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Reckless: The Story Of Cryptocurrency Interest Rates
This book begins by providing a brief history of interest rates. It discusses the perplexing conundrum of how to determine the most appropriate base interest rate in an economy. The book then scrutinises conventional wisdom with respect to setting interest rates and considers the potential consequences of rates being set at reckless and inappropriate levels.
The book then moves over to the world of Bitcoin and cryptocurrency, cataloguing various interest rates, quasi-interest rates and different yield structures which have existed throughout the ecosystem's short thirteen year life. The book contrasts some of these structures with those in the world of traditional finance and economics.
The book then explores the emergence of cryptocurrency lending markets, tracking the development and extraordinary growth of these markets into the 2021 yield market bubble. The book disassembles the peculiar components of the cryptocurrency credit market, covering the incestuous relationships between many of the leading lenders and borrowers and the insatiable greed they demonstrated, resulting in the eventual market crash in June 2022.
The book then moves over to the world of Bitcoin and cryptocurrency, cataloguing various interest rates, quasi-interest rates and different yield structures which have existed throughout the ecosystem's short thirteen year life. The book contrasts some of these structures with those in the world of traditional finance and economics.
The book then explores the emergence of cryptocurrency lending markets, tracking the development and extraordinary growth of these markets into the 2021 yield market bubble. The book disassembles the peculiar components of the cryptocurrency credit market, covering the incestuous relationships between many of the leading lenders and borrowers and the insatiable greed they demonstrated, resulting in the eventual market crash in June 2022.
201 pages, Kindle Edition
Published November 9, 2022
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Displaying 1 - 3 of 3 reviews
November 13, 2022
Easy read. Little new information if you actively trade crypto besides perhaps the thoughts on PoS at the very end, which contains a great synopsis of some of the problems Lido and LSD’s pose to Eth.
Overall a concise and accurate depiction of the 3AC meltdown and associated contagion. Was written before the recent FTX/AR collapse.
Overall a concise and accurate depiction of the 3AC meltdown and associated contagion. Was written before the recent FTX/AR collapse.
July 25, 2024
While the narrative-driven parts of this book - detailing all the crypto market’s tomfoolery - were entertaining and reminiscent of the style of Bier’s great first book, they were unfortunately drowned out by an aimless exploration of shitcoins and interest rates, leaving me asking the question of what the goal of writing this book was. Respect to any author self-publishing though (I love seeing the one-off print date in the back on my book, just 1 or 2 days after I placed the order online). Also, the timing of this book coming out was wild - so much had happened, but little did we know so much more was just about to unfold.
May 17, 2023
Fun and informative. Some quotes:
"Hammurabi, a king of the first dynasty of ancient Babylonia, capped the annual interest rate at 33.3% for grain and 20% for silver. If these limits were found to have been breached, the debt was cancelled.
In around AD 100, while Egypt was wealthy, interest rates were capped at 12%, while compound interest was banned. Compound interest is when the interest rate not only applies to the principal, but also on accumulated interest charges from previous periods. In Rome in 443 BC, interest rates were capped at 8.33%. This was reduced to 4.17% by 347 BC. Byzantine legal interest rate limits were around 12% in AD 400, before declining to around the 6% to 8% range by AD 700. These limits then appeared to remain stable for several hundred years.
Dutch interest rates during the period are said to have started at around 8% in 1600, before declining to 6.25% by 1620, they then continued their decline to 5% in the 1640s and 4% in the 1650s.[5] Prior to this, from around 1200 to 1500, Dutch rates appear to have been stable for 300 years at around 8%. Dutch interest rates were also considerably lower than in England and other European countries such as France. Rates in England were in the 8% to 10% range in the early 1600s, while French rates were 8%.[6] It is possible these relatively low rates in the Netherlands encouraged an early carry trade, borrowing in the Netherlands and investing in England. The only country to have rates as low as the Dutch was Italy, where rates were in the 4% to 6% range from 1300 to 1800.
The Mississippi Company was founded in 1684 and held business monopoly trading rights and land claims in the French colonies in North America and the West Indies. The land claims cover approximately 50% of the current United States of America by area. The Mississippi river network can be considered extremely valuable and is probably the largest, most interconnected and powerful river trading transport infrastructure in the world.
Cantillon hypothesised that the original recipients of new money enjoy higher standards of living at the expense of later recipients.
The excessive banknotes that are created and issued on these occasions do not disturb the circulation because, as they are employed for the purchase and sale of capital stock, they are not used for household expenditure and they are not converted into silver. But if some fear or unforeseen accident drove the holders to demand silver at the bank, the bomb would explode, and it would be seen that these are dangerous operations.
John Maynard Keynes, who later became famous for his analysis and diagnosis of the Great Depression, did not appear to spot the bubble early either. In 1928 he said that there was “nothing that can be called inflation yet in sight” and he circulated a note to his friends stating that “stocks would not slump severely.”[14] Keynes is said to have lost more than 75% of his net worth in 1929, due to his position in stocks and his portfolio was forced into liquidation. Keynes’ fortune of almost £50,000 is said to have been lost. What Keynes failed to see was the scramble for gold in 1929, which forced central banks to tighten policy in order to retain their gold. Keynes famously referred to gold as a “barbarous relic” and believed that without the gold anchor restricting the flexibility of central bank policy, the crash could have been avoided. The Federal Reserve did lower rates to just 1.5% in 1931 as a result of the crash, however Keynes argued it should have done more and that the action it did take was not sufficient.
Interest rates which are too low can also contribute to inequality in society. Typically, only large financial institutions and the rich have access to low interest rates, while in a kind of interest rate apartheid, the poor do not. Interest rates which are too low can push up asset prices, such as property, which tend to be held by the wealthy. This can then contribute to an economic divide, with those that are not on the property ladder or who don't own financial assets being left behind, with no hope of catching up.
By 2018 the percentage of IPOs consisting of unprofitable companies listing on public markets reached a record high of over 80%.[36] Re-taking the previous high in the 1999 technology bubble. This compares to a low of around 30% in 2009. With interest rates near zero, short term profitability mattered less and less to investors, who were instead focused on the long-term growth prospects.
Areas that grew significant post the 2008 financial crisis include: Private jets, wine, super cars, yachts, luxury handbags, luxury watches and diamonds, to name a few. Meanwhile, a majority of people, who don't own financial assets, were somewhat left behind during the boom.
In January 2022, American president Joe Biden was asked by a reporter: “Do you think inflation is a political liability ahead of the midterms?” The president replied by saying: No, it’s a great asset. More inflation. What a stupid son of a bitch.
The bubble was initially focused on financial assets and other luxury items only consumed by the ultra-wealthy, before eventually leaking out into the real economy. Just as Richard Cantillon had astutely observed almost exactly 300 years earlier, the liquidity was initially trapped in the financial system, before eventually being released into the real economy. One group had benefited from the new money first, the well-connected elites, before the cost of the new money impacted the rest of society.
Charles Ponzi, whom this kind of scheme is named after, famously promised his clients a 50% profit in 45 days.
Retail customers placed coins on deposit at the earn platforms. The earn platforms lent coins to Genesis. Genesis then lent the money to 3AC. 3AC then deployed the funds into the GBTC trade or into the Anchor protocol."
"Hammurabi, a king of the first dynasty of ancient Babylonia, capped the annual interest rate at 33.3% for grain and 20% for silver. If these limits were found to have been breached, the debt was cancelled.
In around AD 100, while Egypt was wealthy, interest rates were capped at 12%, while compound interest was banned. Compound interest is when the interest rate not only applies to the principal, but also on accumulated interest charges from previous periods. In Rome in 443 BC, interest rates were capped at 8.33%. This was reduced to 4.17% by 347 BC. Byzantine legal interest rate limits were around 12% in AD 400, before declining to around the 6% to 8% range by AD 700. These limits then appeared to remain stable for several hundred years.
Dutch interest rates during the period are said to have started at around 8% in 1600, before declining to 6.25% by 1620, they then continued their decline to 5% in the 1640s and 4% in the 1650s.[5] Prior to this, from around 1200 to 1500, Dutch rates appear to have been stable for 300 years at around 8%. Dutch interest rates were also considerably lower than in England and other European countries such as France. Rates in England were in the 8% to 10% range in the early 1600s, while French rates were 8%.[6] It is possible these relatively low rates in the Netherlands encouraged an early carry trade, borrowing in the Netherlands and investing in England. The only country to have rates as low as the Dutch was Italy, where rates were in the 4% to 6% range from 1300 to 1800.
The Mississippi Company was founded in 1684 and held business monopoly trading rights and land claims in the French colonies in North America and the West Indies. The land claims cover approximately 50% of the current United States of America by area. The Mississippi river network can be considered extremely valuable and is probably the largest, most interconnected and powerful river trading transport infrastructure in the world.
Cantillon hypothesised that the original recipients of new money enjoy higher standards of living at the expense of later recipients.
The excessive banknotes that are created and issued on these occasions do not disturb the circulation because, as they are employed for the purchase and sale of capital stock, they are not used for household expenditure and they are not converted into silver. But if some fear or unforeseen accident drove the holders to demand silver at the bank, the bomb would explode, and it would be seen that these are dangerous operations.
John Maynard Keynes, who later became famous for his analysis and diagnosis of the Great Depression, did not appear to spot the bubble early either. In 1928 he said that there was “nothing that can be called inflation yet in sight” and he circulated a note to his friends stating that “stocks would not slump severely.”[14] Keynes is said to have lost more than 75% of his net worth in 1929, due to his position in stocks and his portfolio was forced into liquidation. Keynes’ fortune of almost £50,000 is said to have been lost. What Keynes failed to see was the scramble for gold in 1929, which forced central banks to tighten policy in order to retain their gold. Keynes famously referred to gold as a “barbarous relic” and believed that without the gold anchor restricting the flexibility of central bank policy, the crash could have been avoided. The Federal Reserve did lower rates to just 1.5% in 1931 as a result of the crash, however Keynes argued it should have done more and that the action it did take was not sufficient.
Interest rates which are too low can also contribute to inequality in society. Typically, only large financial institutions and the rich have access to low interest rates, while in a kind of interest rate apartheid, the poor do not. Interest rates which are too low can push up asset prices, such as property, which tend to be held by the wealthy. This can then contribute to an economic divide, with those that are not on the property ladder or who don't own financial assets being left behind, with no hope of catching up.
By 2018 the percentage of IPOs consisting of unprofitable companies listing on public markets reached a record high of over 80%.[36] Re-taking the previous high in the 1999 technology bubble. This compares to a low of around 30% in 2009. With interest rates near zero, short term profitability mattered less and less to investors, who were instead focused on the long-term growth prospects.
Areas that grew significant post the 2008 financial crisis include: Private jets, wine, super cars, yachts, luxury handbags, luxury watches and diamonds, to name a few. Meanwhile, a majority of people, who don't own financial assets, were somewhat left behind during the boom.
In January 2022, American president Joe Biden was asked by a reporter: “Do you think inflation is a political liability ahead of the midterms?” The president replied by saying: No, it’s a great asset. More inflation. What a stupid son of a bitch.
The bubble was initially focused on financial assets and other luxury items only consumed by the ultra-wealthy, before eventually leaking out into the real economy. Just as Richard Cantillon had astutely observed almost exactly 300 years earlier, the liquidity was initially trapped in the financial system, before eventually being released into the real economy. One group had benefited from the new money first, the well-connected elites, before the cost of the new money impacted the rest of society.
Charles Ponzi, whom this kind of scheme is named after, famously promised his clients a 50% profit in 45 days.
Retail customers placed coins on deposit at the earn platforms. The earn platforms lent coins to Genesis. Genesis then lent the money to 3AC. 3AC then deployed the funds into the GBTC trade or into the Anchor protocol."
Displaying 1 - 3 of 3 reviews