Case Studies
18 questions
What warning sign was built into the numbers?
Fast growing profits but little money from ongoing business, and balances held in third parties' trust accounts.
Why didn't DAX inclusion help investors?
Whether a company joins an index depends on its size and how much it's traded. That says nothing about whether its figures are right.
What protection remains against a case like this?
Diversification. The risk of individual companies isn't rewarded and can be diversified away completely.
Why did FTX collapse?
Customers' money wasn't kept separately. When many wanted to withdraw at once, the gap became visible.
What legal standing did customers have?
They only had a claim for repayment and became ordinary creditors in the bankruptcy.
What practical consequence follows from that?
Only hold bearable amounts on platforms, and self-custody larger holdings.
What is a death spiral in this context?
Support comes from issuing a second token. Its price falls as a result, and even more of it has to be issued.
Where did the high yield come from?
Mostly from a pot filled specially for the purpose. So the demand was subsidised.
Which stablecoin types have external backing?
Those that deposit dollars or safe investments, and those that deposit more crypto than they issue. The ones without reserves have no backing.
What makes a stock vulnerable to a short squeeze?
When a very large number of shares are sold short relative to the freely tradable shares.
How does the options market amplify the move?
Those who sold calls hedge by buying the shares themselves. That brings extra buying.
Why is the retail-victory narrative incomplete?
Because the late buyers got in close to the peak and lost a lot.
How did leverage act as an amplifier?
If you work heavily on credit, even a small loss in value wipes out all your equity and forces you to sell.
Which model assumption broke down?
That loans from different regions would hardly ever default at the same time.
Who suffered the permanent damage?
Those who sold at the bottom and those holding shares of individual affected banks. The broad market recovered.
Why did it hit employees doubly hard?
Because their jobs and their retirement savings depended on the same company.
What should you watch for in financial statements?
On the notes about holdings and obligations that aren't on the group balance sheet.