[woodruffw]

> Since the start of this year, macroeconomic and geopolitical factors have weighed on financial markets.

This is an incredible couching of the last 9 months of cryptocurrency market behavior. Does anybody actually operate on their belief that "geopolitical factors," rather than astonishing amounts of fraud, are responsible for the current downturn?

[setgree]

We learned about the fraud because of macroeconomic factors!

inflation -> rising interest rates -> crypto less attractive [0] -> people ask for their deposits back -> company can't meet obligations -> company folds -> scrutiny -> fraud revealed

Is my basic model of things.

[0] from https://marginalrevolution.com/marginalrevolution/2022/11/th...: "When interest rates are very low a dollar in the far future is worth almost as much as a dollar today. Thus, in a regime of low interest-rates, crypto and other projects with (speculative) long-run payoffs could be valued highly. As interest rates rose, however, long-run speculative returns began to look much less attractive than say T-bills and money flocked out of assets in the long-run sector causing prices to plummet."

[woodruffw]

I completely agree! My point was that it's very funny to blame the macro (and even funnier to blame geopolitics), when it's clearly just serving a revelatory purpose.

[function_seven]

So you're saying that when I get arrested for public indecency, my defense should start with "due to tidal forces and the changing orientation of our Moon, my nether region emerged above the water's surface"

Or something like that?

[setgree]

My advice is to repeat Warren Buffet's adage -- "only when the tide goes out do you discover who's been swimming naked" -- and adamantly deny that it has any non-literal meaning whatsoever.

Warren was just telling us about something he observed at the beach one time

[danenania]

Swimming naked feels great and is plainly superior to swimming in a bathing suit. If you read between the lines, Buffet was clearly recommending that everyone swim naked and put their full net worth into crypto.

[setgree]

"I recant! I recant!" screams Warren Buffett as he runs ashore covered in jellyfish

[woodruffw]

I don't know if I'd recommend it, but it'll be roughly as convincing as blaming geopolitics!

[SkyMarshal]

Rising inflation and correspondant rising interest rates would have resulted in a major crypto market decline with or without the fraud. Bitcoin had already fallen from $60k+ to ~$20k before the waves of failures even began happening.

All of cryptocurrency is a risk asset. When credit and money is cheap and flowing freely, it flows into risk assets like crypto, driving up their price and forming bubbles. When rates rise and credit and money is no longer flowing freely, it flows out of risk assets into safer havens, popping the bubbles. That's what happened to crypto this year.

The collapses and fraud revelations were a consequence of that, not the cause. Blaming the macro is accurate.

[WeylandYutani]

It's been 15 years now I think? And still cryptocurrency mainly revolves around speculation. It's adoption as a currency has been... lacking.

[SkyMarshal]

Close, almost 14yrs. Launched Jan 2009. Bitcoin's economic design incentivizes saving rather than spending, so it's no big surprise that's what's happening. DeFi currently is all about using loans to make money speculating, so yeah, but it's still kinda new so jury's still out on whether it might develop into something more broadly useful.

[automatic6131]

>but it's still kinda new so jury's still out on whether it might develop into something more broadly useful

Lol. Lmao, even.

[killjoywashere]

I'm not an economist, but it does seem like the inflation is primarily attributable to geopolitical factors: the various spending programs countries embarked on during the pandemic, China's zero-Covid policy, the Russian invasion of Ukraine putting a premium on both oil and grain.

Are you suggesting that crypto is to blame for inflation? how would that work?

[woodruffw]

> Are you suggesting that crypto is to blame for inflation? how would that work?

No. The only claim is that crypto is sleeping in the bed it made, bedfellows included.

[BlandDuck]

Spot on. Warren Buffet put this succinctly:

"When the tide goes out you discover who's been swimming naked."

[Kye]

They would have gotten away with it, too, if it weren't for those pesky feds.

[UncleMeat]

For the life of me I cannot understand how every single layoff notice talks about "macroeconomic factors."

Inflation and interest rates are up - okay. But real GDP growth (in the US at least) has been positive. Why is everybody acting like unemployment is at 8%, GDP growth is sharply negative, and consumer spending is way down?

At least with crypto stuff it makes sense that these companies are losing shitloads of money but with so many companies it seems to be "we expect to be making less money next year so we are cutting staff now."

[danielvf]

*Growth* is down in certain sectors. Many companies were staffing to support and capture possible future growth. When next year is expected to look like this year, a lot fewer people are actually needed.

[kevin_thibedeau]

C-levels want to blame externalities to deflect scrutiny of their poor management.

[jcfrei]

Most companies are to some extent financed with debt. When interest rates go up and loans need to be rolled over they will pay a higher interest rate. The result is a deleveraging (companies taking on less debt) but also reducing expenses (layoffs). The relationship between interest rates and inflation is also usually not linear - ie. inflation is 8% on average, you can charge 8% more for your products but your interest payments might very well double (going from 4% to 8% p.a.).

[Analemma_]

The current layoffs are concentrated in the tech sector because that sector experienced huge growth when everybody was stuck at home. With that now over, it’s just a regression to the mean and employment trends are going back to being in line with the rest of the economy.

[lordnacho]

It's just a standard thing to point at, isn't it? Like a greeting at the start of a letter? Simply what one says?

[masklinn]

In fairness the astonishing amounts of fraud have been there all along.

[woodruffw]

Very true! I guess "precipitation of the consequences of fraud" would have been more precise.

[brightball]

Yep. Honestly it’s just been a question of whether you were going to try to take advantage on the way up or not.

[knorker]

"It's only when the tide goes out that you find out who's been swimming naked"

Fraud and ponzis work fine for a while, but a downturn is exactly what causes its instability to show.

[nightski]

As is true in traditional finance as well. If you want to escape fraud altogether you might as well not have any wealth. The entire 2008 financial crises was due to fraud...

[Sebb767]

People are still defrauded without wealth. See loan sharks, for example, or people arguing you should use debt to invest in the newest crypto hype. So even that escape hatch does not work.

[rich_sasha]

In fairness, Kraken is regulated and I suspect can't be involved in any of the crypto scams. I'd imagine they really hold deposits as they should etc.

So for them it's the fact that markets are down and people aren't punting crypto, rather than "we took the USD deposits, turned them into shit coins and we're insolvent" kind of thing.

I think.

[woodruffw]

Right: to be absolutely clear, I'm not accusing Kraken of anything untoward (at least, nothing more untoward than being involved in this whole industry).

The statement just came across as very roundabout: we all understand that the current downturn in cryptocurrency is driven in part by a decline in "easy money" from retail customers, which in turn is partially driven by a lot of that "easy money" outright evaporating from fraudulent schemes.

[rich_sasha]

Ok, I just meant, when SBF comes out and says, "liquidity crunch, bank run", he means, he stole the money, or charitably, let someone steal it on his watch. Or even more charitably, invested it in an unacceptably stupid way.

For Kraken the slowdown is less business. Crypto is down, as are equity markets, and these are highly correlated (go figure - "inflation hedge").

I'm not even sure if FTX blow up itself is bad for them. Not only is a competitor out, but also people might appreciate a regulated crypto exchange.

So I think maybe "geopolitical" is not outrageously wrong a term to use here.

Any other critiques of crypto are not affected.

[koonsolo]

Didn't I read recently that Meta, Google, and all those companies are laying off people? Not going to talk about Twitter because that's a special case ;).

[wpietri]

As a side note, I really like the framing of "operate on their belief"

> Does anybody actually operate on their belief that "geopolitical factors," rather than astonishing amounts of fraud, are responsible for the current downturn?

What people believe is such a slippery question, especially when those people are participating in or proximate to fraud. It might even be a category error. But pivoting to "operate on" moves the discussion from something unknowable to looking at observable behavior. It's along the lines of "Don't tell me what you value. Show me your budget, and I'll tell you what you value," in that it can skip over whole swathes of PR and other BS.

I love this and I'm borrowing it for sure.

[JumpCrisscross]

> rather than astonishing amounts of fraud

Macro weighs more on crypto than geopolitics or fraud. Fraud never deterred millions from dumping savings, reputations and careers into this mess. The inflection point, for crypto, as with other risk assets, was the Fed.

[woodruffw]

I don't disagree, but: macro is a forcing function for the collapse of fraudulent schemes. If it was just a macro downturn, we would be seeing a filter between different firms. Instead we're seeing an implosion roughly every month, interspersed with bankruptcies and major headcount cuts.

[stuckinhell]

The fraud seems to get political very quickly with FTX. Sam Bankman donated enormous amounts of money to democrats. He was the second biggest donor behind George Soros. He said he also donated an equivalent amount to establishment republicans via dark money channels.

Sam Bankman was clearly a smooth political operator.You don't have meeting with Gary Gensler the head of the SEC otherwise.

[JumpCrisscross]

> Sam Bankman was clearly a smooth political operator

No, he wasn’t. This is a myth he crafted for his retail audience. He threw money around. But D.C. is filled with schmucks buying photo ops for millions of dollars.

> don't have meeting with Gary Gensler the head of the SEC otherwise

You’re saying SBF’s donations, and not his role as CEO of FTX, got him a meeting with FTX’s regulator?

[wpietri]

Yeah, if I were one of FTX's regulators, I would be fascinated to meet with him. Or any other big-name crypto person. Assuming they're brave enough to set foot on US territory at all, that is.

[jjtheblunt]

> He said he also donated an equivalent amount to establishment republicans via dark money channels.

where did you find that? i've not seen it (yet)

[ceejayoz]

https://fortune.com/crypto/2022/11/29/sam-bankman-fried-poli...

> Sam Bankman-Fried’s donations to Democrats are well documented. In an interview released Tuesday, the former FTX CEO said he similarly funded Republican campaigns—but kept it quiet.

> “All my Republican donations were dark,” SBF told crypto influencer and YouTuber Tiffany Fong, referring to political donations that aren’t publicly disclosed. “The reason was not for regulatory reasons, it’s because reporters freak the fuck out if you donate to Republicans. They’re all super liberal, and I didn’t want to have that fight.”

His co-CEO also publicly donated millions to Republican causes. https://www.opensecrets.org/outside-spending/donor_detail/20....

[meroes]

How could being the second and third largest donor to Dems/Reps respectively at the same time be a good strategy? Genuinely curious.

[gizmo686]

The point of political donations (at this scale) is not to get your preferred candidate elected. It is to get leverage with the candidate who ends up getting elected.

[ceejayoz]

It's twice as many people you can call up and say "remember when I gave a bunch of money to your PAC?"

[Kiro]

I do. Crypto obviously has a big fraud problem which has infected most if not all of the ecosystem, but I don't think that's the actual reason for the downturn. Crypto has always had a fraud problem and it hasn't scared people and gullible suckers away before. I think outside factors are what drives the speculation.

[programmarchy]

NASDAQ is also down 30%. Crypto was down before the whole FTX scandal, too, so that doesn't explain everything.

[Ekaros]

I think at current moment it is pretty much been shown that crypto is no hedge against other financial markets. It is entirely correlated. And then it has it own host of issues and probably have enough players who can't handle downturn in market...

More fun news to come.

[woodruffw]

Are you saying that a YoY decline of 30% in the NASDAQ index is comparable to a 30% employee haircut? I don't think that's how it works.

[programmarchy]

No, by “also” I was referring to cryptocurrency markets not the 30%.

[woodruffw]

Sorry for the confusion. I agree that macro trends are having an effect; I think some of the other threads have a good amount of elaboration on the interaction between the macro economic climate and the crypto downturn (and particularly, why crypto's unique vulnerability to downturns makes it funny to place blame on the broader market).

[g42gregory]

My understanding is the crypto prices are driven primarily by the amount of liquidity injected in the market. Or, at least, that’s the case in the current cycle. Fraud is bad, but it has less impact.

[vlunkr]

But doesn't huge amount of fraud dissuade new investors?

[g42gregory]

Absolutely! And the current investors flee as well. Just less of an overall impact of draining liquidity.

[cwkoss]

Tesla is down 52% vs 9 months ago

Bitcoin is down 63% vs 9 months ago

Just sayin

[quonn]

Tesla added many features vs 9 months ago and sold - what? - a million cars? Has Bitcoin even been used to sell a single pizza since then?

[JamesSwift]

Yes but by the time the pizza arrived, the guy owed them more bitcoins.

[HDThoreaun]

Well the ponzi would've kept on rolling if the cheap money hadn't dried up, so in that sense they're right. Macro conditions exposed their fraud.

[norswap]

If you look at the numbers, more crypto market cap (both in % and absolute amounts) was lost before any of the scandals than after.

[SkyPuncher]

Russia's invasion of Ukraine had a very strong impact on investor willingness. It indicated a new period of uncertainty where people preferred having their cash in stable vehicles.

I've seen startups struggle to raise in March when less attractive competitors raised with ease in February.

[rabuse]

Crypto simply followed the overall market effects. People cashed out with the economic downturn on the profits they made, just as they did the stock market.

[JumpCrisscross]

> Crypto simply followed the overall market effects

Crypto is performing far worse than even the riskiest decile of the stock market. Which should surprise nobody.

[rel2thr]

Not really, crypto is down about as much as ARKK which is a good tracker of risky high growth tech assets

[tootie]

That's cherry picked. The S&P Index has lost less value and also pays dividends.

[nightski]

This is not true. The riskiest stocks are down thousands of %.

[JumpCrisscross]

> riskiest stocks are down thousands of %

This isn’t how numbers work.

Also, practically every asset class has a member that went to zero. The question is what fraction, and how did the others do. If you bought a basket of super-risky assets, over the past years, they went up like crypto and down less.

[shkkmo]

"decile" means 10%, are you intending to claim that the riskiest 10% of stocks are down on average at least 1000%? That seems like a pretty strong claim that needs some backing...

[nabaraz]

Nothing can be down more than 100%. Average stocks in S&P are down 55%. Growth stocks are down 70%. S&P is down 18%. Bitcoin is down 60%.

[nightski]

Options very well can be down more than 100%. It's a leveraged bet and a very common vehicle in traditional finance. So much so you can buy/sell them on platforms like Robinhood.

[JumpCrisscross]

> a leveraged bet and a very common vehicle in traditional finance

Former options market maker here. Taking leveraged, directional risk with options is textbook reckless trading. That Robinhood found people to swing options and crypto is not representative of traditional finance.

[maxfurman]

Is an option "the riskiest stock," though? It's a financial instrument and not the stock itself, no?

[jmillikin]

A long position in an option can't be down more than 100%.

The only commonly traded way to lose more than you started with are futures (not available on most retail platforms) and CFDs (not legal in many markets, including the USA).

[actionablefiber]

> The riskiest stocks are down thousands of %.

Huh?

[rabuse]

Have we forgotten the amount of profit people made from the prior years of insane price growth? Tell me which stock performed as well as Bitcoin.

[JumpCrisscross]

> which stock performed as well as Bitcoin

If you want to go for a rodeo, there are litanies of similar success stories in penny stock and angel investing.

[parineum]

This is true but all that it proves is that Bitcoin is incredibly volatile.

It seems like the pro-crypto arguments end up being circular sometimes (not from the same person but the community).

If the market is good, it's a great investment.

If the market is bad, buy the dip!

If it's unstable, remember all thos people who made money?

If it's stable, well it's a currency after all.

There are so many people who view crypto differently there's always someone there to sing it's praises. I'll still have no idea what crypto is supposed to be aside from a vehicle for fraud.

[newaccount74]

> I'll still have no idea what crypto is supposed to be

It's anonymous payment!

Great for

- avoiding sanctions

- selling drugs

- receiving blackmail payments

Those are huge markets that are completely untapped by legacy payment processors!

If that doesn't sound like a great investment opportunity!

[Jetrel]

It's almost like the fundamental basis of crypto is fraud. Like they're not actually selling anything, besides "british south sea company" ~~stock shares~~ coins.

[tiahura]

Hanlon's razor.

The vast majority of crypto advocates are true believers.

[pokstad]

The term “macroeconomic” is becoming a meme with how companies are throwing it around.

[importantbrian]

Every tulip bubble is full of fraud. Those markets are chalk full of people looking to get rich quick, and many people looking to get rich quick are willing to do it in a less than scrupulous way.

[hoffs]

I guess stripe and others that had layoffs are also full of fraud