Most people couldn't tell you how a 401k works or even how a mutual fund works. It's why regulations are so important and it's why things like NFTs will probably soon be regulated as securities.

This is true in the social bubbles you and I likely occupy but very much not (yet) true elsewhere.

I have had many conversations with friends and family that are outside of tech asking my what crypto is and if it's something they should invest in because all they see right now is the hype, excitement, and ads from crypto companies.

I think this should really answer the question, and I don't quite understand how anyone can be self-aware enough to recognize these things without also connecting the dots that "companies which do those things to promote their products are not generally trustworthy at-large"

I know this phenomenon all too well though. It's the classic formula. "Generally Well-Understood Thing" is familiar to lots of people without need for any special qualification or training to understand the thing across a fairly wide range of functional parameters. "Generally Well-Understood Thing, but On The Internet" on the other hand is a completely new animal with all old assumptions required to be re-examined for a new understanding from first principles, assume we know nothing.

The understanding is tried, too many foreign concepts enter the discussion, often the desire to understand "how this is different" results in an under-founded belief or assumption that adding the internet DOES in fact somehow make this thing different than it was before, end with a newly emergent confusion overarching the whole and 9/10 times no further understanding is gained and no connection between the two ideas of "thing" and "thing on the internet" is retained.

As long as media is somehow seen as normal and people don't question e everything, you need consumer protection laws.

It's that easy.

If you watch cable news you will see a commercial for a crypto company followed by a Vanguard commercial followed by a Fidelity commercial. In the wider world it is not massively ridiculed and is presented in the same way that more traditional investment companies are.

Cryptocurrencies aren't investments. They're gambling, and regulations should require advertising, exchanges and NFT platforms to say that.

I had friends in Luna. We all told them over and over it was a scam. They could not listen. “Dock your stuff at terra station, 20%, how are you not in crypto, look at my account size, here are ten explainer videos showing complex gamified mechanics for why I’m a savvy insider” etc

I agree regulators dropped the ball, but also at some point people really are almost willfully blind to downsides. We even had the example of Iron and Titan which collapsed similar to Luna and UST.

I tried to warn them to treat it as a "gotta check on it thrice a day" investment and not a "set it and forget it" investment but they were all lured in by the LUNA "community" and basic greed.

They just think they’re smart enough that THEY aren’t on the bottom layer of the pyramid.

I agree with you, but in societies with the concept of bankruptcy, compulsory healthcare, etc., we all bear the burden of their willful blindness.

That's why it should be a supply-side solution: people shouldn't be able to sell dangerous/scammy/faulty products at all, because there will always be suckers that the rest of us have to prop up when they launch themselves into poverty,

If you don't understand how a mutual fund works, you have no business investing in some obscure "stablecoin".

But let's be real: 99.9% of the "victims" were trying to get-rich-quick themselves. Many are gambling again on Luna 2.0 right now. Caveat emptor.

I'd agree they shouldn't get into CDS and other esoteric instruments, and I also would put crypto investments in the 'esoteric' bucket.

Do you have a source for this? I feel like some details are lacking.

The tldr is that they bought credit default swaps for debt owed by Codere SA, and then offered the company financial assistance to restructure with the requirement that they pay their existing debt late to trigger a default.

He discusses the morality of this particular issue, as part of a discussion on a proposal for the SEC to regulate it, here: https://www.bloomberg.com/opinion/articles/2021-12-16/the-se...

Basically, Levine's argument is that as a result of these sorts of shenanigans, one giant investment fund (in this case, I guess, Black Rock, though again I don't know about this specific instance) gave money to an actual company that was employing people and doing something in the real world and that was in some kind of financial trouble. And it did that because it wanted to make even more money from some hedge fund somewhere, sure, but look at who was harmed (a hedge fund that was in the business of buying and selling Credit Default Swaps) and who benefited (a real company with a whole bunch of employees who would otherwise be laid off, and another hedge fund that was in the business of buying and selling Credit Default Swaps) and I'm not sure that the whole thing is that bad?

Something happens that harms some party, the event is studied and regulations are sometimes updated.

Let's say the option expires worthless. You make money having done nothing but collect my premium.

I take the option, and because it's positive gamma, when it goes up I make money, and I flatten. When it goes down, I'm short, and I make money and buy. I keep doing this buying low and selling high until I've made more than the premium.

---EDIT

My point is there can be reasons for both sides to do the trade. Nobody needs to be "harmed". The line of reasoning that says one of you must lose misses the point. If you buy insurance, either your house burns down or it doesn't. That doesn't mean either you or the insurance company was harmed.

Each individual options trade is zero-sum (one side wins exactly as much as the other side loses, barring transaction fees), as is the total of all options trades.

The whole point of having financial instruments is that you can mix risks. Whether each individual one results in heads or tails is not actually the point, the point is entities can shape the risks they want to be exposed to.

Yes, people are to blame but I think history has shown us that the masses are easy to fall for these kinds of games over and over. It is the reason we have regulation and while yes, these people are to blame, I think the bigger fault is on the government for allowing it to happen. These instruments are scams in the guise of valid financial instruments.

Gullible buyers of TerraUSD (pre-crash) directly don't share this courtesy.

Please correct me if I am mistaken, but it seems to me that you either fail to understand what an NFT is or fail to understand what a "security" is (note: the vast majority of NFTs do not grant nor claim to grant you any explicit form of equity or fixed income). Perhaps some NFTs can be seen as a form of equity (e.g. those representing collateralized debt positions), but the vast majority of them simply don't.

According to this logic, things like Beanie Babies and Magic: The Gathering cards should also be regulated as securities (since they're also collectible things that people trade/buy/sell).

TL;DR: Just because X can be bought/sold/traded, it doesn't necessarily make X a "financial instrument" or a "security", regardless of the question of whether economic activity around X should be regulated or not.

Mutual fund - ok the mechanics are a bit more complicated but pretty straightforward.

In other words, a lot of people.

Not that I can claim I'm being any smarter. I really should instruct my employer to reduce my tax withholdings, as I'm saving into a tax advantaged account to which contributions result in an income deduction. Every dollar I get at the end of the tax year in a refund is a dollar I'm not saving during the year (thus losing out on some long-term gains).

But at least I know better. ;)

Get rich quick financial scams have been around for a long time, I remember back in the 80's when my dad got scammed buy an oil "investment" - I don't even know how he found out about it, but they mailed him an official looking prospectus with geology reports showing oil deposits, and even a sample of oil that they'd "drilled" from one of the plots, all they asked from him was $5,000 to buy rights to the land, and soon he'd be making huge profit from oil leases.

But that profit never came and soon the company just closed up shop.

If he'd invested that $5,000 in the stock market, it would have grown to over $60,000 by the time he passed away 10 years ago.