify the valuation, make the difference between a company that will succeed and one that won’t. I guess you think phrasing it in terms of future cash flows makes it easier to swallow that "the sole source of returns paid to investors is money coming from more recent investors" applies only to companies which will not give a future return. But honestly its a big stretch however you word it.

You didn’t try to tackle the difference between a company whose value goes to zero due to problems that cannot be foreseen with that long reply. I assume the argument would be there is an expectation value based on the information we have today which distinguishes them though I don’t know how you’ll phrase that with your future cash flows way of discussing it.

Anyway I think accusations of fraud and being a Ponzi scheme based on this won’t stand up. You could try it in court and see if you can get someone sent down for it if you were right.
That's a pretty worrying misunderstanding of the financial world and capitalism. Every share is mispriced and every estimate of a company's future cash flow is wrong. One of the great problems of capitalism is that it continually allocates capital to dud enterprises. When you invest in your cousin's new restaurant venture and it goes bust without ever making a profit, you are doing on a small scale what the entire system often does - getting it wrong. Of course, sometimes capitalism gets it very right. And we haven't thought up a better system yet.

Ironically, the future returns to bitcoin investors, collectively, is far easier to forecast. It's zero. It's guaranteed to be zero. There's never any future cash flow. In fact it's negative, because the collective pot gets eaten away by the high transaction costs. Any profit to existing investors has to come from losses of future investors, as a straightforward mathematical fact.

It's little wonder that "UK crypto fraud rose by a third in one year, police data show, with criminals stealing hundreds of millions of pounds from consumers" https://www.ft.com/content/c7d2eeae-9a6 ... dcd2807600 These schemes prey on "less experienced investors", which is the polite terminology for morons who misunderstand it all.

As for "accusations of fraud and being a Ponzi scheme based on this won’t stand up. You could try it in court and see if you can get someone sent down for it if you were right" - let's see with FTX. Even in the USA, with its refusal to prosecute obvious crooks for fraud, this is surely going to end up with convictions and long jail terms. Stanford is jailed for 110 years, which is a lot of cricket to watch. Madoff was given 150 years. In any case, court convictions isn't a particularly good metric. We'd all agree that Reiki healing is a con, but nobody ever gets convicted for using it to scam idiots. There's one born every minute and it's not really society's job to protect the stupid from the consequences of their stupidity.
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Re: FTX

Post by IvanV » Mon Nov 28, 2022 3:33 pm

lpm wrote:
Mon Nov 28, 2022 1:25 pm
Even in the USA, with its refusal to prosecute obvious crooks for fraud, this is surely going to end up with convictions and long jail terms. Stanford is jailed for 110 years, which is a lot of cricket to watch. Madoff was given 150 years. In any case, court convictions isn't a particularly good metric. We'd all agree that Reiki healing is a con, but nobody ever gets convicted for using it to scam idiots. There's one born every minute and it's not really society's job to protect the stupid from the consequences of their stupidity.
The USA is far more willing to prosecute, and successful in prosecuting, large complex frauds, than the UK. Even if what is not illegal in financial markets in the US is a broader thing.

In the UK, Reiki is legal, provided it doesn't make certain unverifiable medical claims. Although it wouldn't have much of a customer base unless the customers believed the things the providers aren't allowed to claim in their advertising, etc. You can only go so far to protect customers, even when you are trying to do so. And they are trying to do so, to some extent, both in CAM and financial services. I think they are more liberal about what Reiki, etc, can claim about itself in the US.

It's hard to prosecute bitcoin for being a fraud when it is entirely open about what it is, and its nature is not illegal, and there is no evidence of theft of customer funds, etc, going on. It's a different matter when hundreds of millions of dollars mysterious leave the accounts after bankruptcy is declared, as just happened at FTX. There is a material possibility there was fraud there.

The kind of regulation of bitcoin to reduce its value to criminals, etc, is different from consumer protection.

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Re: FTX

Post by Millennie Al » Tue Nov 29, 2022 2:26 am

To add to that, a roulette game is not fraud even though all the winnings are paid for by other participants. And, of course, the National Lottery is both explicitly on the same basis and promoted by the state.

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Re: FTX

Post by Woodchopper » Tue Nov 29, 2022 9:18 am

Yes, there is a difference between a ponzi scheme, and gambling, or the markets in goods like antiques or works of art.

They are all zero-sum in that any financial gain only comes from other people putting in cash. But there are two differences. Firstly the activities in a lawful market or gambling are open. People know what they are getting into, whereas a Ponzi scheme is based upon deception. Secondly, a ponzi scheme will inevitably collapse when it runs out of people willing to pay in money. However, a market or casino can keep going indefinitely because people get something else out of it. People enjoy owning art or antiques and they provide social status, some people find gambling to be exciting.

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Re: FTX

Post by EACLucifer » Tue Nov 29, 2022 9:33 am

Crypto seems to rely quite a lot on convincing weird, aggressive nerds that there's a cheat code for being richer than everyone else.

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Re: FTX

Post by jimbob » Tue Nov 29, 2022 10:03 am

EACLucifer wrote:
Tue Nov 29, 2022 9:33 am
Crypto seems to rely quite a lot on convincing weird, aggressive nerds that there's a cheat code for being richer than everyone else.
Nicely put.

Which also plays into bigger fool theory and their arrogance.

At least with the Tulip bubble, you were left with a tulip bulb.
Have you considered stupidity as an explanation

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Re: FTX

Post by plodder » Tue Nov 29, 2022 10:12 am

It also relies on convincing weird & aggressive nerds that they can disrupt and counter the state control implicit in central banking. Once you take "weird and aggressive" out of if it's just nerds. And nerds have been the primary driver of technological and social change since year dot.

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Re: FTX

Post by bjn » Tue Nov 29, 2022 10:37 am

Standing up for nerds here. Some of the folk involved in the cyptoverse are out and out scammers and don't have a nerdy bone in their body. Along with libertarian fuckwits. On the Arstechnica forums some of the biggest boosters have no idea what the technology does.

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Re: FTX

Post by lpm » Tue Nov 29, 2022 10:51 am

plodder wrote:
Tue Nov 29, 2022 10:12 am
It also relies on convincing weird & aggressive nerds that they can disrupt and counter the state control implicit in central banking.
Oh great, remove state control and hand over control to scum capitalists, drug dealers and money launderers.

Have you any idea how mad you are sounding? How could you possibly think that is a good idea?
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Re: FTX

Post by plodder » Tue Nov 29, 2022 11:25 am

lpm wrote:
Tue Nov 29, 2022 10:51 am
plodder wrote:
Tue Nov 29, 2022 10:12 am
It also relies on convincing weird & aggressive nerds that they can disrupt and counter the state control implicit in central banking.
Oh great, remove state control and hand over control to scum capitalists, drug dealers and money launderers.

Have you any idea how mad you are sounding? How could you possibly think that is a good idea?
Mad? You’re the one hallucinating that I think dismantling the state is a good idea. However it is an idea that helped drive the development of crypto, which is what we’re talking about. Distaste for the shenanigans states get up to isn’t abnormal, nor is it mad to question who these shenanigans benefit.

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Re: FTX

Post by lpm » Tue Nov 29, 2022 11:28 am

Yet another repeat of "X is bad, Y isn't X, therefore Y is good". What a waste of time.
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Re: FTX

Post by plodder » Tue Nov 29, 2022 12:16 pm

lpm wrote:
Tue Nov 29, 2022 11:28 am
Yet another repeat of "X is bad, Y isn't X, therefore Y is good". What a waste of time.
Lpm you have led the battlecharge here claiming crypto is one big con. Pointing out that people have legitimate reasons for supporting crypto is something non-trolls refer to as “a discussion”.

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Re: FTX

Post by lpm » Tue Nov 29, 2022 12:49 pm

But you are not pointing out that people have legitimate reasons for supporting crypto.

You are merely pointing out that people have legitimate reasons for not supporting the old status quo.
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Re: FTX

Post by plodder » Tue Nov 29, 2022 1:15 pm

lpm wrote:
Tue Nov 29, 2022 12:49 pm
But you are not pointing out that people have legitimate reasons for supporting crypto.

You are merely pointing out that people have legitimate reasons for not supporting the old status quo.
I think I may have pointed out more than once that crypto can potentially undermine the state/central bank model that (some would claim) promotes war, corruption, propping up of old money elites, is resistant to measures to prevent climate change etc.

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Re: FTX

Post by lpm » Tue Nov 29, 2022 1:23 pm

Plodder: You should drink your own urine.

LPM: What the f.ck, why?

Plodder: Because you drink 5 cans of coke a day. That's terrible stuff, causing you all sorts of problems.

LPM: Why urine though?

Plodder: *waffles on endlessly about how bad coke is, with some valid sounding stuff mixed in with obvious exaggerations and weird claims*

LPM: Right, yeah, I get there might be a problem with my 5 cans of coke but why should I drink my own urine?

Plodder: Because it will undermine your coke drinking habit.

LPM: But what is good about urine?

Plodder: DRINK. YOUR. OWN. URINE.
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Re: FTX

Post by dyqik » Tue Nov 29, 2022 1:42 pm

plodder wrote:
Tue Nov 29, 2022 10:12 am
It also relies on convincing weird & aggressive nerds that they can disrupt and counter the state control implicit in central banking. Once you take "weird and aggressive" out of if it's just nerds. And nerds have been the primary driver of technological and social change since year dot.
You don't need crypto to take the state control out of a currency. You are free to start your own bearer certificates, with or without crypto.

You can do exactly the same thing as crypto by trading stocks in a stable company for goods and services.

The problem you face is that Western governments are bigger and more stable than any private corporation. Even the UK.
Last edited by dyqik on Tue Nov 29, 2022 1:45 pm, edited 1 time in total.

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