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Cryptocurrency Is Not An Investment-- Its Something Between A Ponzi Scheme And Gambling

I saw a wild list a couple of days ago. It was the animal in each state most likely to kill humans. Some made sense— like sharks in Hawaii, moose in Alaska and Maine and deadly spiders in Indiana and Rhode Island. Others were more of a stretch. Dogs, for example, in Alabama, Arizona, Michigan, New Hampshire, New York, Ohio, Pennsylvania and Virginia. Dogs! In Indiana, Minnesota, Mississippi, New Mexico, Utah and Wisconsin, it’s deer. They run into cars and cause traffic fatalities. Iowa, Kansas and Nebraska all blame cows, And bees, wasps, hornets and other stinging insects are the biggest death causers in Massachusetts, Oregon, Florida, Washington and West Virginia. Apparently Oklahoma has a problem with tigers escaping from their cells or pens and snakes are the problem in California, Georgia and Missouri. I don’t want to leave out bears; they’ll get ya in Arkansas, Idaho, Kentucky, Montana and Wyoming.

I have a worse predator than any of these in mind today though— cryptocurrency hustlers and scam artists. If you’re a regular here, you know what I think of Sam Bankman-Fried, the conservative Democrat who worked with Hakeem Jeffries and— through him— with AIPAC and Democratic Majority for Israel to tank progressives running in Democratic Party primaries. So you can imagine I had no tears this week when Bankman-Fried met up with Mr.Karma and lost his fortune. Yeah, he’s not a billionaire any longer— not living on the street but not in the same league as one of the 720 billionaires in the U.S. (where there shouldn’t be any). All he’s got left is 991.5 million, down from around $15.2 billion. In other words, something like $14.6 billion disappeared, more or less, overnight.

Bankman-Fried’s assets are his stakes in FTX, the crypto exchange he founded, and Alameda, a crypto trading house. Yahoo News reported that “Binance CEO Changpeng ‘CZ’ Zhao announced on Tuesday that he had inked a provisional agreement to acquire FTX after concerns mounted about the Bahamas-based exchange’s apparent insolvency, leading to a slowdown in withdrawals and freefall in the price of FTX’s native token… He promised to spend up to $1 billion to support political candidates aligned with his broader mission of preparing for future pandemics. Though Bankman-Fried spent approximately $40 million ahead of the midterm elections (with middling success), he later backed away from his promise, calling it ‘a dumb quote.’”

Noah Smith wrote yesterday that “The fall of FTX means more than just one insolvent exchange” and asked What if crypto just...dies? “For those who are unaware,” he explained, “FTX is one of the main cryptocurrency exchanges. It’s located offshore, though it also owns a much smaller U.S. exchange called FTX.US. The founder and CEO of FTX is Sam Bankman-Fried, known as SBF, who also runs a trading firm called Alameda Research. Together, Alameda and FTX allowed SBF to amass an enormous $16B fortune, which he promptly set about donating to various ‘effective altruism’ causes (and to politicians). In the last year or two, SBF had more or less become the face of crypto, staring out at giant billboard ads in the downtowns of major cities. In the last few days this all came crashing down in dramatic fashion. Coindesk, a crypto news site, discovered that Alameda was holding quite a lot of tokens created by FTX, and had borrowed huge amounts of money— presumably using the tokens as collateral. Hearing about this, FTX’s main rival, Binance, dumped its holdings of FTX’s tokens. Their price crashed, rendering Alameda abruptly insolvent, which in turn rendered FTX itself insolvent. In an ironic twist, SBF was forced to turn to Binance itself for a bailout. The deal is not finalized, though, and will presumably not include a bailout for Alameda. Much of SBF’s awesome fortune— 94%, according to Bloomberg’s estimate— has thus simply vaporized. (Remember that a lot of wealth is notional, and can just disappear into thin air. This is especially easy in crypto, where there are fewer buyers and sellers.) And there’s a good chance FTX will end up toast.”

That’s right the deal’s not a deal at all— as the Washington Post reported last yesterday. “In a startling about-face,” reported Tory Newmyer and Steven Zeitchik, “Binance, the world’s largest cryptocurrency trading platform, said Wednesday it was walking away from a deal to buy rival exchange FTX, just a day after announcing it intended to acquire the company as it faced a surge of customer withdrawals. Binance, in a statement, cited ‘mishandled customer funds’ turned up by its review of FTX’s books and press reports that U.S. regulatory agencies would be investigating FTX as its reasons for abandoning the deal. A spokesman for FTX declined to comment. FTX’s 30-year-old chief executive Sam Bankman-Fried emerged during this election cycle as the country’s second-largest Democratic donor and a major force lobbying on Capitol Hill for crypto regulation. The dissolution of the deal leaves the future of one of the largest crypto trading platforms in question and raises questions about the finances of its customers. It also heralds continued turmoil for the industry, already reeling from the crisis seizing the once-stalwart FTX.”

On Wednesday, the two largest cryptocurrencies— bitcoin and ethereum— dropped 14 percent and 16 percent, respectively, deepening a decline that began on Tuesday after FTX announced that it was unable to meet a spike in withdrawal requests and sought the Binance deal as a lifeline.
“In the beginning, our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help,” Binance said in its statement Wednesday.
Experts said the whiplash of the past 24 hours— a bailout followed by a pullout— significantly lowers the chance another suitor would step in. “I think it’s fairly damaging and makes a deal a lot less likely,” said Joe Castelluccio, a partner and mergers-and-acquisitions expert at New York law firm Mayer Brown who specializes in digital assets. “The avenues are suddenly a lot fewer for FTX to get through this without liquidation.”


1 Comment

Nov 10, 2022

cryptoCURRENCIES is gambling with chips that are imagined to be money. As long as there are gamblers willing to give those chips a monetary value, there will be those who gamble them.

The trading (houses) of crypto seems to be turning into a similar ponzi-type thing that sunk the US and world economies in 1929 and on. One might also draw a parallel to what sunk the US and world economies in 2008.

There are several fine books about both. Clearly nobody has read them because we actually remember nothing of what we learned from either disaster.

I guess it's easier to just keep repeating stupidity than learn anything.

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