> 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.
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.
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.
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If all of the actual cash, the real liquid assets were withdrawn leaving only illiquid, relatively valueless crypto tokens, and those tokens are sold down over the coming months then the percentage losses as a percentage of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.
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
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.
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.
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.
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.
> 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.
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.
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 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.
> 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.
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?
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.
"FTX periodically uses a portion of its profits to buy back FTT tokens. This makes FTT kind of like stock in FTX: The higher FTX’s profits are, the higher the price of FTT will be."
I think this is an interesting alternative to equity vesting. Not all countries have laws that make equity vesting possible. Also this could work if you are a US company and hiring from all abroad. You can give tokens to your employers abroad, keep the token valuable as long as the company is profitable. What do you think?
The extensive use of stimulants is alarming, though heavily speculative.
What does the league of legends article say? That part seemed crazy speculative. I'm bottom quartile at FPS and fighting games but I enjoy them and play a lot. Dota 2 as well. And I've been top 1 percent at other games. Even higher for a bit in Auto Chess. I hope this isn't evidence of brain damage...
> This is, frankly, just absurd and incomprehensible. It makes absolutely no senseーwhat is he doing? I struggle to imagine the state of his mind at the moment.
Apparently working on his defense. Temporary loss of mental faculties due to drug use, along with this "it wasn't anything other than Sam on drugs" & (yes there it is again) "incompetence" article. Country club prison it is to be then, after all.
I've seen tweets that question the origin story of first windfall of SBF. Has anyone actually vetted that initial "arb" that was the pretext for Forbes et al to introduce us to SBF the virtuous genius? These tweets claimed surprise that it could have been done without substantial unmentioned support. I would start digging there.
Makes some sense. When stuff is messy, you can do financially stupid things. I've sat on desks that lost money from not realizing some very simple things like having options with upcoming dividends. If SBF really was on drugs and playing League of Legends badly, perhaps he also didn't know what was happening in his shop.
But... you have all this money. Hire an adult? Almost anyone who's had a trading desk job would tell you to clean up. You don't need to have much experience to do this part, just get one of your friends that you must know from the business?
Also, WTF would this say about Ontario Teachers' Pension Fund or Sequioa if the whole team was on drugs, playing games all day, and having no idea what their balance sheet looks like? I actually got Ontario into a fund I was at, and we'd have lost the investment if we hadn't behaved like adults. This is causing me some cognitive dissonance, because I don't think of the investors as the kind of people who'd even smile if they found me in the office playing a video game, let alone addled on drugs.
Also about the market making strats not working anymore, I don't see why they'd even need it. Once the exchange is jump started and you have WM/Jump/JS on board, there's MMs on the platform and it feeds itself. Just keep marketing running. Hand out some FTT or something to retail. Do silly advertisements. Just turn off the algo that doesn't work.
I find it curious Musk was able to snif out SBF as a bullshit artist in his 30 min. Meeting with him, whereas countless polititions and regulators aparently did not have a clue despite years of meetings and other contacts.
Coinbase has to be the biggest winner here. Despite some odd stories about Armstrong past couple of years, they appear to act like “adults”. BTC and ETH are not going away for awhile.
> When loans were recalled in early 2022, an emergency decision was made to use FTX users’ deposits to repay creditors.
Just so you know, this is a clear and obvious prison sentence in normal finance.
Also FTX itself was trading with customer deposits instead of just keeping them like an exchange is supposed to do, which is also prison in normal finance.
Matt Levine wrote a good piece on this debacle, and will probably write more. It is simply breathtaking, every paragraph evokes a massive "wat".
Going through all their shenanigans, any legal activity on the exchange was rare. Extremely criminal behavior. SBF would buy tokens from his personal account, Alameda would then buy the same tokens, and then FTX would list those tokens after Alameda bought them.
Criminal beyond measure and it's absurd that all of these big name funds did not do even ten minutes of due diligence.
The Ontario Teacher's Pension Fund was "investing" in trash like this without even looking at their corporate governance. How do you treat a pension fund like that?
[+] [-] DebtDeflation|3 years ago|reply
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.
[+] [-] jasode|3 years ago|reply
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.
[+] [-] boh|3 years ago|reply
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.
[+] [-] syrrim|3 years ago|reply
[+] [-] matthewdgreen|3 years ago|reply
[+] [-] jpm_sd|3 years ago|reply
[+] [-] jjallen|3 years ago|reply
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.
[+] [-] ChrisMarshallNY|3 years ago|reply
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.
[+] [-] elie222|3 years ago|reply
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
[+] [-] mkj|3 years ago|reply
[+] [-] rrrrrrrrrrrryan|3 years ago|reply
FTX has been the lead story on the front page of the Wall Street Journal for days now.
[+] [-] belter|3 years ago|reply
At correct time: https://youtu.be/2ozjiX1E7ZA?t=25
[+] [-] eternalban|3 years ago|reply
[+] [-] gadders|3 years ago|reply
https://fortune.com/2022/11/10/sam-bankman-fried-ftx-joe-bid...
[+] [-] Scoundreller|3 years ago|reply
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.
[+] [-] benjaminwootton|3 years ago|reply
[+] [-] pinkfairy10|3 years ago|reply
[+] [-] ploppyploppy|3 years ago|reply
The massive links to the Democractic party probably have something to do with this.
[+] [-] hoseja|3 years ago|reply
[+] [-] Ntrails|3 years ago|reply
I think the media treats anything to do with crypto as much more buyer beware than eg Enron
[+] [-] adrr|3 years ago|reply
[+] [-] unknown|3 years ago|reply
[deleted]
[+] [-] matwood|3 years ago|reply
I'll also add, if you want to really dig into FTX details, simply read Matt Levine's newsletters.
[+] [-] mt360|3 years ago|reply
[+] [-] ReptileMan|3 years ago|reply
[+] [-] jjtheblunt|3 years ago|reply
[+] [-] manholio|3 years ago|reply
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.
[+] [-] flanked-evergl|3 years ago|reply
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.
[+] [-] SilverBirch|3 years ago|reply
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.
[+] [-] ZeroGravitas|3 years ago|reply
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.
[+] [-] bambax|3 years ago|reply
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.
[+] [-] blitzar|3 years ago|reply
[+] [-] pge|3 years ago|reply
[+] [-] Naga|3 years ago|reply
[+] [-] gillesjacobs|3 years ago|reply
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.
[+] [-] esoterica|3 years ago|reply
> 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.
[+] [-] jrochkind1|3 years ago|reply
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?
[+] [-] choeger|3 years ago|reply
Essentially, when there's a digital market hype, the big cloud providers collect their share on the revenue. Brilliant.
[+] [-] halukakin|3 years ago|reply
I think this is an interesting alternative to equity vesting. Not all countries have laws that make equity vesting possible. Also this could work if you are a US company and hiring from all abroad. You can give tokens to your employers abroad, keep the token valuable as long as the company is profitable. What do you think?
[+] [-] voxadam|3 years ago|reply
[+] [-] KVFinn|3 years ago|reply
What does the league of legends article say? That part seemed crazy speculative. I'm bottom quartile at FPS and fighting games but I enjoy them and play a lot. Dota 2 as well. And I've been top 1 percent at other games. Even higher for a bit in Auto Chess. I hope this isn't evidence of brain damage...
[+] [-] eternalban|3 years ago|reply
Apparently working on his defense. Temporary loss of mental faculties due to drug use, along with this "it wasn't anything other than Sam on drugs" & (yes there it is again) "incompetence" article. Country club prison it is to be then, after all.
I've seen tweets that question the origin story of first windfall of SBF. Has anyone actually vetted that initial "arb" that was the pretext for Forbes et al to introduce us to SBF the virtuous genius? These tweets claimed surprise that it could have been done without substantial unmentioned support. I would start digging there.
[+] [-] lordnacho|3 years ago|reply
But... you have all this money. Hire an adult? Almost anyone who's had a trading desk job would tell you to clean up. You don't need to have much experience to do this part, just get one of your friends that you must know from the business?
Also, WTF would this say about Ontario Teachers' Pension Fund or Sequioa if the whole team was on drugs, playing games all day, and having no idea what their balance sheet looks like? I actually got Ontario into a fund I was at, and we'd have lost the investment if we hadn't behaved like adults. This is causing me some cognitive dissonance, because I don't think of the investors as the kind of people who'd even smile if they found me in the office playing a video game, let alone addled on drugs.
Also about the market making strats not working anymore, I don't see why they'd even need it. Once the exchange is jump started and you have WM/Jump/JS on board, there's MMs on the platform and it feeds itself. Just keep marketing running. Hand out some FTT or something to retail. Do silly advertisements. Just turn off the algo that doesn't work.
[+] [-] PeterStuer|3 years ago|reply
[+] [-] lvl102|3 years ago|reply
[+] [-] H8crilA|3 years ago|reply
Just so you know, this is a clear and obvious prison sentence in normal finance.
Also FTX itself was trading with customer deposits instead of just keeping them like an exchange is supposed to do, which is also prison in normal finance.
Matt Levine wrote a good piece on this debacle, and will probably write more. It is simply breathtaking, every paragraph evokes a massive "wat".
[+] [-] croes|3 years ago|reply
[+] [-] spaceman_2020|3 years ago|reply
Criminal beyond measure and it's absurd that all of these big name funds did not do even ten minutes of due diligence.
The Ontario Teacher's Pension Fund was "investing" in trash like this without even looking at their corporate governance. How do you treat a pension fund like that?
[+] [-] unknown|3 years ago|reply
[deleted]
[+] [-] zone411|3 years ago|reply