3AC isn’t just large. 3AC is the largest trader by volume in the world for like 4 years. Them going bankrupt is like long term capital management going bankrupt.
Its nothing like LTCM, its much worse because when LTCM the fed and SEC cleaned up by reducing interest rates and helping GS take over the positions. Crypto is "free" from govt interference like this.
If crypto bubble bursting is what precipitates the next recession I'm going to be beyond upset. Getting burned by something I purposefully stayed out of is nothing short of enraging. I'd legislate it out of existence out of spite at that point.
What's happening here isn't causing the recession, it's indicating it, for the most part. Crypto was never really disconnected from the public markets, not like it claimed it was.
Maybe the nuevo crypto gang, but OG Bitcoiners have seen enough bubbles they view them as inevitable and don’t particularly care about the reason for them.
Seen enough bubbles? They’ve only known one type of monetary policy and rate environment (essentially zero). This is uncharted territory for all crypto.
The Fed is precipitating the next recession (maybe) and also created the crypto bubble along with the stock market bubble, the venture capital bubble and various other asset inflations due to its easy/cheap money policy.
What's happened now is that the Fed has suddenly withdrawn its cheap and easy money and these people are having a wile-e-coyote moment. Currently they're suspended in mid air with nothing below.
Crypto isn't to blame, neither is the Fed (maybe), it's just the hangover from covid and the war in Ukraine.
> it's just the hangover from covid and the war in Ukraine*
No way. COVID and the war are just the straws that broke the camel's back, they just helped bring down this house of cards that was the bubble economy the Fed created purely out of cheap money I'm the last decade, and overinflated in the last 2 years.
COVID and the supply chain disruptions it caused, was the perfect wake-up call to parachute the economy back down to earth, but instead they just kept the money printer running at full speed until the war came.
How is COVID and the war to blame that the Fed quadroupled the money supply in just 2 years? How was that house of cards ever going to be sustainable?
Of course the war brought it down. And if the war wouldn't have happened, something else would have brought it down instead. It was just not sustainable.
Basically, Wall Street created a "You're locked in here with me" scenario for the entire American public. Everyone has to throw their money at some speculative asset category, typically stocks, to have a meaningful chance of beating inflation. (Yeah, real estate, fine art, and Yu-gi-oh cards exist, but they're far less fungible and liquid at the scales required)
This creates a political feedback loop: the S&P 500 must keep going up in perpetuity because we're all afraid of being 82 years old and in failing health but having to still flip burgers to afford our medication. Ergo, policies like super-low interest rates that make alternatives like bonds ever less compelling and focus ever more interest in an asset bubble.
TBH, I feel like there's a real opportunity to ask "why are we investing."
For people forced into the market for things like retirement and educational savings, maybe we need some sort of contribution-based scheme, rather than a market-price-based one. Sign up now, contribute an agreed-upon sum for N years, and you get your retirement condo/kid's tuition at Harvard prepaid in 2044. Make the institutions-- the ones with teams of actuaries on staff and the financial backstop to handle it-- eat the inflation risk instead of the individual with a net worth of $650 on a good day.
That sort of program could remove a lot of the "mere mortals who stand to lose everything" from the market. The political benefit is then it returns Wall Street to being a casino for the rich and distasteful, and makes it much easier to propose regulation or managed-growth policies. When not everyone is chained to the market through a 401(k), the threats of a market tank don't bite quite as hard.
Global crypto is a small compared to public markets, and financial institutions essentially can't incorporate them in any way that would pose any real risk. This collapse is a symptom of tightening financial conditions. People don't have free cash to throw into them any more. It seems that without that spare cash, there just isn't enough real value in crypto for it to sustain itself.
The chairman of the fed is explicitly saying they will increase interest rates until inflation is down to 2%, even if that increases unemployment and creates a recession. Crypto collapsing won't be the cause of a recession.
How is this this worse? A few people will go under immediately because they took undue risk but prices will settle to where they need to and the world will move on.
As opposed to embedding that failure into the core of the system to protect a few interests so that the same issues are surfacing 20 years later.
Very correct. Financial failure of a participant must be an intrinsic part of financial systems and currently only the anarcho capitalist plane of cryptocurrencies has that.
While I do not subscribe to the ideals of anarcho capitalism at all this is one feature of crypto culture that I think they got right.
None of it has ever happened before during a recession. Crypto basically didn’t exist the last time the world had one. Being religious and so sure about the way something is going to turn out should be a warning sign to the self.
> None of it has ever happened before during a recession
We are not currently in a recession.
If we get into a recession in the next quarter or two, there's no harm done to crypto. The market is headed into bear territory regardless of the macro economic climate.
I swear no one remembers 2017. Thousands of projects that raised billions of dollars died. No one cares. The market rebuilds itself every 3-5 years. This is absolutely no different.
You are correct that people will continue to engage in stupid gambling. The problem is they're not going to have gobs of cheap money to throw into it and get leveraged 100x on which drives a lot of the speculative value.
It has literally happened once before, that does not mean it is going to revive again. What if we're at crypto saturation and the demand won't cover another crash?
I have no idea if it's true, but it seems like people are writing about contagion within crypto, as if it is more substantial than last time, and worrying a little bit about it affecting the rest of the economy.
This game of lending crypto assets for ridiculous interest rates wasn't nearly as popular last time, was it?
> This game of lending crypto assets for ridiculous interest rates wasn't nearly as popular last time, was it?
- ICOs
- DAOs
- NFTs
- Yield
- Earn
- Farming
etc. All of these can be ephemeral concepts within a single crypto bull cycle. Regardless of whether or not you think crypto is valuable, there's no denying people love money. So long as crypto remains unregulated there will always be bull markets imo.
> None of it has ever happened before during a recession.
The 2020 Covid crash was a recession. A very short one, but also one of the most severe since the Great Depression. Bitcoin crashed from about $10,000 to $4,000 in the span of 3 weeks, before recovering and peaking at nearly $70,000.
What people are entirely missing here is the massive economic indicators flashing that are preempting this crypto stuff. The US dollar is about to be devalued and take with it, the entire global economy. We're heading into a serious depression, not just a little 2008 recession here. $9-10 gal of gas by October and double of all goods and food prices likely by Sept-October time frame. The outlook is growing very bleak.
In and of itself, yes. But there's a real risk (far from a certainty, but a real risk) that it will cause some kind of crisis of confidence in the markets more broadly that could result in a much more catastrophic crash.
Hopefully this time, we get some regulator action so we're never back here again. Each time the cycle gets bigger, the tendrils work their way into traditional finance - and more people get hurt. This time, the Quebec public servants are getting rekt on their investment into Celsius [1]. Now it's hurting pensioners, not just a bunch of degenerate gamblers and moonbois.
It's fine for a bunch of pokemon card traders to get rekt - but by the time you get to 3AC scale, it's time for regulators to put the kibosh on the whole space. They're securities. They either get registered or you go to Club Fed.
With all due respect, fingers crossed, this time it does not work out.
> Now it's hurting pensioners, not just a bunch of degenerate gamblers and moonbois.
No, that's your public institution making degenerate gambles on late-stage startups. The largest venture capital investor in Canada isn't some poor victim, they are the perpetrators, the owners. It's completely laughable to paint them as a victim of some crypto-ecosystem heist.
The victim is the pensioners, not necessarily the gambling fund. "regulator action" can refer to simply preventing sensitive/prison funds from going into certain classes of risky ventures, and not regulation against crypto itself.
I take the position that cryptos are clearly securities under the Howey test. It's pretty self-evident. As such, they must be registered in order to be traded by anyone other than an accredited investor. To be clear, this is the law of the land today. All that's missing is regulatory enforcement action.
Question: what is the point of crypto if it becomes regulated like traditional financial assets? Crypto doesn't have any actual use-value like stocks or real estate, and its entire selling point was that it's decentralized and unregulated.
Simplifies and modernizes cross-border flows. Try buying shares in a firm listed on the Indonesia Stock Exchange—you’ll spend days to weeks dealing with middlemen. Should be a couple clicks to submit to a public ledger.
I don’t see where lack of regulation is a selling point—it greatly limits invested capital.
As far as I can see, https://wise.com/us/ is in all ways a better way to simplify cross-border flows than crypto. When working with overseas teams, it is literally how they ask to be paid.
Isn't the reason buying international shares is slow that they don't want you to do it and therefore have regulated it?
There's no technical merit in crypto that actually makes things fast, it's just a regulation dodge. It's necessarily slower and more expensive than TransferWise.
No - crypto does nothing for cross-border flows. It could only make it worse. Purchasing shares in foreign countries say France often (not always) requires one to go through an approved French broker (middleman). Why?
- so there's somebody in France that can *make money* being the middle man
- so the French broker can be held to some standards reporting and what not. For example, the French broker at risk of criminal prosecution cannot sell shares to NK or Iran.
- so the rules around transfer of shares for payment and settlement are set so people can't be screwing each over or not completing settlement in a timely fashion
- because of scale: there are zillions of trades done every day. that's why netting-out is a real thing. settlement has to be fast, tight, nailed down. And regulation helps with that through known pre-approved brokers with set roles and responsibilities
Also consider that unlike crypto you gotta settle. Settlement is serious. And settle in a bonafide currency that everybody agrees is a currency: EUR, for example. And you have fixed time to do it in.
You can't be waving your hands with some stupid story about how your broker/holder of crypto,
- stopped you from withdrawing your stuff
- is down
- is in chapter 7 or 11
- that you forgot your crypto keys
- and the entity getting the cash for selling shares isn't gonna wait around for some miner to "approve" your transfer maybe in 10 mins ... or maybe tomorrow
I think the settlement story for bitcoin is actually superior than with USD/EUR. Yes you have to wait 10min x a few blocks, but that is final, irreversible settlement.
"Crypto doesn't have any actual use-value..."
Same can be said for most financial instruments yet they're regulated. Gambling has no "real world use-value" yet it is heavily regulated.
There was never any in crypto either. Anyone who thought so is just as stupid as the HN'ers that think cryptocurrencies are bogus. Thinking a few over leveraged crypto companies getting wiped out will destroy cryptocurrencies is laughable.