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They Weren’t Rich But They Wanted to Invest. Then They Lost Everything on FTX.


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They Weren’t Rich But They Wanted to Invest. Then They Lost Everything on FTX.

 

 

 

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According to an analysis by the fintech startup, Stilt, 53 percent of Coinbase users have a FICO credit score of 650 or lower, ranging from fair to very poor. While credit scores only moderately correlate with income, some analysis has suggested that lower credit scores tend to signal poorer financial situations like poverty and nearly insurmountable levels of debt. If FTX’s retail users look anything like Coinbase’s, then it is quite possible that a lot of people in tough financial situations lost money this November thanks to FTX playing fast and loose with their deposits. 

 

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This is a brilliant stat.  Another one that I've seen is that only about 10% of crypto transfers are for transactions.  The rest are speculative.

 

This has the makings of the biggest "pump and dump" scheme in history.  I fear that it's just waiting for the little boy to cry, "The Emperor has no clothes!"

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As a tax accountant I will not accept any client that is involved in Virtual Currency transactions. Period. It's me or the Crypto, not both. With the fall of FTX and the  or so lawsuits to be filed against the celebrities who touted the company, the legal exposure is just too high, although my policy far pre-dates FTX.

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So lovely for the investors to have it confirmed that they were investing with an intellectual child.  And, as far as the suggestion that B-F didn't realize that he was putting investor capital at risk ... an open admission of fraudulent negligence.

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  • 4 weeks later...
On 11/23/2022 at 7:24 AM, hdporter said:

This is a brilliant stat.  Another one that I've seen is that only about 10% of crypto transfers are for transactions.  The rest are speculative.

 

This sounded extreme the first time I read it, but seeing it again, it occurs to me that it's fairly typical.  I've read that 3% of futures contracts are held to physical delivery, so those are 97% speculative and hedging, even though they're an instrument that helps, e.g., farmers secure a definite market for their crops.  (From the hedging perspective, some people viewed cryptocurrencies as hedges against the dollar, which they turned out not to be.  Gold is in the same situation lately.)

 

Of course, with any speculative position, the trick is to keep it small enough that a long string of losses won't wipe out the portfolio.  Many people obviously don't keep it that small.

Edited by nemo
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1 hour ago, nemo said:

 

This sounded extreme the first time I read it, but seeing it again, it occurs to me that it's fairly typical.  I've read that 3% of futures contracts are held to physical delivery, so those are 97% speculative and hedging, even though they're an instrument that helps, e.g., farmers secure a definite market for their crops.  (From the hedging perspective, some people viewed cryptocurrencies as hedges against the dollar, which they turned out not to be.  Gold is in the same situation lately.)

 

I'm not inclined to lump speculative and hedging transactions into the same barrel.  Hedging transactions are a critical adjunct to primary asset investing and usually involves behavior that is the antithesis of speculation.  Nonetheless, it's no surprise that speculative and hedging transactions are almost always settled without delivery of the underlying asset.  A desire to acquire the asset isn't what drives these transactions.

 

Speculative and hedging volume in most asset markets are dwarfed by trading in the underlying asset.  This points to what's so concerning about the crypto market:  by a huge margin, speculative crypto transactions dwarf transactional trades.  With so little of the market value of crypto set by some intrinsic value that causes people to wish to hold it, the market ends up floating on a blanket of hot air.  I can't fathom how one would acquire crypto under a rational investment strategy and the entire market is vulnerable to a cry of "the emperor has no clothes!"

 

 

 

 

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22 hours ago, hdporter said:

This points to what's so concerning about the crypto market:  by a huge margin, speculative crypto transactions dwarf transactional trades.

 

We don't really know this for sure, since many people thought they were hedging against fiat currencies, rather than speculating.  Clearly, anecdotally, the speculative aspect is substantial, and that's what gets press.  As far as I can tell, though, nobody has come up with a way to measure it yet.

 

It's true that the underlying concept is nebulous, though.  With futures, there is an underlying product, whether it's physical commodities or financial instruments.  With crypto, it's the concept of a store of value, and a comparison with fiat currencies which also have no physical store of value anymore.  That's certainly shaky ground.

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