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2022
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No Bank Account is Safe in 2023 (Traditional or Otherwise)
In response to this massive theft (as I’ve never paid 80% of my savings account to receive a haircut), most people responded with apathy and “that won’t happen to me” syndrome, though I explicitly stated that the 2013 fiasco in Cyprus was just the beginning of people being “cyprus’d” over and over and over again in the coming decade. And surely, each succeeding cryptoexchange bankruptcy seemingly outpaces the last one in the breadth of its implosion crater and the number of people caught inside its implosion radius. In addition to the multi-billion dollar collapse of the FTX cryptocurrency exchange this month in which clients appear poised to lose billions of dollars, other notable cryptocurrency exchange collapses include the 2014 Mt. Gox Tokyo based exchange, the 2019 collapse of the largest Canadian cryptoexchange at the time, QuadrigaCX (which I extensively covered at the time), this year’s collapse of the Voyager Digital exchange and the subsequent collapse of the Celsius lending platform, and of course the aforementioned recent collapse of the FTX exchange. In all the more recent cases (Voyager Digital, Celsius, and FTX), each time, celebrity endorsers from Mark Cuban to investment/finance YouTuber influencers gave their mark of approval to each of these platforms, leading millions to believe that such platforms were “safe” places on which to park their money prior to their collapses. However, as I’m one that has always stressed personal accountability for all investment decisions and has raged against blind compliance to any analyst’s guidance as patently stupid, I can’t place all blame at the feet of finance YouTubers for the massive losses suffered by lazy people that take their investment cues from them. Is it sleazy and unethical for these finance YouTubers to have so relentlessly promoted exchanges on their channels in return for alleged payouts of millions of dollars a year from these exchanges to do so? Of course. Doing so is the exact definition of selling your soul and honor. However, does some blame lie with those that blindly followed these YouTubers without performing any due diligence on any of these exchanges before parking large sums of money on them? Absolutely. Though I called out Mark Cuban as a complete fraudster for consummating a deal with the Voyager Digital exchange that caused him to relentlessly promote Voyager to all fans of his Dallas Mavericks basketball team, I’m sure very few people heeded my warnings. However, people must accept some personal accountability for the decisions they make as well. As an example of our Zero Accountability Society, I recall one year, when I was still running my investment research firm, that I produced an asset allocation model every month that provided a specific weighting for every asset included in my asset allocation model along with exact buy and exit prices. In 2008, when the US stock market crashed by almost 50% and the S&P 500 index ironically bottomed at the 666 mark during Q12009, despite 50% losses in the overall market, I actually kept all my clients positive that year, and followed a nominally positive yield in 2008 during a 50% market crash by the provision of an enormous annual yield of more than 63% in 2009. However, unbelievably, in 2008, one of my clients wrote me a blistering email blaming me for his 50% losses because he chose not to follow my asset allocation model that remained positive that year, but instead chose to follow the advice of his Wall Street adviser into a diversified asset allocation model (completely against the guidance of my asset allocation model that was concentrated in just a handful of assets). This man was the posterchild for the “zero accountability” generation – blaming someone else for decisions one makes that causes a negative outcome while taking zero responsibility for ignoring guidance that would have produced a positive outcome – or described in more appropriate terms, complete cowardice. There is No Separation in Traditional Bank Accounts from Cryptocurrency Bank Accounts in Risk
A decade later and billions more lost with cryptocurrency firms “Cyprusing” their clients, I still observe plenty of people today laughing at the naivete of those that dumped the bulk of their savings into cryptocurrencies and parked them with cryptocurrency exchanges run by shady characters, yet believing (very falsely) that their deposits parked in traditional banks are a thousand times safer. Many traditional bank depositors make the massive mistake of believing that traditional banks are completely safe due to offered insurance on these accounts, such as offered FDIC (Federal Deposit Insurance Corporation) insurance of up to $250,000 per bank account in the United States. And the same mistake applies to all those that believe their money is safe in European banks or on whatever continent in which you chose to park the bulk of your life’s savings. I’ve already stated in prior articles on my substack platform why FDIC insurance is completely meaningless and nothing more than an “IOU”, so I’m not going to rehash that argument, for the sake of avoiding redundancy. However, I will offer a comparison of the lack of safety of deposits parked in traditional banks to the lack of safety of deposits parked on cryptocurrency exchanges. One of the latest dominoes in the chain of falling cryptocurrency exchange dominoes to be exposed has been the Genesis cryptocurrency exchange. Earlier in November, Genesis suspended all withdrawal requests from its exchange. Chief Executive Officer Derar Islim admitted that withdrawal requests had exceeded Genesis’s liquidity positions thereby making it impossible for Genesis to honor all withdrawal requests in a timely manner. Of course, the usual responses of superior safekeeping at regulated traditional banks over unregulated cryptocurrency exchanges dominated social media discussions, but this simply is not true. Unfortunately, such responses are devoid of the realization that if MMA (Money Market Account) depositors tried to withdraw the same percentages of deposits from any large global bank in a really confined period of time, said large global bank would almost certainly have to suspend withdrawals due to lack of immediate liquidity as well. The fact is that no large global commercial bank has experienced a situation in which its depositors ever tried to withdraw 10% of cumulative deposits parked at the bank on a single day, but if this ever happened, this bank would be forced to suspend all withdrawals. Frankly, most global commercial banks run their deposit operations in such a massively risky manner today that even a single day client request to withdraw 5% of all cumulative deposits would likely trigger a liquidity crisis at nearly every single large global commercial bank. Thus, in reality, fiat deposits are none the safer in a large US bank, subject to the same run on deposits, than any investors’ crypto deposits are with any of these large crypto exchanges, regulated or not. People equate “regulated” with safety, which is quite naïve given the fact that “regulated” Cyprus banks stole more than half the money deposited in their banks in 2013. The true difference in safety comes only from the perception that traditional bank accounts are much safer, thus making them less likely to be subject to a bank run.However, the proof is in the actual outcome of a bank run. And frankly, there would be little difference in the fact that liquidity would quickly dry up during bank runs on a cryptocurrency bank account and on a traditional bank account. Most bank depositors have no idea that most banks invest the vast majority of their MMA deposits like hedge funds, and that the “balance” of these deposit accounts that flash on ATM machine screens is purely digital, unavailable for 100% withdrawal at anytime (as evidenced by the tiny daily withdrawal limits banks place on these accounts), and never immediately dispensed to customers without advance notification, even in times of emergencies in which a client may need $300,000 of the money in their savings. In reality, the outcome of a Genesis like run or FTX exchange like run on deposits at any major global bank would be the same as the disastrous outcomes experienced by these cryptocurrency exchanges. One of the biggest criticisms of FTX was its massive imbalance between assets and liquid assets, as FTX claimed $9.4B in assets, only $940M of which were allegedly liquid. After this revelation, of which even the claimed total of $9.4B in assets was highly dubious (as I’ll explain in a minute), people rightfully criticized FTX for keeping such a small percentage of assets as liquid. Ironically, since FTX never had $9.4B in assets due to their creative accounting measures, their percentage of liquid assets to total assets may have been much higher than 10%. In comparison, if you have $1M in any large “respected” global bank, try walking into that bank, unannounced and withdrawing the same 10%, or just $100,000 in cash. If a traditional bank account is really a thousand times safer than a cryptocurrency exchange account, no bank customer should ever have a problem withdrawing 50%, let alone 10% of your entire account amount on any given day, completely unannounced. The only way this would ever be a problem is if banks only keep a very small percentage of its customers’ cumulative bank deposits in a liquid state – the very criticism levied against FTX that provoked the conclusions in the financial mass media that FTX was operated with a clownish level of inexperience. Even if you have a much lesser $100,000 in a MMDA, you can’t just walk into a bank unannounced and withdraw 10%, or $10,000. One will quickly discover that without some type of prior arrangement that it is impossible to do so. And for those that laugh at the fact that FTX never marked its assets to market value, valuing obscure tokens like Serum that had a market value of somewhere between $50M and $86M with an absurd valuation of $2.1B on its balance sheet, how quickly we all seem to have forgotten that US regulators, during the 2008 financial crisis, suspended all mark-to-market reporting regulations for all US banks and allowed bank CEOs to value, using internal valuation models, their assets at whatever ludicrous valuation the bank CEOs desired. And regulators allowed this ridiculous situation to persist for years and years, even after absurdly comical bank operating models were directly responsible for creating the 2008 global financial crisis. Furthermore, since many bank executives salaries were tied to stock price performance, US banking regulators, through suspensions of realistic mark-to-market valuations of assets, encouraged US bank executives to insanely lie about valuations in order to inflate their own annual payouts as much as possible. Lying was actually legalized to encourage a transfer of wealth to US bank CEOs. Consequently, US banks could have been holding assets, if liquidated on the market, would have fetched $100M, at $3B if they so desired. And we laugh at these revelations about how Sam Bankman-Fried and Alameda CEO Caroline Ellison ran operations when many traditional bank executives have no pot to piss in either as they routinely have practiced, and continue to practice dubious behavior every bit as risky as those practiced by crypto exchange executives. Thus, I fail to see the distinction between the risk-laden practices of cryptocurrency exchange CEOs and that of traditional bank CEOs, though the mass financial media wants us to believe that there is a massive demarcation between these two worlds in terms of corporate wide risk practices. Though I’m sure some drug cartel money laundering has taken place on “unregulated” cryptocurrency exchanges, proven massive drug cartel money laundering, like HSBC’s laundering of at least $1B for the infamous Sinoloa drug cartel between 2005 and 2008 (and in my opinion, likely laundered billions more that were not caught by regulators during and outside of this time period), has repeatedly occurred at “regulated” banks. So, what is the difference between “regulated” and “unregulated” if “regulated” allows for massive criminal activity as well. Furthermore, do not doubt for a second, that given the occurrence of a major global bank run in the future, that when this happens, bank executives, just like cryptocurrency exchange executives, will gladly “Cyprus” you of your deposits to prevent their collapse. If there is one bankable future event, it is this. Conclusion/ Solution If you’re taking financial guidance from a YouTuber, then expect future massive losses, even if you’ve already experienced massive losses from following his or her guidance, to continue. Though you may ironically state, “You used to be a YouTuber, as you referenced one of or your prior videos about the Cyprus bank debacle” above, while this statement is true, YouTube demonetized nearly all my videos as soon as I published them, and I literally earned less than US $5.00 (that is not a misprint) for videos I produced that received more than 13.5M views. Thus, I left YouTube about a decade ago because it was impossible for me to gain traction there regarding channel growth and monetization. Thus, if you find old videos of finance YouTubers that abandoned YouTube over a decade ago, perhaps you may find real content, versus propaganda in those archived videos. Another financial YouTuber allegedly being roundly criticized for heavily promoting FTX recently uploaded a video promoting a US government Series I savings bond as one of the “safest” investments a US citizen can make. For the sake of it being much easier to explain why a Series I Savings Bond guarantees net losses for this year and likely every year into the future on an evergreen basis, I’ve posted a very short podcast about this on my substack platform which you can watch by clicking here. Secondly, do not fall victim to the mainstream narrative that most cryptocurrency exchanges are a very risky place at which to park your money while global banks, due to their nature of being “regulated” are not. Global banks are run by executives of extremely questionable character that take massive risks with your deposited money as do cryptocurrency exchanges, and run big global banks today with more similarities to a hedge fund than as a corporation assigned with the mission of safekeeping its depositors’ money. Furthermore, most people are completely oblivious to the power of the banking lobby that has lobbied to change past laws that protected bank clients to the point that they can run amok with no threat of jail time from the execution of dubious behavior, the consequences of which rears its ugly head from time to time. As happened in 2008, such behavior will once again be exposed for the world to see in the future very soon, with very negative consequences once again for unfortunate depositors that do not heed my warnings. For the solution to the problem raised in this article, click this linkfor access to a lively thread posted this past May on my substack newsletter, available only to my substack subscribers.
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