May 10, 2018
I'm just as excited as the next person when I hear about XRP getting listed somewhere new. I even got excited when I started hearing about these fantastic apps that allow you to quickly trade between cryptos, but like everything else in my fantasy-destroying life, I and even some others, took the red pill and really started looking hard at those apps, because if there's one thing I've learned from a lifetime of sleeping with the enemy, it's that they never stop looking for a new way to fuck us.
For those of you that have been watching my Twitter interactions with "proxy coin" vendors (also called tethered exchanges. Think "boiler room") such as Abra and Revolut (Some other examples are Robinhood, eToro, anything that won't let you withdraw your coins), etc., you will see a recurring pattern. Every time I push them to either publicly disclose the insolvency risks to investors, or the exact mechanism by which your funds are generating profits for them, I get either no response, more no response, a dismissive response, trying to hide from the public, or some cryptic gobbledygook that serves only as a smokescreen. There is a solid reason for this, and it comes down to the simple concept of: They're gambling your money without your knowledge or permission; and they'd like to keep it that way. The more I dig, the uglier the deception becomes.
(note: if any of the links show as Tweets were deleted, let me know via Twitter and I'll post the screen shots)
EDIT: Here's an example of how dangerous these proxy vendors are: eToro forcing liquidations
I know I've been beating a dead horse about hedge funds disguised as these virtual wallet app vendors, (and don't get me wrong, I understand this is war), but I'm more incensed than ever that despite all the intense regulatory scrutiny that crypto is undergoing, these operations are somehow not only legal despite complete lack of transparency, but outright flourishing at the expense of all us mom-and-pop investors! How is it possible that they can continue to prey upon the ignorance of the masses?? I firmly believe that hedge funds represent the single-greatest ongoing threat to the stability and meaningful valuations of the crypto market. They absolutely control the markets, and more importantly, they are taking all the profits for themselves. This rant should serve to elucidate the Rube Goldberg (click this, amazing) bullshit they pull to skin the market alive.
So how do these outfits make money? On the spread you say? Pffft, not likely. Since they won't come right out and tell us what they're doing, the best I've been able to theorize, backed up by the above links as evidence and their lack of willingness to discuss their profit model, is that they hedge your money with complex "financial engineering". What does that mean? It's quite simple actually if you're knowledgeable in the finance world, but if you lack this experience, it can be confusing and easily overwhelming, SO, I have conceived an analogy for you so the average person can understand how they rape the entire market; yes, everybody.
Imagine if instead of buying coins, you were buying real estate. You hire a realtor, you visit a number of homes, and finally decide on a beautiful home for you and your lovely family. Great! Now the realtor says, you have two options: 1) you can go through the regular home ownership process with a bunch of paperwork and time (getting onto a legitimate exchange), OR, 2) you can buy your home through proxy with us and get it today!
Proxy with the realtor?? That seems odd. So you ask the realtor, well, what does it mean exactly, 'by proxy'. Do I own the house?
The realtor says, YES, but not exactly. You see, legally, we the realtor will own the home, but we will put it on a billboard in plain view that we OWE it to you, and whenever you want to sell it, you will be entitled to the cash it was sold for. It's exactly the same thing as owning it without the headache!
You ask, But what if I wanted to sell it through another realtor??
The realtor replies, well that won't be possible, but we offer the best rates in the business so you'd be crazy to want to do that anyways. Plus, we'll make sure you get the best price and quickest sale. And because it's all on highly-visible billboards that we owe you this house, there's no way we can legally take it away from you.
You say, well, that sounds pretty slick. What's the catch?
The realtor's face contorts into the seriously most choreographed expression of 'surprised insult' ever practiced for days in front of a mirror. Really?? There's no catch at all! It's all in our public disclosure documentation.
So you decide it makes sense, get a mortgage, and hand the realtor the money. The realtor starts to drive away, but you decide that you're too curious to trust anybody, so you follow him.
This is what the realtor does:
The first thing is he buys a totally different house (coin) that's twice the size, with your money as a 50% down payment,
At the same time, he also gets a mortgage (margin leverage) to finance the other half of the cost for his new huge home!
Now that the realtor has his new home, he then gets a second mortgage on this property, getting your money back out of it (shorting),
He then buys YOUR smaller property (your coins), on your behalf,
and puts an IOU that he owes you this little house, on a public billboard.
On the surface, yes, the realtor did exactly what he promised in terms of buying your house for you. What he didn't tell you is the following:
He leveraged your money to buy an even bigger home for himself
He is hoping to make a profit on his bigger house
Since he turns every home purchase into two purchases (yours and his), his activity artificially creates demand for real estate (volume), which artificially drives up real estate prices
Real estate price increases attract further realtors to play the same leverage game (hedging)
Prices will climb far beyond underlying valuations as the number of competing realtors saturate the market with huge leverage, creating a mathematically unavoidable massive bubble.
The smarter realtors will see the bubble peak, and start selling their large houses for the top prices, pulling tons of cash out of the market, causing prices across the market to drop precipitously
This will cause a cascading price slide as the leverage bubble pops, causing some realtors to lose everything and go bankrupt (yes, possibly even your realtor) when they can't make the mortgage payments any more (margin calls). Both his house, and the house he owes you, will be seized by his creditors. Yes really. Yes really. Sure, he'll still owe you a house, but he doesn't have it any more, and his creditors won't recognize your claim on it.
If your realtor manages to escape bankruptcy, you will at the very least, lose a lot of value in the home when the bubble bursts. However, if he does go out of business, then you lose the home entirely, because it was in his name. It doesn't matter if it was on a public billboard, there's nothing enforceable about that because it was a deal only between you and your realtor. Your only recourse is to sue your realtor, which amounts to nothing if he goes bankrupt.
Why don't they tell you all this?
Because they don't have to.
Now obviously there's some failures in the analogy to convey the reality, and I know there's some stretches that wouldn't quite work in the context of mortgages, but you get the idea, and this type of "financial engineering" is the bedrock of hedge fund strategy.
Don't let them bubble the market using your money; just buy the coins outright folks. Go through the pain of applying and paperwork to get on a legitimate exchange that will allow you to withdraw your actual coins to your own wallet in your possession. That's why this whole blockchain paradigm got started in the first place, to create a TRUSTLESS form of money so we can stop getting systematically and perpetually RIPPED OFF by the finance industry. Sure, they may have some cool features (debit cards, etc.) so if that's your motivation, then just keep a little bit of your stash there, not your whole stash.
Crypto was invented to take power away from the banks, to give you control over your wealth. If you instead give your money to these Hedge Funds whales that are posing as easy crypto exchange/wallets, it is literally jumping out of the bank frying pan into the hedge fund fire in terms of risk! Hedge funds are orders of magnitude less safe and trustworthy than banks, with zero safeguards to protect consumers.
They are literally and intentionally "bubble-making" machines because every penny they invest for themselves is borrowed against your money! Moreover, hedge funds make HUNDREDS OF MILLIONS in PROFIT!! Where do you think all that money is coming from?? It's from investors like YOU and ME! Wouldn't you rather be the one that profits from your investments?? Don't let these psychotic assholes game the system, fucking over everyone else at the same time.
Imagine what your coins would be worth right now, RIGHT now, if these hedge funds hadn't already sucked hundreds of millions out of the market. There goes your money, people. Most investors that join hedge funds knowingly do so to share in the profits, but in this case, you get nothing from these sleazy outfits; you're just "giving" them free investment capital to profit off of and you're getting nothing in return to justify the huge risks they are taking with your money. What a gimmick!
Moreover, your funds are not safe. How many crypto companies have to go out of business, get hacked, shuttered by regulation, crushed by one of their traders going rogue, etc. etc. etc. or otherwise become insolvent? I know it's profoundly convenient to just ignore these risks because humans have a tendency to believe that bad things will never happen to them, but really, there are hundreds of examples of companies way bigger than these even, crapping out and everyone loses their money, from ICOs to world-sized crypto exchanges. It has happened. It absolutely will happen again, many times. Considering it's very little effort to be able to keep your own coins safe in your own wallet on your computer, it's senseless, nay, STUPID, to trust the least trustable of all financial companies there are; a fucking hedge fund. Literally putting all your money on the handrail of a bridge and hoping the wind doesn't blow. Stupid.
Please, stop feeding the whales. Proxy coin Hedge funds are the "realtors" that eat all our entitled moonshots. Do not buy proxy coins from any outfit, no matter how simple they make it. You are only hurting yourself and everyone else by giving control of your money and profits to them. Hedge funds serve no useful purpose whatsoever for the ecosystem. All they do is create bubbles and manipulate crashes, taking money out of our hands; in fact, creating bubbles is HOW they take the money out of our hands, so make no mistake, these bubbles are quite intentional. Any liquidity they generate is entirely self-serving and does nothing to propagate the "utility" of any coins.
In summary: If an "exchange" or "app" won't allow you to withdraw your chosen coins to your personal wallet, then a hedge fund is operating behind the scenes and you are giving them not just yours, but all of our profits!
End. Of. Story.
Comments welcome on Twitter