A guaranteed 9.25% APY on crypto deposits when US dollar savings accounts at FDIC banks do 0.50% is odd. Where is the extra money coming from?
In effect, this is a junk bond they're selling - high interest, with a high chance of losing the principal. Those are semi-legitimate financial products (but see Michael Milliken). However, if you invest in junk bonds, you have to evaluate them, and you don't own just one. You own a broad portfolio of them, collateralized by different things, expecting some of them to fail and some to succeed. This is why there are junk bond funds. Some of which fail, because too many of the risks were correlated.
If someone in the DeFi sector is selling this, the funds are probably being used to finance some other crypto-related scheme. Not building a factory or an apartment building, which you could probably finance at 3-4% right now. So you're probably buying into a speculation that some crypto product goes up. You're buying with a capped upside, an uncapped downside, and no visibility into the risks.
Not crypto related, but one of the things that made the financial collapse of 2008 so much worse were the number of institutions that were over leveraged at the time and couldn't make the margin calls when assets started tanking. The fund I worked for at the time was leveraged as high as 40:1 at one point around that period. We exited the crisis leveraged closer to 10:1.
The problem with firms being overleveraged is when the margin call comes, it starts a snowball effect. To make the margin call, you have to liquidate assets, most likely at a loss, which further drives asset prices in the market down, increasing margin requirements in a vicious feedback loop. It's not uncommon for a firm hit with a big margin call like this to end up having to sell everything for pennies on the dollar.
I won't name names, but I worked a few high profile blowups during my tenure in finance, one of which was the very high profile bankruptcy of one of the banks that was allowed to fail in the US another was a boutique hedge fund that doubled down on a bad energy bet. Neither was pretty. But, in both cases, the root cause was the same: failure to properly understand the risk of the investments they were making either in part or in whole. Data quality in the risk system at the large bank was especially atrocious, BTW.
If you buy gold, the price will fluctuate, but it won't be lost. If you bought the Dow at the peak in 1929 and held it all the way to the bottom then you lost 89% of your money, but it didn't actually go to zero. When Ponzi schemes evaporate, the money disappears. You can sign on to whatever class action lawsuit comes out of it, but the lawyers are going to eat most of the proceeds.
It's more options trading than "investing", and Robinhood's profits demonstrate that most people lose money on options.
Blockfi's yields remind me of money market funds in 2008. They looked like bank accounts, and paid out mostly sane yields, but the fine print said "not a bank account, may evaporate". Well, when it threatened to evaporate, everyone freaked out: https://www.investopedia.com/articles/economics/09/money-mar...
When the NFT staking people are advertising yields of 132%, https://twitter.com/Route2FI/status/1492940519965605890 that's a huge blinking red sign that says SCAM SCAM SCAM, but 9.25% isn't as big of a warning as it should be. The moral hazard of every market bubble is sophisticated actors chasing yield on the way up, then claiming you were swindled, bamboozled, and had no idea what you were getting into, and urgently need a bailout when the bubble pops.
Obviously the devil is in the details, it's not clear if/how these loans are secured.
It’s far from certain but it’s certainly plausible that the value of nearly all cryptocurrency’s will collapse to nothing at all.
> The order also finds that BlockFi made a false and misleading statement for more than two years on its website concerning the level of risk in its loan portfolio and lending activity.
The point is there's no free lunch. If you're making 9+% on your deposit don't be surprised if your account is wiped out when BlockFi's debtors fail to pay.
As the order linked above indicates, BlockFi knowingly deceived investors. In the financial/investing context of this discussion, “to scheme” is to plan and execute deception, with intent of personal gain. Thus, my attempt to reword using your provided language rather than the order’s:
> BlockFi’s scheming led investors to believe that BlockFi was a lower-risk investment than it was in reality.
Note that any errors in translation from SEC wording to your provided terminology are my own, and that I’m making a good-faith effort to help build a verbal bridge from your confusion to an example of specific language in the order that addresses it. If my verbal bridge is insufficient, then please accept my apologies and I hope you’re able to find the answers you seek from others, or in the order itself.
(I am not your lawyer, this is not legal advice.)
> The order also finds that BlockFi made a false and misleading statement for more than two years on its website concerning the level of risk in its loan portfolio and lending activity.
Just because a scam hasn't imploded yet, doesn't mean it's not a scam.
How is it unfounded? The carbon and ewaste problems are well documented. Any fixes for that (eg Proof of Stake) have either compromised Bitcoin's original focus on decentralization, continually delayed release, or both. Over a decade after Bitcoin's launch few use cases have emerged and none of them have proven durable. The ICO craze came and went. DeFi is still muddling along with ever more convoluted cryptoshadows of regulated fiat finance. NFTs are all the rage but currently about as intellectually stimulating as baseball cards. Hacks and scams abound far beyond any other industry.
Both "sides" of the crypto debate are welcome to share their opinions on HN. The constant stream of blockchain links on HN makes me think there are plenty of at least crypto-curious folks around. I'm not sure why the pro side feels so attacked. Share your thoughts. Share your use cases. Advance the field. Prove us on the other side wrong.
Without a benchmark this means nothing. Just because a new technology contributes to ewaste we should just ignore it and bury it? No use in trying to fix it right? Just kill the technology because it contributes to ewaste. That doesn't make any sense. Not to mention the majority of the uproar around Crypto being a danger to the environment is completely overblown https://www.cnbc.com/2021/07/20/bitcoin-mining-environmental...
> Over a decade after Bitcoin's launch few use cases have emerged and none of them have proven durable
Durable in what sense? I can take some Bitcoin right now and purchase almost anything I want. Seems like that money use case is pretty durable to me.
> The ICO craze came and went. DeFi is still muddling along with ever more convoluted cryptoshadows of regulated fiat finance. NFTs are all the rage but currently about as intellectually stimulating as baseball cards. Hacks and scams abound far beyond any other industry.
You're just conflating scams with crypto as a technology. If you can't find merit in cryptocurrency while at the same time thinking NFTs are mostly a scam you lack imagination.
I'll be the first one to admit I think the following are all mostly scams, useless, or only serve to create bag holders:
- NFTs
- DAOs
- ICOs (not really a thing anymore)
That doesn't deter me one bit from thinking that Bitcoin, ETH, and a handful of layer 1s are genuinely useful in creating technology to digitize money and decentralize finance. How long is it going to take? Idk. 10 years seems like not enough time. Idk why people are complaining about the lack of use cases. Something as ground breaking as disrupting the banking system is going to be a multi-decade long endeavour. Scams will come and go. That seems like a natural progression.
Right. This is why.[1] That's the SEC's list of "cyber enforcement actions". They have been bringing the hammer down on about two ICOs a month since 2018. Last August, they started in on DeFi.[2] “The federal securities laws apply with equal force to age-old frauds wrapped in today’s latest technology,” said Daniel Michael, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit. “Here, the labeling of the offering as decentralized and the securities as governance tokens did not hinder us from ensuring that DeFi Money Market was immediately shut down and that investors were paid back."
[1] https://www.sec.gov/spotlight/cybersecurity-enforcement-acti...
Why do you assume that the replacement will be net-positive?
Likewise, you reference "decentralizing finance" as a positive thing that's occuring. However, to-date, this has been nothing but a mirage--as illusory as fractional-penny transaction fees and other promises.
We're not even on a path to decentralization, and it's not a temporary aberation to be sorted out. It's actually the design, despite the ruse that tries to focus us on the idea that anyone could operate a node. Crypto is at least as centralized as traditional currency/finance. It only seeks to displace the incumbent financial class with a new one.
Global BTC energy consumption is now double[1] what it was in July, meaning the claim that it's somehow getting better spurious. The article also acknowledges that the energy consumption criticism is a valid issue (even despite the stats being out of date).
But! Bitcoin does have one completely novel trick! It can operate without State backing. No authorities. No trust between parties (whether miner<->miner, node<->miner, or node<->node). Centralization seems somewhat questionable these days, but I think "decentralized enough" is a fair assessment.
None of this is something I look for in a currency, but I can appreciate how cryptocurrencies fill that niche for those who do.
https://ycharts.com/indicators/bitcoin_average_transaction_f... - and current $1.76 is considered low compared to $50 per transaction craziness. So you have to go offchain
Again, I paid BTC for a laptop 9 years ago and it made sense for me then since it was mined BTC from 11 years ago.
In order to use BTC you need to obtain BTC and transaction fees kill any normal day to day use case.
This leaves BTC for less than legal uses where you do not care about fees.
So BTC itself might not qualify as a scam but as a mega enabler of scams and illegal activity.
EDIT: that $1.76 is just a on-chain fee for the network, most stores will charge you extra to use BTC since they do not care about BTC they want to cash out immediately so they use a 3rd party.
So unless you get paid in BTC you have very little reason to use BTC for payments.
That's a long time to hold up the line at the grocery check out.
What's the use case here?
It's marketing to a specific niche of tech bro, which is probably a large enough segment of Newegg's customers to justify it.
It was exciting when I first looked at it and then I realized that this was actually not "democratizing" anything so much as ensuring a new class of folks would be able to create new centralized "everythings" in a new environment outside of the current system - without the benefit of the years of testing, regulation, and (sure) cruft that our current systems have because they're subject to political forces (which is actually a feature).
Maybe starting the wild west over again is a good thing? My money's on "not really" at the moment.
Especially not typically fraudulent are the APY yield savings accounts whose deposits are insured.
Also I doubt you could find countless violations outside of (maybe?) insider trading based on MNPI at these institutions, but if you know of them you should report them - whistleblowers can make a lot of money!!
Not saying this justifies BlockFi’s behavior but the incentives for any bank is there!
I'm somewhat pro-crypto for it's anti-establishment roots (which are barely visible these days) and so I find it interesting that the standard it's held to is much higher than that for existing 'finance' - for which the bar is incredibly low, seemingly for the only reason that society has developed a callous against all that (g)rubbing.
It isn't though. It's has all the worst aspects of Wall Street, more wolves and a few unique problems, without the redeeming feature of it facilitating massive amounts of real world activity, and you'll still find more people on here defending even crypto's most blatant scams than you'll find arguing that securitising subprime mortgages is the future of homebuying but just had a few teething problems.
A rant over two hours long about the endless grift and unfettered scamming that is crypto.
Two hours, and it doesn’t even cover all of it.
1. You have to file a prospectus (an S-1) before collecting money.
2. You have to disclose a lot of stuff, like who's really behind this, where the money goes, what the risks are, what's happened so far, and what the business plan is.
3. Lying in an S-1 is a crime.
Crypto schemes tend to violate 1), because 2) would show that their scheme is a scam, and if they tried to cover that up, 3) would put them in jail.
There's grumbling about "paperwork", but that's just an excuse. It's the part about having to disclose all that stuff under penalty of perjury that scammers hate.