FTX, a trading platform backed by bluechip investors including BlackRock and the Ontario Teachers Pension Plan, was forced to turn to rival Binance for a bailout earlier this week after customers tried to withdraw $6bn in just 72 hours – the crypto equivalent of a run on the bank.
So, where are the assets?
It has been endorsed by celebrities including pop singer Katy Perry, American football star Tom Brady and his wife, supermodel Gisele Bundchen, with slick prime time television advertisements urging viewers: “Don’t miss out on the next big thing.”
In one ad, Brady and Bundchen call round all of their friends, asking them: “I’m getting into crypto with FTX. You in?”
Another shows Brady using a flamethrower to melt a block of ice containing a bitcoin.
FTX struck a sponsorship deal in the US with the National Basketball Association that saw Florida’s Miami Heat arena renamed the FTX Arena.
That’s one possibility.
FTX’s reputation was burnished by its performance over the last 12 months. While other crypto businesses struggled as crypto prices collapsed, FTX was in a strong enough position to bailout those in trouble. FTX provided $250m to crypto lender Blockfi in June, while Bankman-Fried’s other business, Alameda Research, provided $500m to another crypto lender, Voyager Digital.
That’s another.
Rather than JP Morgan perhaps the comparison should be to Ivar Kreuger and Swedish Match? Yet one more of the historic episodes which crypto has roared through in record time repeats?
If I were an Ontario teacher I’d be sweating about my pension right now.
The whole “investing in crypto” thing bemuses me. Crypto has no intrinsic value & creates no wealth so how can it be an investment? It’s pure speculation. And the “investing” prevents crypto currencies having utility.
By definition, a currency is something that users have confidence can be exchanged for goods & services. And that confidence can only come about when a sizeable majority of the issued currency is being utilised in commerce. It would be that, that gave it value stability. So the crypto speculation prevents it happening because no one’s going to use a currency in commerce subject to wide value swings. So “investment” in crypto is reason for not holding crypto.
“If I were an Ontario teacher I’d be sweating about my pension right now.”
Why? The Canadian taxpayer (either of Ontario, or the whole of Canada) will undoubtedly bail them out if they f*ck up their investments.
Ngl, I’m surprised that fake internet money turned out to be a bad investment.
“Crypto has no intrinsic value & creates no wealth so how can it be an investment? It’s pure speculation. And the “investing” prevents crypto currencies having utility.”
I think Bitcoin’s problem is that its actually too good. Because its limited in issuance (there’s a finite amount of Bitcoin that can be mined) and it gets harder and harder to mine as time goes by, its rather like a gold backed currency – there’s a limited amount of it. I suppose you could say its an energy backed currency because its takes X Kwh to produce one Bitcoin. And as such, compared to fiat currency that can be (and is) printed at the push of a button, it looks like a great bet to maintain the value of ones savings if fiat money goes bad. So it immediately attracts ‘hot’ money flows, which makes it into a speculative investment, and thus a roller-coaster.
But the fundamentals of it can be seen – if the West continues on its money printing ways, then at some point people are going to flip from regarding fiat as being even a short term store of value and want ‘anything else’ instead. Gold and other precious metals would be the obvious natural haven then, but one has to suspect that Bitcoin would hold up almost as well in a hyperinflationary scenario, possibly better, because it could be used as currency far easier than gold – it can be fractioned electronically rather than physically. Put it this way – if fiat implodes to zero, I don’t think bitcoin is going with it. There would probably come a tipping point whereby prices started to be quoted in bitcoin along side fiat. The latter would be rising, the former stable or falling.
My view of Bitcoin is its a bet on whether State backed fiat money hyperinflates itself away at some point, in a short period (fiat has been slowly inflating itself away for a long time). If it doesn’t then you could lose or gain 90% of the purchasing power of your initial investment. But if fiat does hit a hyperinflationary spiral then the purchasing power of your initial investment in Bitcoin would certainly be maintained and maybe increased many times.
However this analysis ignores the elephant in the room – the State, who in a crisis would be doing everything it could to remove such an attractive competitor to its money from the public sphere. One suspects the men with guns are not going to allow the money supply and creation system to fall outside their control.
@Jim – I don’t think states worldwide need to worry overmuch about the threat of the various ponzicoins, now they are failing miserably as a store of value, even compared with the British peso.
Bitcoin is about as much like a gold-backed currency as Spud Murphy is like a rational human.
OTOH, I spoke to a chap the other day who is involved in the early stages of developing a real estate-backed digital currency, very interesting and rather more like the gold-backed currencies of yore.
“I don’t think states worldwide need to worry overmuch about the threat of the various ponzicoins, now they are failing miserably as a store of value, even compared with the British peso.”
Are they failing? It depends when you got in of course. There’s plenty of people who still have many times their initial investment in Bitcoin and its acting like a very good store of value for them. Yes its been up and down like a whore’s drawers over the last 2 years, but just about everyone who has held bitcoin at least since this time 2 years ago is at least level if not slightly ahead (if you’d bought at the absolute peak in 2017 you’d now be ever so slightly lower).
The pattern seems to be a regular speculative blow off, followed by a slump to a level higher than the previous lows. Put it this way £1 invested in bitcoin in mid 2020 would be roughly worth £2 now. How’s your one fiat pound done since then?
Disclaimer: I own no cryptocurrency whatsoever.
£1 invested in bitcoin in mid 2020 would be roughly worth £2 now
£1 invested in bitcoin at the start of this year would be worth 40p now. £1 invested in bitcoin in 2016 would be worth £50 now, although I suspect you’d have sold long ago.
It is a speculative asset which could quite easily be worthless in a month’s time. Fine if you’ve got a few quid spare for a flutter but it’s no threat to any state-backed currency. I would not be surprised if it failed to last a decade.
@Jim, your point about crypto has a haven to protect against excessive inflation is true in Argentina
NYT via archive.ph
. . . but one has to suspect that Bitcoin would hold up almost as well in a hyperinflationary scenario . . .
Depends if the hyperinflationary scenario involves power blackouts and/or grid collapse. In that case crypto lands somewhere between chocolate fireguard and literally ceasing to exist.
“It is a speculative asset which could quite easily be worthless in a month’s time. ”
And so could a fiat currency. OK, far far less likely to be, but there has to be a non-zero possibility of it. And given the direction of travel of the West, what do we think the final destination of our monetary systems is? A stable long term store of value, or a collapse into a hyperinflationary black hole at some point when the money printing has been too utterly egregious?
@Jim
You have about right with Bitcoin. It’s a very attractive idea for many of reasons you mention*. I’d be using it now. There’s certain things it’s difficult to pay for because the money transfer system has embargoed. Tim’s site & the withdrawal of his PayPal a/c’s a good example. It’s the speculative element’s the deterrent. It prevents one having confidence in the currency.**
*I arrange my affairs across several currencies. It makes it damned complicated trying to allow for multiple percentage point swings on short time scales, like we’ve seen recently. Oh for a single stable currency!
** The other reason’s to use Bitcoin one has to interface with the regular banking system. And I’d be very nervous of getting accounts flagged for buying/selling BC. (I suspect they do) And attracting unwanted attention. (As others have found, you don’t have to be doing something wrong to get your account frozen.) BC will be viable when one easily use it for both sending & receiving on a regular basis without the interface.
Ontario teachers have been a little distracted lately with the province government holding the passing of a law to make their current strike illegal over them unless they backed down
My suspicion is that the government realised that a lot of parent quite rightly blame the teachers unions advocating for extended school closures and they could get away with being heavy handed
FTX sounds more like the collapse of London Capital & Finance. LCF sold unregulated “mini-bonds” promising 8% returns (this was back in 2015); but spent 25% of the capital on marketing.
If you see overpaid celebrities in flashy ads, the customers are probably paying over the odds.
Andrew M – marketing aside, they made the loans to a set of related parties, as per FTX. Turns out, regardless of the amount of assets claimed to exist (the value of the + interest payments), they didn’t actually perform (maybe, to an extent, they were never intended to – as long as the marketing worked and new money kept rolling in). FTX, from the other post, looks to be exactly the same.