FTX drama and it’s long term consequences: Bitcoin is a confidence Game.

[fillippone]

Very good Newsletter From The Pomp.
Remember Why We Are Here

With a read, I report it here for your convenience:

Remember Why We Are Here
Finance is a confidence game
Anthony Pompliano
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To investors,
Finance is a confidence game. Everyone from investors to entrepreneurs have to believe that the system works, that players are held to the same standard, and that a buyer of last resort will appear in a moment of crisis.
Central banks have understood this for years. Private banks work diligently to avoid shaking confidence. And individual market participants even wear suits and ties to drive home the message of “trust me…you can trust me!”
But what happens when we lose confidence? Bank runs.
Once the confidence game is up, bank clients will start requesting their funds. If the confidence game of a central bank is exposed, citizens will flee the currency in droves. We have seen these scenarios play out time and again. They are bad. Really, really bad.
It isn’t just legacy finance though.
We have seen the loss of confidence in the crypto industry too. The most recent example was FTX, which triggered billions of dollars of withdrawal requests. Some people were able to get their money out, while others were too slow and FTX paused withdrawals. Once the bank run starts, companies don’t have very many options.
You can read about the FTX situation in detail elsewhere. Many journalists are doing a good job of keeping us informed of the latest developments. I am more interested in an even larger question:
What happens if an industry begins to lose the confidence game?
The “crypto industry” was originally just the bitcoin industry. This was the case from 2009 to approximately 2014. Since then, there have been tens of thousands of crypto assets created and launched. Bitcoin remains the king, but plenty of others were able to gather attention and capital.
As the industry got bigger, and more sophisticated players got involved, there was an air of legitimacy that began to fill the room. Institutional investors. Billionaire hedge fund managers. Daily coverage on financial news television shows. Celebrities and athletes. Arena naming rights. Big conference parties at fancy locations.
It was the greatest show the digital world had ever seen.
But almost all of it was bullshit. Almost every single token will eventually be worthless. There are nearly 0 mainstream users outside of the echo chamber of crypto.
What else did you expect from an industry that openly talked about “ponzinomics”? Or an industry that named assets like they were 4 years old and had just learned to read a coloring book? Or people who were explicitly trying to create fake assets out of thin air?
The “crypto industry” got cocky and now the largest capital pools in the world know the industry isn’t ready for showtime.
Throughout all the noise, and without any outside capital investment, Bitcoin has continued to shine for nearly 15 years. It has completely separated itself from the crypto industry. The digital currency is actually decentralized. It is actually used by ~ 200 million people around the world. Bitcoin has the strongest computing network in the world — one of the single greatest engineering feats in human history — securing and supporting it.
When the confidence game is over for the crypto industry, the market comes back to bitcoin.
There is nowhere else to flee. There is no bank run on bitcoin. In times of chaos and uncertainty, people want confidence and security.
Bitcoin provides that confidence.
There are bitcoin maximalists being born every minute right now. There are newly converted self-custody users popping up left and right. People are no longer asking “how high can X go,” but instead asking “how confident am I that bitcoin will last for Y years?”
This is a natural part of the cycle. In our darkest moment, bitcoin steps to the forefront. It provides the solution. It solves the confidence crisis. Block-after-block of transactions. The digital payment network continues to provide a long-term oriented savings technology that affords anyone in the world the opportunity to protect their purchasing power over decades.
And yes, some of you will start screaming “but bitcoin’s price is down too!!!” You are right. Every asset is down as the Federal Reserve continues to create tighter financial conditions and destroy demand. The Fed may not have been successful yet in bringing inflation under control, but it sure is doing a great job bringing asset prices down.
If you can ignore the price and simply look at the underlying fundamentals — bitcoin continues to grow stronger. People are using it. Hash rate is hitting all-time highs. On-chain bitcoin addresses with 0.1 and 0.01 bitcoin continue to hit all-time highs. The asset is becoming more decentralized and stronger. It is gaining more global adoption.
And the monetary policy hasn’t blinked once.
There was no random change during the government lock downs of 2020. There was no change during the liquidity crisis of March and April 2020. There was no change during the following asset bubble. There was no change when the Fed changed course. There was no change when 3AC and Celsius fell. There was no change when FTX came under pressure, nor was there a change when the price fell further and further in recent days.
Bitcoin does not care.
It produces blocks of transactions for anyone in the world to access. Send and receive economic value with anyone who has an internet connection without needing permission from a third-party. The promise of peer-to-peer electronic cash is still alive and well.
Bitcoin is winning the confidence game. We must remember why we are here.
-Pomp

I think Pomp here had a point.

FTX debacle, which came too close to the LUNA/UST drama, is a harsh call on the whole system.

Something everyone reading this forum should already know. There is Bitcoin, then there is crypto.
But in the crypto  Far West it was difficult for everyone to keep the bar to straight , for everyone.

• Users Yet once again. “Not your keys, not your coins”. How many times do you have to be reminded doing a good risk assessment, when deciding who is handling your private keys
  
  Please note the at I am not against Bitcoin custodians per se, I am against poorly chosen custodians”, whose category is often identical to “exchanges”
  
  
• Investors: lured into dubious projects  following even more dubious APY or “risk free yield”.  Check this thread to clarify what happen when you think you are getting a risk free yield. Hopefully they now understood where the real value is, and where allocate their assets.
  
  
• Exchanges: instead of focusing on crystal clear operations, regulations and service for clients, setting up convoluted tokenomics schemes, in the best hypothesis out of levity on unintended consequences, but often in dire fraud Hopefully this will lead to a refocusing on that matter the most for their clients (the users, not the governments -Check this thread). Many exchanges have already said are going to significantly improving their operations and transparency adding proof of reserves, as a first step
  
  
  
• Developers: instead of focusing on the development of the intellectually rewarding projects (namely: Bitcoin and Bitcoin related Technologies) , they indulged financially regarding projects. Hopefully many dubious project in this sphere will see a drain in funding over the coming months
  
  
• Regulators: The long tide of these events will be a flurry of new regulations to ban, regulate, oversee the whole crypto industry. I don’t know if they will be successful, the risk of killing a nascent industry is high, but i guess they now know they need to understand the industry better. And maybe this is good for all of us. 

[Renampun]

...

• Developers: instead of focusing on the development of the intellectually rewarding projects (namely: Bitcoin and Bitcoin related Technologies) , they indulged financially regarding projects. Hopefully many dubious project in this sphere will see a drain in funding over the coming months
  
  
• Regulators: The long tide of these events will be a flurry of new regulations to ban, regulate, oversee the whole crypto industry. I don’t know if they will be successful, the risk of killing a nascent industry is high, but i guess they now know they need to understand the industry better. And maybe this is good for all of us.  

https://twitter.com/Blockworks_/status/1591086026327326720

this is really crazy, it's all exposed that he used the user's money for the development of other projects. he creates a time bomb which finally explodes at this time. The screams about "don't make a nerd, billionaire again" are getting louder.

[Darker45]

This is yet again another moment to go back to basics. We have been doing this a number of times. But since we're always failing to learn lessons, history is bound to repeat and we're once again forced to be reminded of the most fundamental principles of nothing else but Bitcoin.

When everything started, it wasn't about centralized exchanges, lending platforms, investment opportunities, security tokens, lending, and so on and so forth. It was purely about freedom, ownership, peer to peer, transparency, censorship resistance, and so on.

FTX, LUNA, Binance, Celsius, Voyager, BlockFi, and others are never about the fundamental principles of Bitcoin. And although they thrived following Bitcoin's success, they are basically anti-thesis to Bitcoin itself.

I can only hope that as soon as the dust settles down, there will be a significant change of behavior in the community, although I have doubts.

[Lak93xy]

Statistics on all FTX and FTX US investors. Investors in 2019 should be rewarded with rich gains. But investors beyond 2021 could see huge losses. At present, Sequoia Capital, SoftBank, etc. have reported losses of more than 100 million US dollars.

[buwaytress]

Not sure I can ever come close to being neutral to Pompliano, his voice and manner rubbed off the wrong way when I first listened circa 2017/18, but there are some points to it being a confidence game, but a reminder also that only as much as FTX and all scams are con(fidence) jobs.

P.S. The zero BTC reserves at FTX really did surprise me. I'd have expected at least fractional reserve, not zero reserve. I feel bad for regular joes there but this hopefully reminds people they're absolutely not buying Bitcoin at all when buying at exchanges or PayPal or anything that magically gives you numbers in an account when you feed it money.

[KEN L]

The essence of finance is consensus. If there is confidence in the consensus, the price of the currency will be higher and higher, and the industry will become more and more prosperous. Once the confidence is blocked, the consensus will also be blocked. At this time, the consensus will collapse, and the confidence will become more and more prosperous. Collapse, consensus building and confidence are the basic principles of value.

[davis196]

At this point it seems obvious that FTX was a giant scam.
FTX gave a giant loan to Alameda and this loan was backed by the FTX token(which is financial nonsense). FTX wasn't supposed to use people's coins to give loans to a company, which is somehow connected to FTX. This is illegal and Sam Bankman-Fried will have to face the law.
There are rumors about SBF running away from the US and going to Argentina and the FTX team will try to cover this scam by claiming that the exchange was "hacked". It's pretty clear that FTX wasn't hacked, this is simply an exit scam.
Bitcoin is a confidence game, but the confidence in Bitcoin would be way higher if the crypto world wasn't full with scam companies like FTX, Voyager, Three Arrows, Terra/Luna, etc.
Bitcoin/crypto should return to the roots and we as Bitcoiners should forget about all the sketchy high leverage, high ROI, crypto projects.

[BRINIRHA]

At least now the people who keep their assets on the exchange have been forcefully made aware of what happened to FTX. And I think sometimes we have to take a stance before running fast, or we have to pull the arrow back before releasing the arrow to shoot forward. so the tragedy that happened to LUNA and FTX can actually be a lesson and a springboard for a better crypto future. so that the cryptocurrency world is cleaner than people who cheat. And now it seems that people have gradually left Cex and turned to Dex. and that's a positive thing to take.

[Beparanf]

Sharing is caring so here’s the list above for all the project connected and exposed to SBF and FTX that needs to be watch out on coming weeks for caution. I’m sure that the ripple effect will be experienced in long term because the main funds source is already busted. As Elon already stated recently, Bitcoin will survived but long crypto winter is inevitable which means worst is still not come.


*Photo is not mine. CTTO

[el kaka22]

I do agree that as long as there is confidence to any part of crypto then there would be a good amount of price increase, and when there isn't enough trust, to either the security or safety or the price or anything, then it doesn't do well at all.

That’s not something uncommon in the market, when we are talking about let’s say stock market, we would definitely not have anything major there neither, if people lose all their trust and hope about Apple or Amazon, they would definitely not invest into that or sell too. This is why I believe that trust and confidence and even "liking" something all matters even though it is mostly about numbers and data.

[arallmuus]

When everything started, it wasn't about centralized exchanges, lending platforms, investment opportunities, security tokens, lending, and so on and so forth. It was purely about freedom, ownership, peer to peer, transparency, censorship resistance, and so on.

I doubt that we'll ever get away from centralized exchanges. Its becoming part of the crypto ecosystem already wether we like it or not and yeah we stranded far away from original intention of bitcoin being created but its already part of it for now. Most people that get into crypto nowadays dont even know the term of " not your keys, not your coins" anymore

I can only hope that as soon as the dust settles down, there will be a significant change of behavior in the community, although I have doubts.

The effect is pretty decent though for the community. Abit off topic but imagine what would happen if it was Binance 

[Sithara007]

The problem here is that there is absolutely zero accountability. Sam Bankman-Fried stole about $10 billion of customer funds and then diverted them to his own trading firm. When all that money lost as a result of his own bad judgement, he just came up with an apology. He said, "I am sorry" and that is it. All the funds are gone and the customers are left high and dry. And the joke here is that Sam Bankman-Fried will not face imprisonment even for a day. He was one of the top donors for the Democrat party, and the powerful members of that party will make sure that he remains protected from arrest.

[ChiBitCTy]

The problem here is that there is absolutely zero accountability. Sam Bankman-Fried stole about $10 billion of customer funds and then diverted them to his own trading firm. When all that money lost as a result of his own bad judgement, he just came up with an apology. He said, "I am sorry" and that is it. All the funds are gone and the customers are left high and dry. And the joke here is that Sam Bankman-Fried will not face imprisonment even for a day. He was one of the top donors for the Democrat party, and the powerful members of that party will make sure that he remains protected from arrest.

This sounds like a lot of conjecture. There’s no final resolution yet to this story and there’s a lot yet left to be done. I’m not saying he will serve the time he deserves in a prison cell, but I think there’s still plenty of opportunity for him to be charged, arrested and tried.

However there is some silver lining to this story, it sure has taught people a very valuable lesson, one that hasn’t been learned by so many that should have via the Mt Gox days.

[fillippone]

[/li][/list]
<...>

• Exchanges: instead of focusing on crystal clear operations, regulations and service for clients, setting up convoluted tokenomics schemes, in the best hypothesis out of levity on unintended consequences, but often in dire fraud Hopefully this will lead to a refocusing on that matter the most for their clients
  

CZ came out with an idea of the crypto equivalent of the FDIC deposit insurance coverage to protect the deposits of the users and of the "valuable projects", whatever it means.
It's a start, it's a free market solution, not imposed by regulators, but from the market itself.
It might be marketing, but rest assured also de FDIC insurance is marketing, as it is not capable of savaging anything during a global deposit run.

Binance Starts Recovery Fund for Crypto Projects Facing Liquidity Crisis

[The Sceptical Chymist]

This is yet again another moment to go back to basics. We have been doing this a number of times. But since we're always failing to learn lessons, history is bound to repeat and we're once again forced to be reminded of the most fundamental principles of nothing else but Bitcoin.

Yep, and I hate to say it but there's no progress in financial intelligence because each generation has to learn the hard way on its own.  That's why booms and busts keep happening every 10-20 years, over and over again.

Some of the Youtube videos I've been watching are by people in their 20s, and they're talking about things that seem really obvious to me but are apparently new to them.  I'm not blaming any of this crap on the younger generation by any means, but SBF and other big time crypto scammers are all young and obviously ignorant, no matter how wise they've been previously portrayed in the media.

Everything in trading, investment, and finance is a "confidence game".  It always has been, going back to the days of JP Morgan and well beyond that.  Anyone who uses a centralized exchange has to have some sort of confidence in it, regardless of how little.  Anyone who trades with anyone else has to have confidence in their counterparty.  No matter how trustless we'd like things to be, if we're buying or selling bitcoin we've got to have a smidgen of trust somewhere.

This whole thing is ugly to the tenth power.

[taufik123]

-snip-

This is a great idea to mitigate the negative impact of Drama FTX furthermore, Binance is establishing an industry recovery fund that will help projects that are strong but in the crisis of liquidation.

Even Justin, as the founder of Tron, fully supports Binance's initiative to set up the recovery fund.

CZ some time ago also visited Indonesia at the B20 Summit 2022 event, CZ said he wanted the industry, as well as regulators, to be responsible for cleaning up their actions.

“We will try to gather other industry players together to form an industry association globally, and try to address some common standards in business,” said CZ, citing recent crypto market events as the reason for the initiative. "as soon as possible.".


and for user protection, Binance has announced that its SAFU Fund ( Secure Asset Fund for User ) is already worth $1 billion. Binance made a promise to the users as well as the ecosystem of wider crypto to maintain more adequate levels and will be built. In addition to protecting the interests of users, the SAFU definition includes three important components regarding mass adoption: trust, integrity, and transparency
Going forward, SAFU will continue to be a core part of our responsibility to the ecosystem, and we will continue to evolve to adapt to market conditions.

[Polo crypto]

Alameda Research Portfolio: coins with the worst weekly performance!
$HXRO, $FTT, $SLRS, $SRM, $MAPS, $LIKE, $SOL

https://altfins.com/wp-content/uploads/2022/11/alameda-research-portfolio.png

[Apocollapse]

This is a great idea to mitigate the negative impact of Drama FTX furthermore, Binance is establishing an industry recovery fund that will help projects that are strong but in the crisis of liquidation.

Why he can't help FTX then? FTX is a strong centralized exchanges since many people said it's a Binance killer, but when FTX is in crisis of liquidation, Binance didn't do anything and just said they're already tried their best. This mean CZ initiative is just a marketing, he will help a small exchange only and he will not help a big exchange that can beat Binance.

Going forward, SAFU will continue to be a core part of our responsibility to the ecosystem, and we will continue to evolve to adapt to market conditions.

Actually Binance is encourage their users to leave their coins on Binance, it's what SAFU actually mean. Everyone shouldn't get baited by Binance marketing strategy and must leave coins on hardware wallet.

[adaseb]

Alameda Research Portfolio: coins with the worst weekly performance!
$HXRO, $FTT, $SLRS, $SRM, $MAPS, $LIKE, $SOL

Yes and this is how their assets looked like pretty much. Basically a bunch of coins that they minted and they pretty much set the prices. And this is where they got $3B worth of illiquid digital assets.

Coins like $SRM have such little bids that there is no way they would get the entire amount they claimed on their bankruptcy filings. Same with the other coins. And those investments that they did in companies are also useless because most of those will go bankrupt before anyone sees any money.

[DooMAD]

and for user protection, Binance has announced that its SAFU Fund ( Secure Asset Fund for User ) is already worth $1 billion. Binance made a promise to the users as well as the ecosystem of wider crypto to maintain more adequate levels and will be built. In addition to protecting the interests of users, the SAFU definition includes three important components regarding mass adoption: trust, integrity, and transparency
Going forward, SAFU will continue to be a core part of our responsibility to the ecosystem, and we will continue to evolve to adapt to market conditions.

So the solution to the problem of a big pile of money that a custodian could run off with is another big pile of money that a custodian could run off with?  Tell us another one.  

Seriously, have people learned nothing?

Many exchanges have already said are going to significantly improving their operations and transparency adding proof of reserves, as a first step

I'm not convinced this goes far enough.  Proof of reserves means little without proof of liabilities.  If you don't know what these people are doing with the funds they hold, what their financial obligations and debts are, etc, then there's no guarantee those funds are secure.