I recently rewatched SBF being interviewed on the David Rubenstein show. The following question was being asked:

"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?"

And SBF replied:

"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."

I was studying David Rubenstein's expression in relation to that response and I wasn't sure if it was skepticism or that he was cringing inside. So much of what had been said hints at a mindset of wanting more, more of everything in unlimited quantities.

It also says something about the inadequacies seemingly experienced by the younger people--that they don't get the same opportunities and access as their predecessors. For example, why is having "limited amounts" of liquidity a bad thing for the younger digital generation? Whatever happened to spending within your means?

People who are twenty-something years old shouldn't be trying to "get access to markets" and unlimited access to money. They should be trying to acquire hard skills and real-world working experience. Providing an unrestricted platform to unlock more liquidity so that young people can trade crypto-assets doesn't seem very prudent to get them properly educated with the dynamics of earning and spending money.

The real problem with financial markets today is that, everyone forgets the origins and first principles of banking.

Banks were created to extend financing to businesses in order to help them grow. Underpinning that model is the principle of leverage--borrow 'cheap' money to invest in companies with high returns.

Using leverage to magnify returns is still a healthy investing principle until tne investor gets carried away with speculating with returns. Today, a large part of leverage is consistently mis-used as a product created for institutions to profit from greedy customers with poor financial standing.

Stock exchanges enable businesses to raise capital so that they use the money to grow their businesses. The platform provides a unified and visible way for those future profits to be returned to shareholders. It was not meant for punters to speculate (initially).

It was greed that got everyone carried away in the frenzy of trading based on telling stories, and bankers were happy to profit from facilitating those transactions. For what the FTX fiasco is worth, it has further reinforced that despite how far and sophisticated we have come in terms of building an efficient capital markets, our understanding of risk-reward are now severely distorted.

Platforms--crypto or not--that offer investors the so-called unlimited liquidity to have "more control over finances" simply appeals to greed. It removes having skin in the game and transfers this risk onto the financial ecosystem buoyed by multiple layers of story-telling.

[Read part I]