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The great FTX blow up (part II)

I recently rewatched SBF being interviewed on the David Rubenstein show - "Why do so many young people seem so attracted to crypto... it seems like young people are particularly are very interested in it. Why is that?"

"If you're...you know... twenty-one years old, and trying to get access to markets... you want to be able to trade, to invest. You can sign up for an account on crypto-exchange and get full market access. If you try to get that same level of access in equities, in commodities, you can't get it. You're going to end up with heavily mediated access that has like pretty limited amounts of real interactive-ness, limited amounts of liquidity, limited amounts of size, limited amounts of market data. And so for a natively digital generation looking to take more control of their finances, actually being able to do it with crypto is a big big difference."- SBF

Observe David Rubenstein's expression and you might detect a little skepticism and "wtf" in his responses.


So much of the above subconsciously embodies a culture of wanting unlimited quantities of everything. It also speaks to the rebelliousness and perceived inadequacies in younger people, that they don't get the same opportunities and access as older folks. And how does having unlimited amounts of liquidity enable one to "take control of their finances"? That just sounds crazy. Whatever happened to spending within your means?


Call me old school but if you are twenty-one years old, you shouldn't be trying to "get access to markets", you should be trying to acquire hard skills and work experience to do something constructive to society and the economy.


The problem with financial markets is that after awhile, everyone forgets the most basic purpose of a stock exchange: To enable businesses to raise money from providers of capital. Along the way, we somehow got carried away in the frenzy of buying and selling based on imagination and greed, passing on the hot potato down the line. Social media also amplifies a lot of that.


For what the FTX fiasco is worth, it has highlighted that:


Despite how far and sophisticated we have come in terms of building an efficient capital markets, our understanding of risk-reward has been severely distorted in the process. Leverage is increasingly being seen as a tool for achieving abnormal returns rather than a cost-effective way of expanding a business. The ability to tap on unlimited liquidity to have "more control over finances" simply removes having skin in the game. It transfers the risk onto the financial ecosystem, which is buoyed by layers and layers of story-telling.


[Read part I]

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