Return to Nothingness: Big Crypto’s struggles with basic accounting and economics — by Martin Walker – David Gerard

by | Dec 24, 2022 | Financial

Guest post by Martin Walker
The leaders of “Big Crypto” seem to have a huge problem understanding the basic concepts of conventional finance — such as balance sheets, auditing and cash flows.
Changpeng Zhao, a.k.a. “CZ”, of the Binance cryptocurrency exchange, recently described how they managed over $580 million of FTT crypto tokens: “We never touched it, we actually kind of forgot about it.” Sam Bankman-Fried has expressed endless confusion about the management of assets by the FTX cryptocurrency exchange and the Alameda hedge fund.
Even before the collapse of FTX, Sam had some unusual ideas about the methods the crypto industry uses to generates value:
… the smart money’s like, oh, wow, this thing’s now yielding like 60% a year in X tokens. Of course, I’ll take my 60% yield, right? So, they go and pour another $300 million in the box and you get a psych and then it goes to infinity. And then everyone makes money.
Cynical people, like most of the mainstream media and the Securities and Exchange Commission (SEC), have finally started coming around to the idea that much of Big Crypto is run by people who are recklessly incompetent and/or criminal. Perhaps some of them are. But it is worth trying to understand how the billionaires (and recently ex-billionaires) developed their ideas about the financial world.
Back in 2016 I co-wrote a paper that pointed out that cryptocurrencies such as Bitcoin are “an asset without a liability.” In other words, “created out of nothing defying the laws of double entry bookkeeping.” Financial assets are always someone else’s liabili …

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