It’s been an exhausting week trying to keep up with the chaotic news coming out on FTX. Here’s our latest crypto collapse update and analysis. This one is on David’s blog. [David Gerard]
While many people have been comparing the fall of FTX to Enron or Lehman Brothers, it’s really more like MF Global, a major global financial derivatives broker that went belly-up in 2011.
MF Global’s fatal flaw was the same as FTX-Alameda: They failed to segregate funds and used billions of dollars in customer money to cover up losses in trading.
Everyone should have seen this crash coming, especially the “sophisticated” venture capitalists who neglected to do due diligence on FTX and instead kept shoveling money into the fire, creating the myth of Sam Bankman-Fried, boy genius, in the process.
You should assume that every offshore crypto firm is like the failed Canadian exchange Quadriga — Zeppelins flying high, waiting for a single spark to set them off.
Image: Hindenburg exploding
Amy Castor 
The Zeppelin analogy is apt in a more subtle way: flammable hydrogen was cheap and easily available, but also provided more buoyancy than inert helium. Early Zeppelins could only fly using hydrogen. Hindenburg was efficient enough to fly using helium but the passenger + cargo weight carried would have been cut almost in half, while also greatly increasing gas costs – both impairing its economics. Airship proponents commonly claim that cargo airships would still have an economic niche today if they used hydrogen for lift.
The parallel I draw with crypto is that crypto investments cannot generate returns attractive to investors, unless they are either risky (high effective leverage) or unsustainable/unstable (ponzis, NFTs, etc).
I am unclear as to whether the investors have excessive expectations for returns, or whether there simply aren’t any legitimate investments in the crypto space. Both could be true and I suspect that is the case, but I can’t prove it.