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Ask HN: What sort of systemic risk to crypto is Paul Graham referring to?

20 points| pdog | 3 years ago

There does not seem to be much exposition for the recent tweets from @paulg. Based on the tweets, however, we can assemble the following facts:

1) He's known his friend since at least 2012.

2) He (@paulg) didn't write that.

3) He is trustworthy.

4) He is convinced the "cryptocurrency economy" will shortly experience a "systemic risk."

How should we interpret these tweets from @paulg?

31 comments

order

pdog|3 years ago

Not sure how to interpret these tweets:

> A person I have known for more than ten years, who I consider trustworthy, is convinced the cryptocurrency economy will shortly experience a systemic risk. I don’t know anything concrete, but if I were exposed, I would be concerned.

https://twitter.com/paulg/status/1594446009010212865

> I didn't write that. He did. Since I don't know any details, I didn't feel I should edit it. And because I don't know any details, it's no use asking me what he means. If you've read the preceding tweet, you know as much as I do.

https://twitter.com/paulg/status/1594447689961377795

zeven7|3 years ago

What's the point of even tweeting that? If someone is exposed and following PG, are they just supposed to panic sell now?

bookaway|3 years ago

As I mentioned in my previous post [0] (now flagged), pg seems to be going out of his way to contribute to the ongoing negative signal of the crypto crash, despite him, YC, and his some in his network having a vested interest in a entity that may continue to be significatly affected (coinbase).

I mean,the out-of-context mainstream media headline writes itself:

“Early Coinbase investor says Crypto ecosystem facing systemic risk.”

As someone who would want to do right by the founders that he invested in, I can’t imagine he didn’t run this tweet by Brian Armstrong, the CEO of Coinbase.

[0] https://news.ycombinator.com/item?id=33693012

mikequinlan|3 years ago

All we know is that some anonymous person told Paul Graham "the cryptocurrency economy will shortly experience a systemic risk" and Paul decided to echo that statement without any explanation.

randomopining|3 years ago

I regret wasting money in crypto. Prob lost tens of thousands. All of that stress and there's literally no use-case and there never was besides some fringe stuff. And I knew it the whole time, but listened to the twitter crowd.

As liquidity tightens, it's just simply that there's not enough in the cryptoverse and all the centralized entities like Tether etc are gonna implode.

wmf|3 years ago

Many people are discussing the possible collapse of Grayscale (GBTC) and/or Tether. PG is not really adding anything to the discussion.

binarynate|3 years ago

Coinbase was part of the YC Summer '12 batch. What are the odds he's referring to Brian Armstrong? It may be a long shot, but that would at least explain why the concern from his friend is noteworthy.

zeven7|3 years ago

Brian Armstrong is just as much of a public figure as Paul Graham, probably more so. Wouldn't it be odd for Brian Armstrong to send a tweet like this through Paul Graham's twitter?

slaw|3 years ago

Why US government stopped Facebook from releasing blockckchain currency? Also Signal and Telegram were blocked. At the same time all these crypto exchange Ponzi schemes are allowed to function.

Kukumber|3 years ago

"Libra", i always thought that would be a name the EU would pick for their digital EURO, it fits perfectly

jleyank|3 years ago

Perhaps PG’s buddy is concerned what will step in to stop a run on crypto? There are no state actors that I’m aware of like central banks for currency.

f0e4c2f7|3 years ago

My guess would be something regulatory. Perhaps a bill to make some types of cryptocurrency illegal.

Keyframe|3 years ago

With all the recent calls for transparency and public auditing, I'd guess USDT; My guess is as worth as any though. USDT run would be a mother of all systemic risks barring one of the majors (BTC/ETH/ADA) technical stumbling or second coming of Satoshi (dormant wallets resurrection event).

zeven7|3 years ago

But if it was UDST, what new information could PG's friend even have. "They're not solvent" isn't news. A run can't exactly be predicted by an insider more than anyone else. It's hard to imagine what information about USDT leads to that tweet.

dificilis|3 years ago

Silly question: if the "second coming" is a risk, then could bitcoin itself be amended to deem sufficiently old wallets no longer valid?

Of course if it was seriously proposed, then the holder of said wallets might rush to cash some of them in.

danielvf|3 years ago

As someone who has worked for years in crypto, the tweet reads as very late to catching up with things.

After the repeated huge insolvencies of the last few months, everyone in crypto knows there's massive systemic risk, and new risk from ill thought out new regulation. Everyone has their own list of which companies they guess will be next.

It's very hard to take the tweet seriously. It's like walking around in the California hills predicting a forest fire, during a super dry summer, while orange glows from nearby hills light up the smoke that is choking the air, and ash rains down.

weare138|3 years ago

It's very hard to take the tweet seriously. It's like walking around in the California hills predicting a forest fire, during a super dry summer, while orange glows from nearby hills light up the smoke that is choking the air, and ash rains down.

So you're saying it's not something that's going to happen in the future but instead happening right now? Well that's reassuring.

hayst4ck|3 years ago

What are the main purposes of money:

  1. To pay rent
  2. To buy food
What are the main purposes of crypto?

  1. Facilitating illicit transactions (crime)
  2. Exfiltrating money out of China (crime)
  3. Ponzi scheme substrate (investment tool, but also kind of crime)
  4. Alternative to corrupted local currency (not quite crime, but crime-y)
Money's purpose is to facilitate business/trade, while crypto's de facto purpose is to circumvent existing power structures, legitimate and not.

It's important to ask how money enters and exits into the crypto-sphere.

I buy crypto -> I exchange crypto for goods -> the person that sold the goods sells their crypto to someone else in exchange for USD.

I buy crypto -> I hope to make money -> I get scared and sell it when it starts to dive to realize my gains in USD.

A Chinese person wants to exfiltrate money -> They buy lots of miners -> they mine coins which are turned into USD.

So crypto itself doesn't have much intrinsic value because there is no anchor to its value. The US government anchors USD to specific values, and at least as long as we are not run by morons, that optimizes for stability.

Crypto is seen much more as an investment (will it go up or down) than as a currency. This is most directly reflected by how crypto is talked about. People talk about the price going up and down, not about crypto inflation or crypto deflation. Because its measure of value is volatile it is not a very good currency.

Systemically if people stop buying crypto, the price will go down. If people stop exchanging goods for crypto it will be harder to sell the currency. If people can't exchange their crypto for something they can pay rent with, then they won't want to accept crypto.

So what's the systemic risk? Every person who is around crypto wants it to be used because then their potential net worth will increase. This creates a rejection of negative news and hype around positive news. People will more willingly accept a reality that 10x's their worth.

Unfortunately, as soon as this reality is pierced and people start to sell, it will create absolute free fall (error correction) to it's "real" value which is roughly the sum of illicit transactions and potentially transactions for those countries who's currencies are failing (although why you would choose crypto and not USD, outside of a high risk high reward bet, I'm not sure).

So now let's say you are a crypto bank. There are two options.

1. A person initiates a trade of `x BTC` for `y USD`. The bank takes ownership of the BTC and directly exchanges for USD based on current value immediately, and then sells the BTC when it wants. (good for the bank when price is going up).

2. A person initiates a sell of `x BTC for USD`. The bank takes ownership of the BTC and sells it on the customers behalf for the best deal that the bank can find. (protects the bank during free-fall/runs on the bank).

So we are in a situation where as long as crypto sentiment is positive everyone benefits, banks, holders, miners, etc, but if crypto sentiment turns negative, it can free fall, and in the processs, destroy the "banking" institutions that are the foundation of non directly criminal crypto uses.

In summary, crypto seems very much like a Ponzi scheme to me.

If I were to guess, I would estimate the "real" value of crypto to be `sum(total_criminal_activity) / num_BTC`. If drugs can be bought through BTC, but not USD, then that creates demand for BTC proportional to drug trade. Where else would direct demand for BTC come from assuming nobody saw it as an investment tool?

Now some of that is likely exaggerated and might seem bad faith, but the above is more or less my good faith understanding. I would be happy to be corrected by someone who knows more or has a good argument on why I should be more bullish on crypto.

dsq|3 years ago

If crypto is used mainly for criminal or other illicit activities, isn't the crash of crypto a basically good thing, by destroying the monetary resources of criminals? Similarly to how the issuing of new banknotes makes older banknotes less valuable and therefore harming mainly those who transact with a lot of physical cash such as cartels.

Kukumber|3 years ago

The FED concluded their digital currency experiment with bitcoin and ETH, they are ready to dispose them, and are ready to push for the digital EURODOLLAR

"systemic" and crypto is not something one mix together, another evidence of it being a FED project

That's my theory

Oh and i'm pretty sure he meant YC is done with crypto projects, they were crypto advocators, recently made a statement that they wanted to keep push for crypto projects, but with the current events that might have altered their plan