> Most news accounts seem to portray the scale of the bankruptcy as relatively small.
This is a key point.
They lost $16B in customer deposits.
LTCM lost $4.6B in investor funds.
Enron lost $11B in shareholder capital.
Interestingly, while Madoff is widely quoted as having lost $65B, that was almost all fabricated paper wealth, actual losses were around $18B and $14.4B of that was recovered and returned.
All of these situations are obviously somewhat different, but if what we're starting to hear is correct, FTX may be one of, if not the, biggest financial frauds/scandals in history. The media doesn't seem to be treating it as such.
>LTCM lost $4.6B in investor funds. [...] All of these situations are obviously somewhat different, [...] biggest financial frauds/scandals in history.
LTCM shouldn't be in that list because that wasn't fraud. That hedge fund had a flawed math model of volatility of their holdings when a cascade of events got triggered by Russia defaulting on their bonds. LTCM losses were magnified by their over leveraged positions.
A bunch of PhD traders lost their wealth and got their reputations tarnished but it wasn't criminal activity.
It had the potential to cascade to the rest of the market because of how they used leverage, and the only reason it didn’t was because of emergency Fed intervention.
this is exactly what happended at FTX/Alameda. A bunch of "smart" guys who backstopped and over-extended loans to players, and their losses were magnified with their over-leveraged positions, that was backed up with assets with no values. That's exactly what happens in just about every financial scandal.
The financial news (WSJ, FT, Bloomberg) is definitely less blasé about it. There's definitely a sense that a scam is slowly being unearthed.
I don't know if it's SBF previous political connections that are making most media outlets hesitant to delve into the details, but the scale of the failure is going to be unavoidable as more details emerge.
Too many institutional investors got burned and they will no doubt be eager to prove fault lest they themselves be blamed for poor judgement.
> I don't know if it's SBF previous political connections that are making most media outlets hesitant to delve into the details, but the scale of the failure is going to be unavoidable as more details emerge.
The Ryan Salame part of it may be making both parties not want to look into it too much.
They lost roughly $8B in customer deposits. The $16B cited in the article is the total amount of money they lost which includes a sizable profit that they were supposed to have made on their legitimate business activities.
I wonder how much of those $16B in customer deposits were actually lightly-traded altcoins that could never have been liquidated at anything close to that value? There is no doubt they defrauded people of a lot of (real!) money, but my guess is a huge chunk of that $16B top-line figure is fantasyland dog-coin nonsense. Whereas the LTCM and Enron investors at least started with real cash.
I think it's likely that a significant portion of those liabilities were generated from magic beans and ought to be ignored when comparing the size of the collapse with other things.
To give a hypothetical example: Alameda, as a customer, deposits magic beans with a mark to market value of a billion dollars. Then Alameda trades the magic beans for a billion dollars of BTC-perp (FTX paper bitcoin), with FTX acting as the counterparty (which I believe they typically were for trades of the perpetuals). Now FTX's balance sheet reflects $1 billion in Bitcoin liability (plus being long $1 billion worth of magic beans)-- but in this example no bitcoin had been deposited at all-- just magic beans.
When sizing up the losses, all liability ultimately resulting from magic beans ought to be backed out. This is exit complicated because some of the magic-bean derived paper assets have presumably been withdrawn using customer deposits, and those funds are actually lost even if the depositors that brought them in never traded (and simply deposited in FTX because of the ponzi-scheme grade yields they were paying depositors).
Considering that "pretend money" is purchased with "real money", this distinction doesn't matter much. I guess it just depends on if you consider property valuable despite not having a green tint and dead political figure on it.
This is a great point. I guess I am skeptical that everything will be lost, but even if it's only half it will still be an absolutely enormous bankruptcy and loss.
If all of the actual cash, the real liquid assets were withdrawn leaving only illiquid, relatively valueless crypto tokens, and those tokens are sold down over the coming months then the percentage losses as a percentage of the max or total value they managed will be very high indeed. Sorry for the run-on sentence.
I'm wondering if the numbers are believable. That's because I think they are doing "paper valuation," like when a drug bust happens, and the value of the kilo is broken into "street-level" packets; quadrupling the value.
I am not a crypto expert, but from the bit I do know, it seems as if it's fairly difficult to correlate fiat with crypto.
The Matt Levine article looks at that and claims quite a lot of it is just tokens issued by FTX themselves or related trading entities. In the words of Walter Sobchak from the Big Lebowski : "Mark it zero!"
Perhaps "only" $5bn was real and much of that was from institutional investors. Not yet clear how many retail rubes have been caught up in this.
Unclear if we have accurate info from Sam but the situation is more like 9b in liabilities with 70% of that in liquid and illiquid assets. People getting back that much is highly optimistic but the 16b doesn’t seem accurate at all. FTX already paid users out $5b btw
> 9b in liabilities with 70% of that in liquid and illiquid assets
They have $9B in liabilities, and realistically they have about $1B in realisable assets. On the balance sheet Sam has included about $7B worth of Serum and FTT, both of which vastly exceed their circulating market cap and are also effectively worthless as the businesses they represent have lost all credibility and/or are insolvent (Serum is a decentralised exchange created by FTX)
The starting point is the assumption that FTX's equity sales left them with a few billion and Alameda's trading left them with a few billion. You have to burn through these billions and then dig a ten billion dollar hole.
If only these calls for regulation from the two persons in this interview, could have been heard on time. Most interestingly, and as it's obvious from the interview, regulators were watching these children playing and only poking gently.
The secret is that regulators can only have a fairly limited effect, and retrospectively. As well as the inherent jurisdiction difficulties in operating out of the Bahamas. Mind you, that's something crypto investors wanted: freedom from government!
There's a real "accountability overhang" not just in crypto but so many other things. Justice is slow and getting slower.
Unless there is some sort of event horizon in financial systems, it is wrong to use the word "lost" as if it is impossible to find out who got these kingly sums. Billions of dollars were "blown" and the question we should be asking, very forcefully, is who got that money.
It could be that no one "got that money." If a stock is trading at $2X and the value of all of the shares is $1 billion, no one gets the money if the stock opens the next day at $X. That's the problem with thinking of stock prices as real money. (And, indeed, real cash can also lose value through inflation.)
It's crypto! Once it's transferred off the exchange, it's in a pseudonymous wallet.
Just to confuse matters, it appears that both the exchange was hacked and an insider was draining funds just before it shut down. But before that, there was a lot of "money" that went out the door in legitimate trading losses.
An interesting part of Madoff recoveries were through settlements against originators/feeder funds because they « ought » to have known it was a ponzi.
Unsure if FTX creditors will be able to do the same.
But mostly, Madoff himself didn’t really spend much money. Just did nothing with it. The few pieces of fancy real estate he lived in were actually profitable because he didn’t build some gawdy illiquid palace.
But there was a lot of time-value loss that isn’t accounted for. Even 14 years later there are still distributions. Even getting $1 back on your 1995 $1 is still a big loss.
> An interesting part of Madoff recoveries were through settlements against originators/feeder funds because they « ought » to have known it was a ponzi.
Did the judge say that? I would think the logic was that they were effectively getting stolen money as gifts. Like when a scammer gives their victims' money to their own family. Doesn't matter if they were in the dark or even spent it already.
As I understand it, if stolen/scam money is used to buy something it's not the seller's responsibility because money is legal tender. On the other hand, if a stolen item is sold, the issue of knowing where it came from does becomes important.
Strangely, I am not hearing many stories from retail of big losses. There were tons of people coming out of the woodwork on Reddit and Twitter after the LUNA collapse. Not sure what that’s all about.
Their s*tokens were mainly held by Alameda - serum and ftt. So probably not a ton of exposure among real users. Now when people won’t get to withdraw their money/tokens from FTX.. ever? That’ll become a huge problem. Sounds like all the money is just gone on stupid gambles
> if what we're starting to hear is correct, FTX may be one of, if not the, biggest financial frauds/scandals in history. The media doesn't seem to be treating it as such.
I think the media treats anything to do with crypto as much more buyer beware than eg Enron
For another reference, 16B is Spotify's entire market cap. The amount lost here is staggering. And given what's leaked from their balance sheet, I don't see how people avoid jail time.
I'll also add, if you want to really dig into FTX details, simply read Matt Levine's newsletters.
I think a lot of people are missing that it was not 16 liquid USD that was lost here. It was 16B of various assets on paper. That's different from a pretty liquid stock traded on the NYSE.
The 16B could've never been liquidated as 16B in cash because the liquidity for many of these assets is too low. Selling even just a small fraction would have crashed the market for many of these assets. It's impossible to know what the liquid worth of these assets was, but it was probably 5-10x less than what's on paper.
They may have lost $16B but, as they were converting customer deposits into coins the customer did not buy, such as FTT but also many others, then it seems bad math to value the customer deposits at $16B - prior to essentially shorting against their customers, perhaps those deposits were worth 5x more. And it doesn't seem unreasonable to believe more deposits would have been made, if the price of the assets their customers hoped to buy (Bitcoin is far and away the market leader) were not being shorted in this manner.
I'm not a mathematician but their activities may have amounted to many tens of billions of sell pressure against Bitcoin. Elon Musk purchased $1.5B and the price of this finite asset rallied tremendously, what might these tens of billions have resulted in?
> FTX may be one of, if not the, biggest financial frauds/scandals in history. The media doesn't seem to be treating it as such.
Most of that wealth was manufactured in the crypto bubble, not actual money people worked for and put into crypto, just early stage ponzi investors that kept rolling their investment. The wealth, while apparently substantial, was never actually there, I think most understand that the mirage would have collapsed anyway if most investors would have attempted to exit earlier.
Basically, any early holder of Bitcoin today, while losing 70% or so of the peak value, is still a bazzillion basis points in the black, because they can get real dollars for what is essentially an early and rudimentary shitcoin with arcane limits, slow transaction times and extreme volatility, which is only used in the real world for speculation, money laundry and trading other shitcoins. Pretty ironic that's the "gold standard" of the crypto world, followed by an entire brown spectrum of shittier and scammier tokens.
> Crypto’s supporters in Congress are determined to ignore the massive gap in capacity between the two agencies; in fact, they likely understand that its incapacity is part of its appeal to FTX. A bill proposed by Sens. Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) seeks to grant the CFTC “exclusive jurisdiction over any agreement, contract, or transaction involving a contract of sale of a digital asset that is offered, solicited, traded, executed, or otherwise dealt in interstate commerce, including market activities relating to ancillary assets.” Perhaps in anticipation of such a move, FTX has stocked up its ranks with former CFTC officials. Former CFTC commissioner and acting chair Mark Wetjen is FTX’s head of policy and regulatory strategy. Ryne Miller, who was legal counsel to Gensler when he led the CFTC, is FTX’s general counsel. The Tech Transparency Project has also identified 14 other cases of CFTC alumni revolving into the crypto industry.
If the cup is half empty it's called bribing. Otherwise it's called lobbying.
I don't know anything about the CFTC in particular but I'm familiar with the general idea of lobbying and the role it plays in a representative government.
Elected officials have to interface with basically every industry in the country. How is any specific representative in a legislature going to have the knowledge required to vote on a banking act? Or a bill pertaining to power plants? Or cryptocurrencies?
Does it make sense to allow representatives from various industries access to members of the legislative branches of government? How else could Cynthia Lummis or Kirsten Gillibrand make an informed decision when writing federal laws related to cryptocurrencies? Should there be federal laws related to cryptocurrencies? Should legislatures have a government regulatory agency that enforces federal laws? Who is going to write those laws? Should there be a federal agency like the SEC, but specifically for cryptocurrency? Is that the CFTC? Who should make up the CFTC? Who should make up the SEC? Are the people who are qualified to work for industry more or less qualified to work in the agency that regulates the industry? Who is best qualified to lobby for the industry? For the people who work for the regulatory agencies or lobby for industry, are they owners or laborers in the regulated industry? What if everyone at least wrote their name down on a big public list and said who they worked for and published when they met and who from which government position they met with?
Are there easy answers to these questions? How the hell has any of this ever worked?
The problem is not with industry insiders leaving private enterprise to go work for the government, the problem is government regulators leaving the government to collect large paychecks from the companies they used to be tasked with regulating, i.e. that there is the appearance of personal benefits to regulate to the benefits of future employers rather then the general public.
What's actually needed is government agencies staffed with industry insiders who knows that they will never ever work in the industry again and have nothing to loose from putting the general public first, but this is kind of hard to do when government work is not seen as something of particularly high status, where people go for self realization after a success career in the private sector.
> Does it make sense to allow representatives from various industries access to members of the legislative branches of government?
Yes.
It does not make sense to allow those industries to influence elections or the decisions of those elected by making political donations, though.
> Should there be federal laws related to cryptocurrencies?
Increasingly I think prohibition is the only option. Even if it's very leaky. It's far worse a mind virus than, say, TikTok. At least if it's illegal there won't be superbowl adverts for frauds.
Nobody will be voted out. You cannot get elected without cash, but if you do then you can't remain in office without it. You also won't influence legislation without money in your campaign or PAC wallets.
If HN users want to impact policy and legislation, its not happening without donating a lot of money (or to a limited extent time) en masse to lobbyists and institutes that believe in whatever it is you believe in.
Better to be slapped with the truth, than kissed with a lie, and having worked in politics, this is the truth.
I've wondered a lot about a hypothetical scenario where people organize and crowdfund a pool of money with the intent of disbursing it to anyone who votes for the legislation they want. For example, vote to codify Roe and you can get a slice of the pie. It's almost surely explicitly illegal though, but the absurdly wealthy are already playing this game, why can't we do it too?
Ironically Binance's low trust makes their users especially diligent about on and off boarding their funds. Their model is closer to DeFi than their competitors who are CeFi
Besides what makes FTX especially trendy to cover was how he targeted mostly American, supposedly sophisticated SV VC types. He got funded by dozens of billionaires.
Funny enough SBF openly described his cynical scam months ago, explaining both how shit coins and greedy VCs operated.
Vote out the politicians who are not prosecuting Binance then also. Not sure how two wrongs make it okay that FTX were ghost writing crypto regulation [1].
This is speculation, but this is starting to fit the classic playbook of:
1) Create / seize a crisis
2) Have new regulation already ready to "address" crisis (using voter outrage to pass under rushed conditions)
3) Incrementally increase regulatory control (regulatory capture)
4) profit / increase power concentration
In this case, it's clear they are trying to establish CFTC control of eth & btc.
This article spends quite a bit of time talking about SBF's risk appetite and how it might be drug related. I think that's missing a fairly obvious piece of logic.
In order to decide to go into crypto trading you need to have an extremely high tolerance for risk. The crypto industry is self-selected for risk in the first place, you don't need complex explanations of why they use lots of leverage on highly volatile assets, that's literally the reason why they're there. If SBF had a low appetite for risk he wouldn't have entered crypto or started a start up, he would have stayed in trad-fi getting paid massive sums of money for some fairly basic quant work. It's not that Sam has a high risk appetite, it's that in order to get into the position Sam was in you need a high risk appetite.
And that obviously poses a big problem for people who want to use a crypto exchange - because they can only find exchanges run by people with a massive risk appetite making it likely to blow up in your face.
I think there's a huge difference with someone who has a huge appetite for risk, and someone who is taking risks, essentially without oversight, while on dopamine-replacing drugs. Many people who work in conventional finance are well aware of how brain chemistry changes (caused by illness, medication, illicit drugs, or emotional and life changes) can push someone from being in control while pursuing risky but profitable strategies to being a degenerate gambling addict.
Putting so much blame on the drugs seems like a way of casting Bankman-Fried as an addict/victim. In reality he's a thief and has been from the start of this scheme. He has a sociopathic disregard for others and cynically covers that with cheap talk of being an altruist.
I liked the chapter in Nate Sivers' Signal and the Noise when he talks about how hard it is to know if you're a good professional poker player.
Been a while since I read it but feel like even after a couple of years of winning games and tracking his own performance, he had enough stats knowledge to realise that he didn't actually know if he was good or just lucky. The noise swamped the signal.
This feels relevant to many of these trading things where people start to believe their own BS.
If you've flipped a coin and it's came up heads 10 times in a row, why wouldn't you bet everything on it happening again? You're really good at getting heads when you flip. Humans aren't really built for that kind of thing.
Later in the movie, when Marvin decides to ask for more money and takes a Polaroid of the Duke in the bathroom of the motel, he comments to himself: "I amaze myself... I'm always thinking."
The thing is, the character of Marvin is quite dumb, not a nice person and above all someone who never grasps the full picture -- but at the same time he has good instincts and is, in fact, a fairly good hunter. It's a dangerous combination.
In crypto as in wall street bets. If your sample is "a bull market when every single week the price is higher than the previous" - then the signal and the noise confirm; if you lose money on monday buy the dip with your client funds - because you cant possibly lose.
The same is very true in VC investing. Because any individual partner does not make that many bets per year, and the time frame to exit is long, it is very difficult to distinguish skill from luck (including being in a long-term bull market like the last decade).
I like how OP opens smugly by calling the NYT article a fluff piece, then proceeds to immediately cite anonymous Twitter anecdotes as better sources.
He's right about the specific NYT article not including much pertinent information, but they're a serious journalistic publication and have verification standards for sources.
It's a 'puff piece' because they essentially take his words almost at face value, almost as if they are supporting his argument and don't dig more cynically into the underbelly of the issue.
There are a lot of really crazy things happening with this story they don't touch upon.
It's worse than a 'puff piece' to the point I suggest there is background manipulation going on. This is 'reputation laundering'.
There is a huge amount of money here, and a ton of very, very powerful people involved.
I suggest that within a few weeks this will be known to be truly a criminal enterprise and this NYT article will not age well.
The person who wrote this post is pretty well known in the crypto space. Not saying that what was written here is guaranteed to be accurate, but it's likely to be much closer to reality than what the New York Times put out.
To be clear, I enjoyed Levine's commentary on the situation so it's not just because I dislike mainstream publications.
Never heard of them, I've been in the crypto space for many years. Their social media looks like it's run by a teenager and I'm not not being facetious, it literally reads like a 14 year old boy runs the account. The person also writes so many tweets they'd hardly have time for serious work. Over 90% are jokes, memes and rumors.
The NYT article was biased. Have you read it? Read the author's other articles and the sharp shift in tone. He is strictly apologetic towards the FTX ponzi scheme, the author's behavior is to the level which one could call morally compromised. He has a history of badmouthing other exchanges (e.g. Kraken) while singing the praises of FTX.
Appeals to authority are weak compared to facts laid bare. The fact is that the NYT author has made clear biases against other exchanges and overly forgiving of a single exchange guilty of customer theft, which is papered over in his article. This is unusual compared to all other reporting of FTX amongst mainstream jouranlists. There were no articles attempting to humanize Bernie Madoff, this article hides the fact that SBF ran a ponzi scheme, imagine the same with Madoff, it would be shocking. This is shocking.
Imagine having the Bernie Madoff subheading, "he had expanded too fast and failed to see warning signs". This is the scale of ludicrousness here. The facts aren't subjective or unclear in any way, FTX didn't have customer deposits, which they claimed to have up even until the very end. When it comes to journalism, this is an unforgivable failure.
The piece is well informed and aggregates a variety of sources only a few of which are not completely credible. the NYT literally refuses to use the word "fraud" or hint at criminality after Sam stole ten billion dollars from customers.
> the NYT literally refuses to use the word "fraud" or hint at criminality
11/10: Meanwhile, the S.E.C. and the Justice Department are said to be investigating FTX for potential securities violations. [...] Whether S.B.F. or others associated with FTX also face civil or criminal action — and where such legal fights would take place — remains unclear.
11/11: Authorities worldwide are intensifying their scrutiny of the embattled cryptocurrency exchange, amid concern about improper use of customer money.
11/11: The bankruptcy proceedings may be only the beginning of Mr. Bankman-Fried’s legal troubles. Federal investigators are examining the relationship between FTX and Alameda, and customers are likely to file lawsuits.
11/12: The implosion of Mr. Bankman-Fried’s cryptocurrency exchange has already cost customers billions of dollars in lost crypto deposits, setting off law-enforcement investigations that could lead to criminal charges. [...] Investigators at the S.E.C. and the Justice Department are examining whether Mr. Bankman-Fried improperly used customer funds to prop up Alameda Research, a trading firm that he also owns. FTX lent as much as $10 billion in customer funds to Alameda, according to a person familiar with the finances.
11/13: “Sam and FTX had a lot of good will — and some of that good will was the result of association with ideas I have spent my career promoting,” the philosopher William MacAskill, a founder of the effective altruism movement who has known Mr. Bankman-Fried since the FTX founder was an undergraduate at M.I.T., wrote on Twitter on Friday. “If that good will laundered fraud, I am ashamed.”
11/14: Should the U.S. have moved faster to create an attractive regulatory environment so companies like FTX would have moved here and had to abide by Washington’s rules? Maybe. But if the FTX case turns out to be fraud, regulation unto itself may not have been enough to stop it. Madoff didn’t live on an island beyond U.S. jurisdiction — he was based on Lexington Avenue. [...] If we ultimately learn that FTX’s undoing is the first of many in an industry that has been built on a pile of offshore fairy-dust leverage, the regulatory lesson will actually be the opposite: The S.E.C., C.F.T.C. and Treasury will have proved prescient for all their warnings to the public that crypto was too risky.
11/15: Major questions still remain, such as whether FTX improperly used billions of dollars of customers’ funds to prop up Alameda Research, a trading firm that Bankman-Fried also founded.
Twitter might provide more information than the NYT, but there's a reason NYT doesn't publish it - because the NYT wants to be reliable. They want their claims to actually stand up to scrutiny and be an accurate portrayal of the events we know happened. Whereas big chunks of this article are just pure speculation. The whole section about how Alameda might have had a rogue algo are just made up out of whole cloth. Is it true? Who knows, there's certainly no evidence for it, but let's stick it down as $1Bn of loss anyway.
This article is very little more than just a gossip rag version of the NYT article.
But the author makes it very clear in the second par "our claims only remain tentative at best".
Isn't it much more useful to write something which actually tries to answer the question of what happened, albeit with appropriate caveats, than something which doesn't advance the understanding of the reader at all?
There's so much rampant speculation in this article... for me it lost a degree of credibility around the point he fixated on the drug aspect. Despite all the disclaimers.
Yes, it paints one picture of how the losses could have added up, but I'm looking forward to more exhaustively investigated reports grounded in more than heresay and gossip.
despite being tentative, I would guess its the best explanation of what happened. Their handing out margins, and market-making approach with Alameda left them potentially liable to losing lots of money really fast.
The New York Times piece is even worse, since it paints a misleading picture of SBF and his cronies losing all the money accidentally rather than malice (far more likely).
The NYT article is a shockingly bad puff piece. It doesn't once mention fraud. Doesn't call out that Alameda borrowing funds from FTX deposits is insanely illegal
Makes it sound like poor SBF got unlucky and it wasn't his fault he recklessly gambled $8+B of customer deposits
> He's right about the specific NYT article not including much pertinent information, but they're a serious journalistic publication and have verification standards for sources.
Ok? Regardless, this piece does a significantly better job than the NY Times and the "serious journalistic publication".
The times articles actually misleads readers into thinking that the FTX downfall was moreso from bad timing & outside attacks then from SBF fraudulently stealing user funds.
> immediately cite anonymous Twitter anecdotes as better sources
The Twitter accounts directly quoted have many followers and a long history of tweets that are easily searchable.
If you're referring to the Autism Capital tweet, that's a tweet of a photograph which you can look at yourself. It's clearly a stimulant that says EMSAM on it.
Name the specific tweets in the piece that you find incredulous rather than an ad hominem.
the anonymous Twitter anecdotes are clearly far better than what the NYT people can come up with because Twitter is where all of these people spend their time.
Interesting, this displays a classic problem with the NYT: they end up searching for their lost keys under the streetlamp since that's where the light is. If they report on an organization that has $1 million in verified assets, but the organization is suspected to have $999 million in assets and $2 billion in liabilities, they will report the organization as solvent because they have verification standards for sources and are a serious journalistic publication. Therefore, they can only publish about the $1 million in verified assets. The organization could therefore be widely suspected to be insolvent, but reported by the NYT as solvent.
In fact, that's what happened this time.
Perhaps this is why the NYT's Judith Miller has such prominent roles in journalism.
Where were the verification standards of the NYT when they advocated for the Iraq War, for example? Trust in mainstream media is at an all-time low, and for good reason. These appeals to authority seem out of touch to me.
> In a podcast from 2019, SBF brags about making predictions on the timescale of 1-2 seconds
> While this might have been considered highly competitive in 2019-era crypto markets, it is a far cry from the microsecond-level precision of market making in traditional finance.
The author is confusing tick-to-trade with prediction horizon. The "microseconds" market makers talk about is how long it takes to react to incoming market data and send out a trade message. The 2 seconds SBF is talking about is how far ahead in the future you want to predict price changes over.
Doesn't really inspire a lot of confidence in the rest of the analysis if this is the level of domain knowledge the author has.
You're right about the technical aspect, but the rest of the critique is more about business level stuff like knowing what you have. I don't think you can say the whole piece lacks credibility because he got this thing mixed up.
A side issue, but I found it distracting that the text consistently refers to Caroline Ellison by her first name alone, rather than last name or both names or initials like all other people discussed (and like is generally done for public figures covered in news articles etc).
But I'm not in the "community", I don't read a lot of this inside baseball stuff. Is this the way she is usually referred to? It looks like her twitter name, in tweets quoted here, was just her first name too? And she's referred to by just her first name in the "insider's account" quoted at the end too. What's up with that?
Sometimes peoples' first name ends up being what they're known as by the general public, usually because using just the last name might be ambiguous. Nobody called him "West" before the name change, it was always "Kanye". Similarly, one might not immediately know who "Winfrey" is, but everyone knows "Oprah".
Presumably, since Larry Ellison is also a figure in the high-net-worth tech world, one might unintentionally mislead the reader by just using Caroline's last name, so in this case I see people just using her first. I don't think there's much more to it than that.
I mean in that first-name-celebrity sense, it actually is kind of bombastic, rather than denigrating. Is another read. It still seems weird to me.
The celebrity first-name-ism is sort of an attempt to claim a global fame, as well as a sort of artificial familiarity. I refused to call them "Hillary" or "Bernie" either, they aren't my friends, they are public figures.
It seems notable and weird and interesting to me in this case (as well as distracting as a reader who wasn't expecting it), but I'm not certain or making assumptions about what's behind it, I'm curious.
It opens by using their full names, but goes on to refer to them as sbf, caroline and trabucco in the rest of the piece. I guess it's like "zuck" and "pg" etc, I don't think it was meant in a bad way.
A $3M monthly AWS bill. that's a nugget here. What that means is that amazon, Microsoft, and google are essentially selling shovels during a gold rush. On a subscription basis. In a form that makes it tedious and costly to actually figure out how many shovels your business has, what they do and who uses them regularly.
Essentially, when there's a digital market hype, the big cloud providers collect their share on the revenue. Brilliant.
It sounds more like an admiring compliment. Although for cloud providers, the costs of things like hackers stealing credentials and using them to mine shitcoins are also considerable.
I remember during the dotcom boom people thought the infrastructure providers like Sun Micro would be safer, but it got screwed along with the website companies.
Readit News
This is a key point.
They lost $16B in customer deposits.
LTCM lost $4.6B in investor funds.
Enron lost $11B in shareholder capital.
Interestingly, while Madoff is widely quoted as having lost $65B, that was almost all fabricated paper wealth, actual losses were around $18B and $14.4B of that was recovered and returned.
All of these situations are obviously somewhat different, but if what we're starting to hear is correct, FTX may be one of, if not the, biggest financial frauds/scandals in history. The media doesn't seem to be treating it as such.
LTCM shouldn't be in that list because that wasn't fraud. That hedge fund had a flawed math model of volatility of their holdings when a cascade of events got triggered by Russia defaulting on their bonds. LTCM losses were magnified by their over leveraged positions.
A bunch of PhD traders lost their wealth and got their reputations tarnished but it wasn't criminal activity.
Deleted Comment
I don't know if it's SBF previous political connections that are making most media outlets hesitant to delve into the details, but the scale of the failure is going to be unavoidable as more details emerge.
Too many institutional investors got burned and they will no doubt be eager to prove fault lest they themselves be blamed for poor judgement.
The Ryan Salame part of it may be making both parties not want to look into it too much.
To give a hypothetical example: Alameda, as a customer, deposits magic beans with a mark to market value of a billion dollars. Then Alameda trades the magic beans for a billion dollars of BTC-perp (FTX paper bitcoin), with FTX acting as the counterparty (which I believe they typically were for trades of the perpetuals). Now FTX's balance sheet reflects $1 billion in Bitcoin liability (plus being long $1 billion worth of magic beans)-- but in this example no bitcoin had been deposited at all-- just magic beans.
When sizing up the losses, all liability ultimately resulting from magic beans ought to be backed out. This is exit complicated because some of the magic-bean derived paper assets have presumably been withdrawn using customer deposits, and those funds are actually lost even if the depositors that brought them in never traded (and simply deposited in FTX because of the ponzi-scheme grade yields they were paying depositors).
BTC for instance has a 24hr TV of $37B, making it one of the most exchanged assets in the world.
If all of the actual cash, the real liquid assets were withdrawn leaving only illiquid, relatively valueless crypto tokens, and those tokens are sold down over the coming months then the percentage losses as a percentage of the max or total value they managed will be very high indeed. Sorry for the run-on sentence.
I am not a crypto expert, but from the bit I do know, it seems as if it's fairly difficult to correlate fiat with crypto.
Perhaps "only" $5bn was real and much of that was from institutional investors. Not yet clear how many retail rubes have been caught up in this.
Unclear if we have accurate info from Sam but the situation is more like 9b in liabilities with 70% of that in liquid and illiquid assets. People getting back that much is highly optimistic but the 16b doesn’t seem accurate at all. FTX already paid users out $5b btw
They have $9B in liabilities, and realistically they have about $1B in realisable assets. On the balance sheet Sam has included about $7B worth of Serum and FTT, both of which vastly exceed their circulating market cap and are also effectively worthless as the businesses they represent have lost all credibility and/or are insolvent (Serum is a decentralised exchange created by FTX)
Deleted Comment
FTX has been the lead story on the front page of the Wall Street Journal for days now.
At correct time: https://youtu.be/2ozjiX1E7ZA?t=25
There's a real "accountability overhang" not just in crypto but so many other things. Justice is slow and getting slower.
Just to confuse matters, it appears that both the exchange was hacked and an insider was draining funds just before it shut down. But before that, there was a lot of "money" that went out the door in legitimate trading losses.
https://fortune.com/2022/11/10/sam-bankman-fried-ftx-joe-bid...
Unsure if FTX creditors will be able to do the same.
But mostly, Madoff himself didn’t really spend much money. Just did nothing with it. The few pieces of fancy real estate he lived in were actually profitable because he didn’t build some gawdy illiquid palace.
But there was a lot of time-value loss that isn’t accounted for. Even 14 years later there are still distributions. Even getting $1 back on your 1995 $1 is still a big loss.
Did the judge say that? I would think the logic was that they were effectively getting stolen money as gifts. Like when a scammer gives their victims' money to their own family. Doesn't matter if they were in the dark or even spent it already.
As I understand it, if stolen/scam money is used to buy something it's not the seller's responsibility because money is legal tender. On the other hand, if a stolen item is sold, the issue of knowing where it came from does becomes important.
The massive links to the Democractic party probably have something to do with this.
I think the media treats anything to do with crypto as much more buyer beware than eg Enron
Deleted Comment
I'll also add, if you want to really dig into FTX details, simply read Matt Levine's newsletters.
The 16B could've never been liquidated as 16B in cash because the liquidity for many of these assets is too low. Selling even just a small fraction would have crashed the market for many of these assets. It's impossible to know what the liquid worth of these assets was, but it was probably 5-10x less than what's on paper.
Most of that wealth was manufactured in the crypto bubble, not actual money people worked for and put into crypto, just early stage ponzi investors that kept rolling their investment. The wealth, while apparently substantial, was never actually there, I think most understand that the mirage would have collapsed anyway if most investors would have attempted to exit earlier.
Basically, any early holder of Bitcoin today, while losing 70% or so of the peak value, is still a bazzillion basis points in the black, because they can get real dollars for what is essentially an early and rudimentary shitcoin with arcane limits, slow transaction times and extreme volatility, which is only used in the real world for speculation, money laundry and trading other shitcoins. Pretty ironic that's the "gold standard" of the crypto world, followed by an entire brown spectrum of shittier and scammier tokens.
Its real money.
https://twitter.com/Travis_Kling/status/1592198107734876160?...
https://www.coindesk.com/business/2022/11/14/ikigai-asset-ma...
https://prospect.org/power/sam-bankman-frieds-multimillion-d...
> Crypto’s supporters in Congress are determined to ignore the massive gap in capacity between the two agencies; in fact, they likely understand that its incapacity is part of its appeal to FTX. A bill proposed by Sens. Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) seeks to grant the CFTC “exclusive jurisdiction over any agreement, contract, or transaction involving a contract of sale of a digital asset that is offered, solicited, traded, executed, or otherwise dealt in interstate commerce, including market activities relating to ancillary assets.” Perhaps in anticipation of such a move, FTX has stocked up its ranks with former CFTC officials. Former CFTC commissioner and acting chair Mark Wetjen is FTX’s head of policy and regulatory strategy. Ryne Miller, who was legal counsel to Gensler when he led the CFTC, is FTX’s general counsel. The Tech Transparency Project has also identified 14 other cases of CFTC alumni revolving into the crypto industry.
Vote these people out.
I don't know anything about the CFTC in particular but I'm familiar with the general idea of lobbying and the role it plays in a representative government.
Elected officials have to interface with basically every industry in the country. How is any specific representative in a legislature going to have the knowledge required to vote on a banking act? Or a bill pertaining to power plants? Or cryptocurrencies?
Does it make sense to allow representatives from various industries access to members of the legislative branches of government? How else could Cynthia Lummis or Kirsten Gillibrand make an informed decision when writing federal laws related to cryptocurrencies? Should there be federal laws related to cryptocurrencies? Should legislatures have a government regulatory agency that enforces federal laws? Who is going to write those laws? Should there be a federal agency like the SEC, but specifically for cryptocurrency? Is that the CFTC? Who should make up the CFTC? Who should make up the SEC? Are the people who are qualified to work for industry more or less qualified to work in the agency that regulates the industry? Who is best qualified to lobby for the industry? For the people who work for the regulatory agencies or lobby for industry, are they owners or laborers in the regulated industry? What if everyone at least wrote their name down on a big public list and said who they worked for and published when they met and who from which government position they met with?
Are there easy answers to these questions? How the hell has any of this ever worked?
What's actually needed is government agencies staffed with industry insiders who knows that they will never ever work in the industry again and have nothing to loose from putting the general public first, but this is kind of hard to do when government work is not seen as something of particularly high status, where people go for self realization after a success career in the private sector.
Yes.
It does not make sense to allow those industries to influence elections or the decisions of those elected by making political donations, though.
> Should there be federal laws related to cryptocurrencies?
Increasingly I think prohibition is the only option. Even if it's very leaky. It's far worse a mind virus than, say, TikTok. At least if it's illegal there won't be superbowl adverts for frauds.
Deleted Comment
If HN users want to impact policy and legislation, its not happening without donating a lot of money (or to a limited extent time) en masse to lobbyists and institutes that believe in whatever it is you believe in.
Better to be slapped with the truth, than kissed with a lie, and having worked in politics, this is the truth.
Deleted Comment
Besides what makes FTX especially trendy to cover was how he targeted mostly American, supposedly sophisticated SV VC types. He got funded by dozens of billionaires.
Funny enough SBF openly described his cynical scam months ago, explaining both how shit coins and greedy VCs operated.
note: This is an actual question.
[1]: https://coingeek.com/ftx-sam-bankman-fried-pens-crypto-regul...
This is regulatory capture. If you think it's bad for crypto, wait till you see how bad it is for the agencies that approve our drugs.
Deleted Comment
https://www.nfa.futures.org/about/committees/index.html
The influence of the regulated companies is entirely transparent.
https://coinpedia.org/crypto-live-news/ftx-ceo-in-connection...https://www.foxbusiness.com/markets/sec-chairman-gary-gensle...https://twitter.com/bof_tob/status/1592247076100112385/photo...https://twitter.com/jchervinsky/status/1592173682687938560https://twitter.com/SenLummis/status/1592212987259281408
This is speculation, but this is starting to fit the classic playbook of: 1) Create / seize a crisis 2) Have new regulation already ready to "address" crisis (using voter outrage to pass under rushed conditions) 3) Incrementally increase regulatory control (regulatory capture) 4) profit / increase power concentration
In this case, it's clear they are trying to establish CFTC control of eth & btc.
In order to decide to go into crypto trading you need to have an extremely high tolerance for risk. The crypto industry is self-selected for risk in the first place, you don't need complex explanations of why they use lots of leverage on highly volatile assets, that's literally the reason why they're there. If SBF had a low appetite for risk he wouldn't have entered crypto or started a start up, he would have stayed in trad-fi getting paid massive sums of money for some fairly basic quant work. It's not that Sam has a high risk appetite, it's that in order to get into the position Sam was in you need a high risk appetite.
And that obviously poses a big problem for people who want to use a crypto exchange - because they can only find exchanges run by people with a massive risk appetite making it likely to blow up in your face.
Been a while since I read it but feel like even after a couple of years of winning games and tracking his own performance, he had enough stats knowledge to realise that he didn't actually know if he was good or just lucky. The noise swamped the signal.
This feels relevant to many of these trading things where people start to believe their own BS.
If you've flipped a coin and it's came up heads 10 times in a row, why wouldn't you bet everything on it happening again? You're really good at getting heads when you flip. Humans aren't really built for that kind of thing.
https://www.youtube.com/watch?v=Gokkl2br7G8&t=152s
Later in the movie, when Marvin decides to ask for more money and takes a Polaroid of the Duke in the bathroom of the motel, he comments to himself: "I amaze myself... I'm always thinking."
The thing is, the character of Marvin is quite dumb, not a nice person and above all someone who never grasps the full picture -- but at the same time he has good instincts and is, in fact, a fairly good hunter. It's a dangerous combination.
Deleted Comment
He's right about the specific NYT article not including much pertinent information, but they're a serious journalistic publication and have verification standards for sources.
There are a lot of really crazy things happening with this story they don't touch upon.
It's worse than a 'puff piece' to the point I suggest there is background manipulation going on. This is 'reputation laundering'.
There is a huge amount of money here, and a ton of very, very powerful people involved.
I suggest that within a few weeks this will be known to be truly a criminal enterprise and this NYT article will not age well.
To be clear, I enjoyed Levine's commentary on the situation so it's not just because I dislike mainstream publications.
https://nitter.cz/0xfbifemboy
Not sure how this stuff makes it to the top on HN.
Appeals to authority are weak compared to facts laid bare. The fact is that the NYT author has made clear biases against other exchanges and overly forgiving of a single exchange guilty of customer theft, which is papered over in his article. This is unusual compared to all other reporting of FTX amongst mainstream jouranlists. There were no articles attempting to humanize Bernie Madoff, this article hides the fact that SBF ran a ponzi scheme, imagine the same with Madoff, it would be shocking. This is shocking.
Imagine having the Bernie Madoff subheading, "he had expanded too fast and failed to see warning signs". This is the scale of ludicrousness here. The facts aren't subjective or unclear in any way, FTX didn't have customer deposits, which they claimed to have up even until the very end. When it comes to journalism, this is an unforgivable failure.
11/10: Meanwhile, the S.E.C. and the Justice Department are said to be investigating FTX for potential securities violations. [...] Whether S.B.F. or others associated with FTX also face civil or criminal action — and where such legal fights would take place — remains unclear.
- https://www.nytimes.com/2022/11/10/business/dealbook/ftx-cry...
11/11: Authorities worldwide are intensifying their scrutiny of the embattled cryptocurrency exchange, amid concern about improper use of customer money.
- https://www.nytimes.com/2022/11/11/business/dealbook/ftx-sbf...
11/11: The bankruptcy proceedings may be only the beginning of Mr. Bankman-Fried’s legal troubles. Federal investigators are examining the relationship between FTX and Alameda, and customers are likely to file lawsuits.
- https://www.nytimes.com/2022/11/11/business/ftx-bankruptcy.h...
11/12: The implosion of Mr. Bankman-Fried’s cryptocurrency exchange has already cost customers billions of dollars in lost crypto deposits, setting off law-enforcement investigations that could lead to criminal charges. [...] Investigators at the S.E.C. and the Justice Department are examining whether Mr. Bankman-Fried improperly used customer funds to prop up Alameda Research, a trading firm that he also owns. FTX lent as much as $10 billion in customer funds to Alameda, according to a person familiar with the finances.
- https://www.nytimes.com/2022/11/12/business/ftx-cryptocurren...
11/13: “Sam and FTX had a lot of good will — and some of that good will was the result of association with ideas I have spent my career promoting,” the philosopher William MacAskill, a founder of the effective altruism movement who has known Mr. Bankman-Fried since the FTX founder was an undergraduate at M.I.T., wrote on Twitter on Friday. “If that good will laundered fraud, I am ashamed.”
- https://www.nytimes.com/2022/11/13/business/ftx-effective-al...
11/14: Should the U.S. have moved faster to create an attractive regulatory environment so companies like FTX would have moved here and had to abide by Washington’s rules? Maybe. But if the FTX case turns out to be fraud, regulation unto itself may not have been enough to stop it. Madoff didn’t live on an island beyond U.S. jurisdiction — he was based on Lexington Avenue. [...] If we ultimately learn that FTX’s undoing is the first of many in an industry that has been built on a pile of offshore fairy-dust leverage, the regulatory lesson will actually be the opposite: The S.E.C., C.F.T.C. and Treasury will have proved prescient for all their warnings to the public that crypto was too risky.
- https://www.nytimes.com/2022/11/14/business/dealbook/ftx-ban...
11/15: Major questions still remain, such as whether FTX improperly used billions of dollars of customers’ funds to prop up Alameda Research, a trading firm that Bankman-Fried also founded.
- https://www.nytimes.com/2022/11/15/briefing/iran-clampdown-p...
The on-chain anaylsis, digging and commentary done by people on Twitter has been insanely insightful.
This article is very little more than just a gossip rag version of the NYT article.
Isn't it much more useful to write something which actually tries to answer the question of what happened, albeit with appropriate caveats, than something which doesn't advance the understanding of the reader at all?
Yes, it paints one picture of how the losses could have added up, but I'm looking forward to more exhaustively investigated reports grounded in more than heresay and gossip.
Makes it sound like poor SBF got unlucky and it wasn't his fault he recklessly gambled $8+B of customer deposits
Ok? Regardless, this piece does a significantly better job than the NY Times and the "serious journalistic publication".
The times articles actually misleads readers into thinking that the FTX downfall was moreso from bad timing & outside attacks then from SBF fraudulently stealing user funds.
> immediately cite anonymous Twitter anecdotes as better sources
The Twitter accounts directly quoted have many followers and a long history of tweets that are easily searchable.
If you're referring to the Autism Capital tweet, that's a tweet of a photograph which you can look at yourself. It's clearly a stimulant that says EMSAM on it.
Name the specific tweets in the piece that you find incredulous rather than an ad hominem.
It goes both ways. It seems like they didn't do much verification of Sam's claims.
In fact, that's what happened this time.
Perhaps this is why the NYT's Judith Miller has such prominent roles in journalism.
Dead Comment
> While this might have been considered highly competitive in 2019-era crypto markets, it is a far cry from the microsecond-level precision of market making in traditional finance.
The author is confusing tick-to-trade with prediction horizon. The "microseconds" market makers talk about is how long it takes to react to incoming market data and send out a trade message. The 2 seconds SBF is talking about is how far ahead in the future you want to predict price changes over.
Doesn't really inspire a lot of confidence in the rest of the analysis if this is the level of domain knowledge the author has.
But I'm not in the "community", I don't read a lot of this inside baseball stuff. Is this the way she is usually referred to? It looks like her twitter name, in tweets quoted here, was just her first name too? And she's referred to by just her first name in the "insider's account" quoted at the end too. What's up with that?
Presumably, since Larry Ellison is also a figure in the high-net-worth tech world, one might unintentionally mislead the reader by just using Caroline's last name, so in this case I see people just using her first. I don't think there's much more to it than that.
The celebrity first-name-ism is sort of an attempt to claim a global fame, as well as a sort of artificial familiarity. I refused to call them "Hillary" or "Bernie" either, they aren't my friends, they are public figures.
It seems notable and weird and interesting to me in this case (as well as distracting as a reader who wasn't expecting it), but I'm not certain or making assumptions about what's behind it, I'm curious.
Essentially, when there's a digital market hype, the big cloud providers collect their share on the revenue. Brilliant.
[1]: https://www.computerweekly.com/news/252523200/Google-results...