This came hours after over $600 million in crypto left bankrupt crypto company FTX’s wallets late Friday, with little clear explanation as to why. Many FTX wallet holders also reported that they were seeing $0 balances in their FTX.com and FTX US wallets.
We might need to move to the next stage of our model.
Think of SBF as being the “Do you sincerely want to be rich?” guy – Bernie Cornfeld. There was a time that IOS was all legal, an end run around regulation. That then deteriorated and eventually, because of insider investing – the cash being lent into insiders’ bad adventures and lost – it failed and fell. At which point step up Robert Vesco, who then looted the rubble.
We might well be at stage three here……although who is behind stage 3 is as yet unknown:
New York, Nov 11 (Reuters) – At least $1 billion of customer funds have vanished from collapsed crypto exchange FTX, according to two people familiar with the matter.
The exchange’s founder Sam Bankman-Fried secretly transferred $10 billion of customer funds from FTX to Bankman-Fried’s trading company Alameda Research, the people told Reuters.
A large portion of that total has since disappeared, they said. One source put the missing amount at about $1.7 billion. The other said the gap was between $1 billion and $2 billion.
Missing or lost?
Yes, there is a difference here. Lost, in this sense, means legal deal that was a money losing position. Missing means where in buggery is it?
Snigger:
They said the “backdoor” allowed Bankman-Fried to execute commands that could alter the company’s financial records without alerting other people, including external auditors. This set-up meant that the movement of the $10 billion in funds to Alameda did not trigger internal compliance or accounting red flags at FTX, they said.
Tim,
Come on, it’s fraud.
We know the whole thing is a con. There is no intrinsic value to any of these digital currencies. They rely on “faith” in their value. By a bit of dextrous financial engineering you can make a return. But it is speculation pure and simple.
The only reason for transacting in these instruments is to gamble or you want to do something unlawful. And, to defraud buyers of course.
Peter
External audits are excellent at ensuring compliance with and disclosure of diversity and sustainability targets.
However detecting the movement of a trifling $10bn appears to be too much to ask.
How can you have “$600 million in crypto”? It’s either $600 million or x crypto. It’s a volatile exchange rate. If there is an exchange rate at the moment. To exchange crypto for $’s requires somebody selling $’s for crypto. Is there anyone stupid enough to be doing that in any quantity, currently?
100% this, which is why fraud, collapse and bankruptcies were always at the end of this (rather short) road, because you cannot generate value from thin air.
Same applies to Non-Fungible Tokens.
“We know the whole thing is a con. There is no intrinsic value to any of these digital currencies. They rely on “faith” in their value.”
Just like fiat currencies you mean?
Even fiat currencies provide a proxy for credit (essentially being credit money), so there is some measure of value there somewhere even if nebulous.
With Crypto, there is nothing. There never was anything. Just a void staring inexorably back at you.
That some have stared into the void and can see value speaks more about the human desire for self-delusion than anything else. It certainly is related to value or even economics in any meaningful sense, save perhaps “The madness of crowds”.
Can there ever have been a better example of nominative determinism than Bankman-Fried? (In the absence of Conman-Fucked, that is?)
BiS: “Is there anyone stupid enough to be doing that in any quantity, currently?”
A certain teacher’s pension fund for sure. No doubt there’s some others.
Never underestimate the power of human stupidity, especially when Shinies are dangled.
And like any Ponzi scheme, Crypto has value. It’s just that peeps dabbling in it now are about a decade too late to profit.
Some peeps I know that did some mining in the Early Days of Bitcoin made decent amounts. But that was because they picked the right moment to convert what they had into physical assets, and sold those when the Hype started.
Nothing illegal even.. CPU’s, mem, GPU’s, a Tesla in one case. Calculated conversion, taking the “hit” in “value” at the right moment to get something more stable and marketable, and liquidating that.
But even that was 2-3 years ago, and they already had the Shineys, on the cheap, because early miners with the necessary Nerd-cred.
Getting in in the past years? Madness²..
With Crypto, there is nothing. There never was anything. Just a void staring inexorably back at you.
Whilst they’re not being used in commerce.*
If they were being used in commerce the value would be that of the goods or services they could buy.
*They are being used in commerce, now. But to such a limited extent that the value is set by the speculation against other currencies rather than their purchasing power. Other than that, they’re indistinguishable from £’s ( apart from they can’t be f**ked with by the BoE or the Hunt). The £ derives its value in the internal UK economy from the confidence it can be exchanged for G & S. Its value v a v other currencies comes out in the trade figures.
Hmmm. Found this gem on Twitter – convo dated 11th October:
Nothing here fits. Everything reads like it’s a complete scam. This thing is dirty and rotten to the core.
https://twitter.com/Hedgeye/status/1591240664779743232
Seller: Here’s a bunch of old rope
Buyer: I’ll give you £10 for it
Does that suddenly mean that any comparable bunch of old rope has £10 of value? Of course not. Any meaningful analysis of “the value of old rope” is that it is worthless, or as close to worthless as makes no difference.
Same applies with crypto. Just because someone somewhere has paid money for it does not mean that intrinsic value ($0) has changed. You cannot create value out of nothing.
Converting customer balances to zero tho? Don’t they have to provide some accounting for that? If your bank just suddenly disappeared money from your account that would also be illegal.
Hmmm… pt2:
Gary Gensler blew it again. After his agency failed to warn investors about Terra and Celsius—whose collapses this spring sparked a trillion-dollar investor wipeout—the Securities and Exchange Commission chair allowed an even bigger debacle to unfold right under his nose. I’m talking, of course, about the revelation this week that the $30 billion FTX empire was a house of cards and that its golden boy founder, Sam Bankman-Fried, is the crypto equivalent of Theranos’s Elizabeth Holmes.
https://fortune.com/crypto/2022/11/11/sbfs-disgrace-could-make-things-awkward-for-gary-gensler-and-the-democrats/
John Galt,
“Seller: Here’s a bunch of old rope
Buyer: I’ll give you £10 for it
Does that suddenly mean that any comparable bunch of old rope has £10 of value? Of course not. Any meaningful analysis of “the value of old rope” is that it is worthless, or as close to worthless as makes no difference.”
OK, but bank notes are mostly just cotton that’s been processed, and then marked to be verifiable. Gold, diamonds, dollars, crypto are all roughly doing the same thing.
I’m not saying crypto isn’t a daft bubble right now, because it clearly is, and beyond drug dealing I’m not sure it has many benefits over dollars, but it is as much of a currency as dollars.
Does that suddenly mean that any comparable bunch of old rope has £10 of value? Of course not. Any meaningful analysis of “the value of old rope” is that it is worthless, or as close to worthless as makes no difference.
Isn’t that rather disproved by someone having paid £10 for it? The latest market price for rope, old, quantity indeterminate = £10
Or to look at it from the other direction, you can value the £ in old rope.
And there was indeed a market in old rope. Feedstock for industrial processes. There may be one today. There’s certainly a market in broken concrete. You can buy & sell it.
£10bn on a bird that ugly?
https://www.dailymail.co.uk/news/article-11419415/At-1-billion-client-funds-missing-failed-crypto-firm-FTX-sources.html
With Crypto, there is nothing. There never was anything. Just a void staring inexorably back at you.
Isn’t it the “blockchain” that supposedly gives crypto an intrinsic value above being a mere unit of exchange? That you can write contracts and such into the actual money? No idea; it’s always seemed dodgy to me but I do remember seeing “serious” articles written about that aspect.
Since the blockchain is also supposed to enabling following the money, either the idea is bollocks or this
fraudmysterious event occurred with actual readies.You cannot create value out of nothing.
Intellectual property?
Sure, but the Crypto concept of “Work” is about as meaningful as the “Marxist value of Labour”, just because you say it doesn’t make it true.
Then again the same idiots that push Crypto all look like Commies to me, so…
Sure, but what is the intrinsic value of an idea?
The intrinsic value of something as nebulous as an idea is $0 until proven otherwise.
A patent on an idea might have greater value than an idea in and of itself, but that is more about the patent process itself and related attributes of patent ownership and allied legal rights than anything else and even then is more subjective than objective in that a patent is only as useful as your own ability to legally enforce the rights granted by the patent.
I’m trying to puzzle something out.
Take money from clients to buy crypto at market price.
Pass the crypto to a third party in exchange for money at market value (All on paper)
Crash the market value of crypto by 50%.
Buy the crypto back from the third party at current market value.
The clients now have what they paid for, the crypto.
You have half their money.
£10bn on a bird that ugly?
Maybe she’s the mastermind.
In which case your anonymity has just become insufficient.
I’m trying to puzzle something out.
It’s a fiendishly good plan, BiS, and I was about to offer you some backing (“invest”). Then I remembered that some of the clients and third parties are serious gangsters.
I’ll leave it with you.
Thinking of some comments above puts me in mind of the Goon Show exchange
Grytpype:
Right. Here’s a photograph of two shillings.
Seagoon:
Thank you. And here’s a photograph of sixpence – change.
Whch s what this whole farrago seems to boil down to.
““Seller: Here’s a bunch of old rope
Buyer: I’ll give you £10 for it
Does that suddenly mean that any comparable bunch of old rope has £10 of value? Of course not. Any meaningful analysis of “the value of old rope” is that it is worthless, or as close to worthless as makes no difference.””
I thought that modern economic theory (as espoused by our host) stated that all value was subjective? That if someone says they’ll pay £10 for some old rope, then it is worth £10? The alternative being the Marxist Labour Theory of value – if the rope took one man all day to make its worth one man’s labour for a day (or financial equivalent thereof)?
After all you may not be have all the information. Said old rope may have been the one used to hang a famous criminal. Or came from the Victory at the battle of Trafalgar. Could it then be worth far more than £10? Or know that I own a naval themed pub and I want a genuine olden days sailing vessel rope to hang on the wall as a feature, and think £10 is a steal for the one you have?
Sure, but as the guy responsible for mark-to-market pricing at BP Oil, it doesn’t matter what you think it’s worth (even if you compare that to the value you paid for it or the value of equivalent trades amongst other 3rd parties that day). At best that reflects the a guess of its current sale unrealised price, nothing more.
If someone paid £10 for a bunch of old rope, to me the would represent an unrealised loss of £10, since the typical value of old rope is worthless. Maybe you get lucky and find an idiot who’ll pay you £2 for it, all that’s happened is that you’ve turned an unrealised loss of £10 (purchase price of £10 less the current market sale price of £0), all you’ve ended up with is a REALISED loss of £8.
Unless you have a desire to become the next Enron, nobody books the unrealised mark-to-market value of a trade into accounting in any form.
Incidentally, given Jonathans first link, that nothing about SBF makes any sense, not least where the money came from to get the thing of the ground, does anyone else begin to wonder if its another Epstein scenario? An intelligence agency run operation to a) infiltrate the crypto world and mine data on everyone and everything within it, and b) to crash the company when its run its course and thus discredit crypto in the eyes of the public?
The proof will be in what happens to SBF. If the State nails him to the nearest wall, then they probably weren’t behind it. If he escapes and appears to have ‘protection’ from State recriminations, then its got to be a possibility, no?
“If someone paid £10 for a bunch of old rope, to me the would represent an unrealised loss of £10, since the typical value of old rope is worthless. Maybe you get lucky and find an idiot who’ll pay you £2 for it, all that’s happened is that you’ve turned an unrealised loss of £10 (purchase price of £10 less the current market sale price of £0), all you’ve ended up with is a REALISED loss of £8.”
But what if its worth to me more than £10? And have no intention of selling it?
Then you should invest everything you own in Crypto, because you’re clearly the sort of gullible mark they need right now.
“Gorgeous Gary Gensler [the Securities and Exchange Commission chair], a former campaign finance chair for Hasbeen Hellbitch, is of course not the only prominent Democrat who may have been willing to flex his influence on behalf of FTX. SBF [Swindle Bent-False], you may recall, was one of the biggest donors to Geriatric Joe Biden, while his parents—both Stanford law professors—have ties to the party. His mother, Barbara “Forthright” Fried, leads a group called Mind the Gap that helps raise Silicon Valley cash for Democrats, while his father, Joseph “Bona Fide” Bankman, drafted tax legislation for the powerful Sen. Hiawatha Warren (D-Mass).” (edited slightly for clarity)
All very entertaining. Just as well there wasn’t a huge swing to the Republicans, eh?
If someone paid £10 for a bunch of old rope, to me the would represent an unrealised loss of £10, since the typical value of old rope is worthless.
No, you showed the latest traded price of rope was £10. So that was the market price at that trade. It doesn’t matter what you’re opinion of the rope is. It’s the consensus market opinion that counts.
Had you considered shorting old rope?
Which is the answer to the price of crypto conundrum. Crypto traders have confidence it is worth that price. Which is all that matters.
I personally believe the confidence is misplaced. But that’s just a person opinion. I’m not in the crypto market. I’m not confident in my own judgement sufficient to bet on it.
My read of it is that he did something I thought about. Invent a coin. That gains value. So, use that coin as your capital to trade with – it’s got value even though you just invented it. The problem coming when your coin loses value. Of course, I wasn;t going to get to that stage…..
I just remembered this.
https://en.m.wikipedia.org/wiki/Beenz.com
I was involved in a small way : we sold Beenz their computers and I set them up. Their marketing blurb was very slick and I rather horrified my management by laughing at it and saying that it was economic lunacy with my usual ” and I only studied economics up to Ricardo!”
I was in a meeting with the founder Cohen. The smell of bullshit was overpowering, but ( it seemed ) that the various vendors ( I remember Oracle being there ) were slathering over the prospect. So much so that my boss sold the computers at near cost, much to the chagrin of the salesman. Their failure to pay for the servers rather holed my company below the waterline, but I was long gone by then.
“Then you should invest everything you own in Crypto, because you’re clearly the sort of gullible mark they need right now.”
Nonsense. As I pointed out above, I may know more about old rope than you do. And the old rope I’ve bought for £10 may be saleable for considerably more than I paid for it, if I know something more about it than you do. Or have value to me because its adds value to something else (my theme pub in the example I gave). You do not have perfect information, your view about the value of Bitcoin is as subjective as mine. I happen to be of the opinion that it has a value as a hedge against catastrophic inflationary collapse of fiat currencies. I could be wrong. I don’t know, but crucially, neither do you.
https://twitter.com/AndrewOrlowski/status/1591444690335039489
No, you showed the latest traded price of rope was £10. So that was the market price at that trade. It doesn’t matter what you’re opinion of the rope is. It’s the consensus market opinion that counts.
Sure, but the problem is that round about the same time as you are buying old rope for £10, millions of other people are giving them away or even paying to dispose of them. Your transaction is not the market. So the market value of old rope swiftly returns to zero and you are out a tenner.
I happen to be of the opinion that it has a value as a hedge against catastrophic inflationary collapse of fiat currencies. There’s a very strong likelihood that Bitcoin will be dead within a couple of years. Fiat currencies, not so much.
“There’s a very strong likelihood that Bitcoin will be dead within a couple of years. Fiat currencies, not so much.”
It’s going to depend on its utility value not its speculative value. It’s utility value could be a proportion of taxes one could avoid by using it in a transaction. Or maybe there’s a value on privacy. So it might attract a premium as a method of exchange in transactions over a fiat currency. That could be quite considerable.
If Bitcoin turns out not to be the one, eventually there will be one. If it becomes generally acceptable as a medium of exchange, I wouldn’t fancy fiat’s chances of surviving as anything more useful than pocket change. Oh & to pay whatever taxes one felt like paying.
“There’s a very strong likelihood that Bitcoin will be dead within a couple of years.”
Care to bet? What odds are you giving that Bitcoin won’t exist by the end of 2024 (say)?
As far as I’m aware, the maths is open source. There’s nothing whatever preventing starting up another instance of Bitcoin, having learnt from the mistakes of the first. Like use it for commerce not as a speculative vehicle. So which Bitcoin won’t exist BC.beta?, BC2.0?
Jim, when governments are stealing & spending more than 50% of GDP it’s time to look around for alternatives to governments.
“when governments are stealing & spending more than 50% of GDP it’s time to look around for alternatives to governments.”
Well precisely. We moan on here enough about how the State is all encompassing, and is stealing our wealth via taxes and money printing, yet when something comes along that could give the State a run for its money (literally ha ha) it gets shot down in flames as a valueless at best gimmick, at worst scam.
How many on here would like to park their savings in a form that maintained its purchasing power in the long run and was viable as a currency? I certainly would. Enough people were piling into the Swiss Franc a few years ago for precisely those reasons, so the demand for such a product is out there for sure. The question has to be is Bitcoin (or any other digital token) the answer? Maybe not. But it could be if the right circumstances occur. As someone pointed out on the other thread, Bitcoin is already taking on some of the role of an alternative currency in high inflation environments, such as Argentina. We in the West have not experienced a true hyperinflationary event for nearly 100 years (Weimar). So we can’t really know how people would react. Would they trust Bitcoin over fiat? If fiat is being pushed around in wheelbarrows, or the prices are changing by the minute as you attempt to buy something, then I suspect yes, they’ll go for anything else. What have you got to lose in such circumstances?
There’s certainly a market in broken concrete. You can buy & sell it.
How come it costs to get rid of hardcore, and my local tip limits the amount I can ditch?
(or did I take the donkey porn mags by mistake?)
Jim,
“After all you may not
behave all the information.”This is the point about “consensus market price”, to use BiS’ phrase. As Tim has pointed out, financial markets, in particular, offer a price discovery mechanism/process, where many individual, independent, buyers and sellers process information over time, and enact many transactions that result in the consensus or valuation price at some point in time. Usually at the market close, but there can be oddities, and usually at last or bid price. You could use the mid, you could use the offer if you had good reason to.
Exchanges tend to have news dissemination services attached – RNS with the LSE for example – and require listed firms, and investors, to release announcements that may affect the price, so results, trading statements, ownership interests, what-have-you. There’s still a lot of other news services around, Reuters, Bloomberg, broker research, and investors tend to rely upon those sources as well.
Still, if you are really willing to do the work, you can end up with better information (and you’re not an insider) and can bet on the consensus price being wrong – so you get the likes of Bronte Capital/John Hempton. You execute an information/knowledge arbitrage.
Other things; the assets being traded are largely standardised, any differences (voting rights, dividend entitlements, claims upon assets) are publicly available.
“Said old rope may have been the one used to hang a famous criminal. Or came from the Victory at the battle of Trafalgar. Could it then be worth far more than £10?”
You aren’t buying old rope here. You’re buying old rope plus the proof, provenance, that it came from HMS Victory or was around Ruth Ellis’ neck. Lose the provenance, what you’ve got is old rope.
The closest you might get to a useful market price, is if you were able to get data on old rope with different provenances across a range of auctions of old rope – which boils down to being exactly the same as watching a financial market, just takes longer and more effort.
“Or know that I own a naval themed pub and I want a genuine olden days sailing vessel rope to hang on the wall as a feature, and think £10 is a steal for the one you have?”
Then you are looking to buy a complementary asset. The value (or additional value) to you arises from having the other stuff first. Other buyers may not have those things. Their consensus price will be different. Of course, if the seller has done his homework on his buyer, the offer might not turn out to be such a steal.
Then again, you might want to get the thing insured – so the TCO is not merely a tenner. At that point, you might decide not to hang it on the wall, ‘cos, you know, random drunk people. So, any bit of old rope will do the job. Pop down the beach.
“But what if its worth to me more than £10? And have no intention of selling it?”
Then you’ve just spunked a tenner up the wall. Or you’re a collector, which is roughly similar to the case of the pub.
“How come it costs to get rid of hardcore, and my local tip limits the amount I can ditch?”
Simple – the State (as ever) gets in the way. There is a demand for hardcore, to be recycled into useable aggregates. But because old concrete and bricks etc is classified as ‘waste’ by the State, only licenced premises can accept it. Its not cheap or easy to obtain said permits. Ergo licenced disposal and recycling sites can charge you to get rid of your hardcore waste, because there’s not many of them. They then process it and sell it for a few quid less per tonne than virgin crushed stone.
But because old concrete and bricks etc is classified as ‘waste’ by the State, only licenced premises can accept it
Used to get this with things like kitchen appliances. Because we did a lot of high end refurbs we produced a lot of extremely good quality, barely used items. Problem being how to get rid of them. Legally it’s “waste” so we can’t just sling it on the van because we’re not licensed for waste disposal. Be nice to give it to charity but arranging a charity pick up is like trying to get an NHS appointment. They aren’t a service to you, they want you to be a service to them. Be nice to put in Loot or on EBay but you can’t really do that out of your client’s house. So you’re down to second hand appliance trade. Who will charge you for taking it away then sell it for £500.
So we slung it on the van, anyway, with a tarp over & ladders on top. Fortunately, never got pulled. A lot of mates had some very nice kitchens.
Incidentally, you wouldn’t believe how expensive it is to get rid of shit in Central London. It’d only be marginally dearer to post it. But finding where the bin men take their tea breaks can be rewarding. Amazing what can disappear off the kerb for a modest amount of readies.
@John – “External audits are excellent at ensuring compliance with and disclosure of diversity and sustainability targets.”
Are you sure about that? How would you know if they were useless?
And even if they are, there’s a big difference between measuring something that people pay only lip service to and something they really care a lot about.
Seems to me that I recall, and I’m not going to spoil it by wiki’ing, that Thomas Guy built his eponymous hospital with the proceeds of selling old ropes. Specifically any surplus rope’s ends, a bit of bunce allowed to pursers and such. Turns out each 200(?) fathom piece of rope has just vtwo ends. 100 fathoms long.