Comment by plantain
4 months ago
How on earth is it possible they can cover a 1.5B loss? Are they really sitting on that much profit, or is the goal to ponzi it out from here, MtGox style?
4 months ago
How on earth is it possible they can cover a 1.5B loss? Are they really sitting on that much profit, or is the goal to ponzi it out from here, MtGox style?
Bybit trading volume is in tens billions of dollars daily. Their comission rate for the retail traders is up to 10bp (0.1%). Even considering a huge part of that volume is coming from institutional players who enjoy significantly reduced commission rates, I think they're surely making few million dollars daily on comissions alone, maybe tens of millions in a good day. And besides comissions, they also have other sources of profit, like staking, crediting customers, and forced liquidations.
Being a crypto exchange in current market is very profitable. If the crypto itself does not collapse, I think it's totally possible for them to repay that sum in a year or less.
I'm nowhere near expert on any of the things below, but: My gut tells me if an exchange makes as much money as you suggest, people involved in that exchange are making even more profit from the said exchange, otherwise they wouldn't engage. The whole thing being literally money out of thin air, it feels like a huge bubble that should inevitably burst bringing down _ a lot _ of collaterals with it.
</speculation>
Coinbase charges 100bps (1%) between trader & maker fee.
Just last quarter, Coinbase had:
https://help.coinbase.com/en/exchange/trading-and-funding/ex...
https://s27.q4cdn.com/397450999/files/doc_financials/2024/q4...
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You might be interested in reading Warren Buffett's reasoning for not investing in crypto. Basically he says crypto produces no goods, products or services, and it's only value comes from finding a "bigger fool" to pay a higher price than you did for it.
It's value is from speculation assuming future speculation will assume more future speculation
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Yeah, as a layman this MSTR explainer was an "aha" moment for me:
No, what is likely happening with all the convertible bond issues is that MicroStrategy prices the bonds in a manner to attract market neutral hedge fonds, meaning arbitrageurs. Saylor has briefly mentioned these firms, as opposed to firms seeking actual Bitcoin exposure. For issue after issue, they can be spotted as the largest bond holders by anyone with a Bloomberg terminal. By buying the bonds, even when conversion price is at a large premium, and by simultaneously shorting the shares, these arbitrage funds can lock in close to risk-free profits. Due to the convex nature of the value of the convertible bonds, the hedge funds attempt to profit no matter whether MicroStrategy shares rise or decline
Like, a broker profiting off PFOF in the stock market makes sense because there's an underlying asset generating real cashflow that people are buying into. But where is the money in crypto actually coming from? You have to pay miners, brokers, rugpulls/thefts/etc and there's barely any cashflow from the underlying assets (dApps?). But if it really is ~just a casino, with retail gamblers as the only real source of cash, it can still be profitable for smart money to pour billions in and use their PhDs to trade the vol. It goes up, it goes down, overall retail is bleeding huge amounts of cash on a sort of 5 dimensional pyramid scheme but enough gamblers go viral winning the slots/blackjack that the casino doesn't run out of customers.
Can this continue indefinitely? Maybe / probably? Seems similar to sports betting, Polymarket, retail now ~70% of options trading. The west and especially America becoming a gambling culture. The "bubble" may burst and reinflate over and over.
https://medium.com/@bdratings/all-your-models-are-destroyed-...
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Most of the trading is not done by retail traders but at much lower fees than that, if not being paid (market makers). I just can't make it add up.
Hyperliquid, a decentralized perp exchange, is a good proxy for ByBit’s revenues. On an average, Hyperliquid does between 800k-1M in revenue per day. ByBit is substantially bigger and easily does 50-100M in monthly revenue
I know! As I stated,
> Even considering a huge part of that volume is coming from institutional players who enjoy significantly reduced commission rates...
But the volume is huge. Even if we take the best publicly shared MM rates from Bybit (which is 1.5bp taker commission, 0.5bp maker rebate), and assume the whole volume is traded with these rates, it is still 1bp from 40B dollars, which is 4M dollars daily.
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ByBit's trading volume is almost certainly largely wash trading. Most unregulated crypto exchanges are rife with wash trading.
https://www.nber.org/papers/w30783
These exchanges make an absurd amount of money. That amount of money is basically a decent quarter for Coinbase in fee revenue, and Bybit is smaller but it isn't that much smaller.
It sucks if you're Bybit, but they're going to have plenty of lenders happy to provide them liquidity while they make it all back.
I can understand why some FTX creditors are pissed that the exchange didn't start back up under new management. They would have actually been made whole, unlike the current situation where they're getting "repaid" but pegged to November 2022 valuations (i.e. the absolute bottom of the crypto bear market).
In crypto, there is the concept of the "fictional reserve" which can be used in situations such as this.
If it's big enough you can even get the devs to fork the blockchain to reset things (see The DAO)
It's not that crypto folks don't want some protection from hacks or fraud - the just think it should only be for the rich.
FXCM forex trading broker covered a similar sized loss of client money (not hack) when EUR/CHF was unpegged in 2015.
Since it was a profitable broker business, another bigger broker gave them the money to plug the loss in exchange for taking over the business.
Bybit is one of the most used crypto exchanges and does >100M$ of revenue per month, growing fast.
If this isn't enough, I'm sure that every crypto VC would line up to buy a single digit % of their equity to cover up the hole. Crypto hosts the most profitable businesses in the world.
> Crypto hosts the most profitable businesses in the world.
Well, because the retail clients expect to get rich and don't mind paying 1% or so fees per exchange.
Similarly, the BTC future basis (the difference between the spot price and future price) on many exchanges around 10 to 5 years ago was easily 80% p.a. which you could realize by buying Bitcoin and selling the future. What happened there is that people going long Bitcoin with leverage essentially borrowed the money giving them that leverage at usurious rates (this implied rate is not usually displayed and thus invisible to your average retail client, but definitely very visible to the finance professionals moonlighting in crypto (such as Jane Street, Jump trading, and many others)).
Crypto use case: ripping off retail.
You pay 1% on Coinbase because they are a quasi monopoly due to regulation. Offshore exchanges take less than 0.1% usually.
The neutral rate for perps is 10%, which is lower than the credit card borrowing rate in the USA. And nothing prevents retail investors to earn it by shorting while holding spot.
Last, Tether is crypto's most profitable business, and likely the world's most profitable if you account on $ of profit per employee, and is not an exchange.
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Yes, the profits are insane in that business. Binance was raided for a similar amount, and paid it out easily. Mtgox was raided for ₿650k ($60B in today's money), and plans to return ₿140k to traders. However, I believe most Mtgox investors are better off this way because they were forced to hold onto their investments; otherwise, they would have sold at around $1,000 or so.
This loss is more than 5% of their holdings.. To me that implies the supposed benefit of crypto is nonexistent. If an institution is making so much money off your crypto assets that they can return 5% of them, they are a bank doing whatever it was that was so evil.
Institution is making money from trading fees which are not too high percentage wise. But the trading activity is very high, for many reasons. A lot more people can participate, from all over the world. Some use it to circumvent sanctions. Some enjoy day trading (no need to deposit $25000, as with US stocks). There are literally millions of instruments to trade. Some like to write algorithms, arbitrage, market making etc. Some dream of 1000x returns (and few do get them).
How on earth is it possible they can cover a 1.5B loss?
Easy! They give Binance an IOU in exchange for 1.5 billion BUSD which is just "minted" out of fresh new electrons. Neither of them has really lost anything. Everyone can carry on as if it never happened.
In the bizarro world of crypto, this is business as usual.
Binance doesn't mint BUSD, BUSD is emitted by Paxos, which is an american licensed company.
I have a license to drive a car. Having it doesn't limit my ability to mint crypto.
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Gary Gensler called BUSD a security and banned it years go. What a guy!
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How it it different from what banks do? (Except for a central regulator.)
How it it different from what banks do? (Except for a central regulator.)
Your exception is the answer.
Only the central regulator can "mint" money and doing so has real world consequences. The central regulator has financial incentives to limit this sort of activity.
The bizarro world of crypto has no such regulation and as a result, it is inherently unstable.
The proof of this is right in front of you --- it is the fact that "stable coins" exist. The only way to bring stability to the bizarro world of crypto is by tying it to "fiat" --- which is the very thing crypto is supposedly working to eliminate.
Contradict and hypocrite much?
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Because while banks hold duration, the net value of their current assets, future asset streams, and equity is above zero. Indeed the core focus of the business and regulatory side is ensuring this is so.
The central regulator caveat is also a huge caveat to brush aside. During the last round of systemic stress, the banking system essentially got a guarantee that all uninsured deposits would be protected, and banks were allowed to post their collateral for liquidity at terms that no other business has access to.
What OP is referencing is the oft-seen practice in the crypto space where failed entities fill an asset hole with propped up tokens, essentially transforming their paper loss on the balance sheet into liquidity risk that doesn't show as readily.
The important point here is that in the latter case, the entity may be fully insolvent, even after accounting for future cashflows on loans. When it comes to banks, even the left tail cases like SVB, their "problem assets" are things like long term treasuries, which are way down the risk curve when compared to the ponzi-tokenonics style "stablecoins" that we've seen unwind over the past few years.
> How it it different from what banks do?
I often read this sort of comment from crypto-defenders, but is it what banks do?
I’m relatively naive about these things, but my impression is that a bank losing this proportion of their assets can’t just ‘pretend’ they have the money, or create ‘new’ money.
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Banks don't print money for each other, and if they get money for free it's backstopped by the government and hence all of us. Crypto wants this single aspect but none of the central regulation.
Both systems stink for those at the end of the chain, i.e. us; you can decide which one is worse.
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FEDS can print money while Binance does not
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I had read they got loans and antcipate paying them back qith recovered proceeds. Interest they could cover with on going operations.
bybit makes $100 million a month and has substantial excess reserves
A lot more money than the majority of AI startups and it is creating jobs rather than purposefully destroying them.
yes, great jobs: "I used to have to GO to the casino to play slots, and even without the one arm bandits, had to physically push the button. Now I work from anywhere!"
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Fractional reserve helps.
We don't know if they can cover it. All we know is a statement from their CEO.
Can we trust that? Suppose that ByBit couldn't cover the loss, and the CEO would honestly inform the world about it. What would happen? The crypto-equivalent of a bank run. So he would never say that.