World’s largest crypto fund swept into FTX storm | Hacker News Reader

World’s largest crypto fund swept into FTX storm

ft.com

21 pointsDogOfTheGaps13 comments

> GBTC’s central problem is that it has been superseded by the advent of better vehicles for holding bitcoin.

This really has nothing to do with FTX in the way anyone would assume from this headline; at best "the value of crypto generally went down a bit, so anything tied to the value of crypto would go down a bit"... but it isn't like this product now has some fundamental predictable negative change in its value proposition due to some form of financial contagion from FTX.

The core problem is this fund never made sense to begin with: it is a share in a company that itself owns Bitcoin, and so one might naively assume the share is going to be priced as "amount of bitcoin owned divided by number of shares"... but if you own a share of a company you can't ever get your share of the assets of that company so the share price is going to be worth a lot less than that and it is ridiculously naive to believe that you can value a stock like that.

> The underlying problem is that — unlike for ETFs — there is no arbitrage mechanism to bring supply and demand back into balance.

Essentially, the value of these shares were then entirely defined by what amounts to a prediction market on whether the people who created the product were going to manage to pull off getting it converted into a form of regulated entity where the value of the shares would work like that, and, so far, the SEC hasn't let them.

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> “It’s highly disappointing that the SEC continues allowing any retail investor to access this fund, yet they won’t approve a spot bitcoin ETF which would solve the discount problem. This is yet another example of the absurd regulatory dysfunction around the entire crypto ecosystem right now,” Geraci added.

I've even heard the conspiracy theory before that this is some kind of plot by the SEC to help drive people to centralized exchanges that they are connected with (as Gary Gensler might be with FTX) or that they expect to fail (in an attempt to kill cryptocurrencies). But like, FTX now having failed frankly would seem to only bolster the argument that a clean regulated ETF would be much saner than all of this exchange mess.

> Moreover, Geraci believed the FTX debacle has bolstered the case for regulatory oversight of crypto exchanges, “theoretically accelerating the timeline for spot bitcoin ETF approval”.

Looks like Paul Graham's friend was correct: https://mobile.twitter.com/paulg/status/1594446009010212865.

Kinda like warning about a fire literally as it's occurring, the residents already evacuated, and already having made front page news. "More crypto exchanges are more than likely going to collapse shortly." There is my prediction. Feel free to link back to this comment as it occurs.

Good point.

Yeah. The titanic has hit the iceberg, water is flooding the lower decks, people are fighting to get on the lifeboats, PG tweets "A person I have known for more than ten years, who I consider trustworthy, is convinced the titanic isn't all that seaworthy. I don’t know anything concrete, but if I were exposed, I would be concerned."

Also, anyone who thinks they aren't exposed is significantly underestimating the potential for contagion in the wider economy. As crypto-exposed funds have to make margin calls and take losses, they will need to liquidate assets in the normal economy, driving asset prices down across the board. It's not going to be as big an impact of 2008 but the economy is in a worse position to withstand shocks right now, with inflation high and years of QE overhang still to unwind.

Based on how my brother and his gf got sucked into it, a majority of my cousins, and a ton of friends of my brother and cousins, I agree there may be a correction that is needed and felt. Hell, I even managed to lose $1200 to a pig butchering crypto romance scam. Despite that, the day I stop getting interview requests for web3 companies and seeing them in the headlines every day is the day I will breathe a sigh of relief.

Nan, it’s nothing yet.

For now it’s just a bear market - not a collapse of the crypto system (which is coming). Dogecoin has a market cap of 10B ! We can start talking about the real storm when it’s 0.

10.5 billion is a lot but it's less than FTX, if there's something apocalyptic coming it should be something else.

Just curious how the dominoes will fall but it does seem like the people that invested in cryptocurrencies underestimated the risks of corruption. It looks like programmable money and clever financial engineering makes embezzling money a lot easier.

> Just curious how the dominoes will fall but it does seem like the people that invested in cryptocurrencies underestimated the risks of corruption. It looks like programmable money and clever financial engineering makes embezzling money a lot easier.

There is nothing of these failures that involves the programmable money part. DCG and Grayscale live in the traditional finance world, they are asset managers in traditional finance. Their accounting books are not a public, decentralized, cryptographically verifiable ledger . When you buy a stock of their fund, this is not settled on-chain in any way. If they are fraudulent, it's again the traditional finance controls that are failing.

That's a good point but that's the case with all fraud because the digital tokens have to be converted back into fiat at some point. FTT was created without much oversight because no one had enough experience to properly audit anomalous activity. Presumably someone can trace all the fraudulent FTT transactions because it's all public but it doesn't seem like anyone has actually managed to do that. Everyone knows the money is gone but no one knows how that happened and through which FTT transactions.

When the big systemic shock comes it's going to be USDT being revealed to be a fraud. Absolutely noone at all[1] saw that coming.

[1] By which I mean actually pretty much everyone. But it will still have a significant impact when it actually implodes.

There is no news there.

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