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The Almighty Buck Businesses

Crypto Startup Uprise Lost 99% of Client Funds While Shorting LUNA During Its Price Crash (theblock.co) 64

Posted by msmash from the oops dept.
Korean crypto startup Uprise lost virtually all of its client funds by shorting luna (LUNA) during its price crash and getting caught on the bounces, Seoul Economic daily reported on Wednesday. From a report: The Korean firm billed itself as using artificial intelligence (AI)-enabled automatic trading strategies to trade crypto on behalf of its clients. This trading desk is one-half of the company's service called Heybit while the other half is a global exchange-traded funds platform called Iruda. Under Heybit, Uprise took custodied crypto assets from customers and traded them in the cryptocurrency futures market. Uprise's AI-enabled trading technology was supposed to minimize the risk associated with leveraged crypto trading.

However, the system could not prevent the firm from being liquidated out of its LUNA futures trading position and losing 26.7 billion won ($20 million) in the process. This happened during Luna's price crash. It was reportedly shorting Luna -- while its price plummeted -- but got caught out during sudden price pumps along the way. The lost funds represent about 99% of the funds that Uprise was managing on behalf of its customers. These clients are high-net-worth individuals and corporate entities, according to the report. Uprise also reportedly lost $3 million of its own funds short trading LUNA.
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Crypto Startup Uprise Lost 99% of Client Funds While Shorting LUNA During Its Price Crash More

Crypto Startup Uprise Lost 99% of Client Funds While Shorting LUNA During Its Price Crash

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  • Why I don't short.. (Score:3)

    by klipclop ( 6724090 ) on Wednesday July 06, 2022 @10:46AM (#62678106)
    My friend had a similar story shorting a stock that went to 0 in his retail account. Due to some regulatory reasons with his broker, they forced him to cover on the upward bounces (the broker lends stocks from other customer accounts). So when those clients sold, he was forced to cover. Wondering if the same thing happened here?

    • Re: (Score:2)

      by gweihir ( 88907 )

      That seems to work as intended. You short, it raises, you are fucked. Sounds very much like what happened here.

    • Re:Why I don't short.. (Score:5, Insightful)

      by splutty ( 43475 ) on Wednesday July 06, 2022 @11:10AM (#62678178)

      "Due to some regulatory reasons". If you don't know those reasons, or the regulations, it's a very very smart idea to never get anywhere near the shorting game.

    • Borrowed shares can be recalled at any moment. When this happens, they force buy-in to cover. Your friend agreed to that when he borrowed shares to short. If he read the fine print, of course.
      • The first part of your statement is true but the second isn't accurate. At most brokerages, all shares held in margin accounts are available for lending in order to establish short positions and the brokerage doesn't notify the long position holder and the brokerage keeps any short-lending fees.

        If the long holder of the shares wants to sell, the broker will maintain the short position by borrowing other shares and the holder of the short-position doesn't even know about it.

        Forced buy-ins only occur w

    • Depends on the terms of his account and how he bought the short. Professionals normally can choose the term of the short; however, that can be used against them. That is what happened in the Gamestop meme incident. Redittors knew when certain hedge fund shorts were coming due as that was somewhat public knowledge. By cornering the stock and driving the price up as the short needed to be covered, Redditors force the hedge funds into massive losses. Having a retail account, there might have been fine print as

    • Shorting is extremely dangerous so I've no idea why someone would do it if you can just buy puts.

      • Re: (Score:3)

        by DarkOx ( 621550 )

        probably good advice (and I follow it) for the retail trader.

        The main reasons someone / fund would want to actually short a security directly is because when you think there is a lot of downside potential either others do as well or there is probably a lot of general volatility - either way the options premiums are going to be quite high. Quite a lot higher than the cost of borrowing the stock (assuming there is a substantial float) so you'll be giving up a lot of the profit.

        Although you face much higher po

    • Was this a publicly traded company or an OTC? It's almost unheard of for this to happen with companies that trade on exchanges.

    • Putting lots into shorts is a dangerous game. It's too much gambling, and as such you should only gamble with what you can afford to lose. Betting your entire portfolio is as dumb as betting your house on a horse race (no matter how much you paid the guy to drug the other horses). And you damn well better have enough to cover your losses or Bruno is going to pay you a visit with his plumber's wrench.

      Was laughing recently as a friend who's chair of an HOA said that their CFO had no clue what a certificate o

  • Wow! (Score:5, Insightful)

    by Comboman ( 895500 ) on Wednesday July 06, 2022 @10:46AM (#62678110)

    You lose money if you invest in crypto. You lose money if you bet against crypto. The only winning move is not to play.

    • You lose money if you invest in crypto. You lose money if you bet against crypto. The only winning move is not to play.

      For every winner there has to be at least one loser. But since "the house" (actually, there are many houses; but one is always dominant in a transaction) always gets a cut, there's always more losing than winning happening in each transaction. That doesn't differentiate cryptocurrency from real currency, however.

      • But it does differentiate crytpo currency from stocks, bonds, and other things with intrinsic value!

      • Investment can be a win-win. But some typesof investment really nearly zero-sum, and some are so bad they may as well be regulated by the gambling commission.

    • Re:Wow! (Score:4, Insightful)

      by ShanghaiBill ( 739463 ) on Wednesday July 06, 2022 @10:54AM (#62678136)

      The only winning move is not to play.

      Or to play with someone else's money.

    • Not true, there's plenty of money to be made in crypto. You just have to good at scamming people.

    • Re: (Score:2)

      by gweihir ( 88907 )

      The only real way to profit from a scam is to be the scammer...

    • Re: (Score:3)

      by mysidia ( 191772 )

      The only winning move is not to play.

      Winning move is done At first by these industry players which is that they Don't have to stay invested in any one bet: make your bets short and trade out of them once you can make a profit. These industry players may simply create empty transactions aimed at manipulating the price of Crypto in the direction needed for their trade they've opened (or are about to open) to become profitable - since these markets are not subject to SEC regulation: those actors can do

    • "The Korean firm billed itself as using artificial intelligence (AI)-enabled automatic trading strategies to trade crypto on behalf of its clients. "

      It appears they achieved AS (Artificial Stupidity) instead. Granted AS is much easier to achieve.

      The good news is that this wealth destruction if deflationary and will help damp down our inflation problem.

      • Actual intelligences make mistakes. Nobody wants an AI toaster that burns the toast sometimes.

        Apparently it also buys short contracts with extremely small windows?

      • I suspect the stupidity is of the good old fashioned organic kind.

    • You might as well call it craptocurrency.

  • Haha! (Score:5, Insightful)

    by Rosco P. Coltrane ( 209368 ) on Wednesday July 06, 2022 @10:52AM (#62678132)

    Seriously, is there anything good about cryptocurrencies?

    There are three kind of people who dabble with cryptocurrencies:

    1/ Very early, techno-curious miners who somehow managed not to lose their crypto key when they lost interest and managed to strike it rich.
    2/ Less early adopters - not out of technological curiosity, but out of flair for a good scam - who are now at the top of the collapsing pyramid scheme.
    3/ Suckers.

    Which are you? I know I ain't neither, and damn proud of it.

    • Re: (Score:2)

      by gweihir ( 88907 )

      Seriously, is there anything good about cryptocurrencies?

      They are a good demonstration as to how stupid the average person is. Since we already have a lot of these, this is of limited worth.

      • They are a good demonstration as to how stupid the average person is. Since we already have a lot of these, this is of limited worth.

        I don't think it even demonstrates that. You don't need the majority of people to be into cryptocurrency for it to take off. If you get 1% of the world population being suckers its still a very large and profitable scam. The percentage of people who actually use cryptocurrency on any regular basis is very low compared to cash.

    • In this case it was not just an issue of cryptocurrencies. Short selling is inherently very risky. See Gamestop. Shorting crypto would have been a smart move, but one of the risks is that shorting is inherently borrowing. And the lender can ask for the asset back at any time.

      • Re: (Score:2)

        by nasch ( 598556 )

        And the lender can ask for the asset back at any time.

        Doesn't most shorting involve a promise to return the shares at a specific time? The main risk problem I've heard with shorting is that the potential downside is unlimited. When buying, your risk is limited to the amount you bought, but when shorting and the price goes up instead of down, you lose the difference between your short position and the price, which could be anything.

        • While shorts have a specific term, (30, 60, 90 days etc), many standard contracts are written where the lender can ask for the asset back at any time. Yes, a risk with shorting is unlimited loss. If you straight bought a stock like Gamestop, your losses is capped at what your purchase price. If you shorted Gamestop, your losses are theoretically any amount. Marvin Capital lost an estimated $6.8B in the Gamestop short.

    • I'm the guy at the sideline with a truckload of popcorn.

  • Good reminder about shorting (Score:5, Insightful)

    by thegarbz ( 1787294 ) on Wednesday July 06, 2022 @10:59AM (#62678154)

    Shorting is not an investment in fixed percentage of a company. It is a bet you make, a raw gamble and you can lose far more than your initial investment in the process. Shorting is very high risk compared to simply buying shares.

    • Re: (Score:2)

      by RobinH ( 124750 )
      Buying crypto isn't an investment in a fixed percentage of a company either.

      • But at least in buying crypto you cannot lose more than you invested, with shorting there is no limit (will all you have I suppose) to how much you can lose.

    • Re: (Score:2)

      by rahmrh ( 939610 )

      I think at lot of people think options are investing. Options (short or long) are simply bets.

      And in the case of bets and options. On average the house always wins (if the house were getting beat on the average they would not longer be in business). So the only way to win is to not play (or be the house), or to be given the options as part of compensation.

      And if you think you have some inside info that is going to give you an advantage, then there are only 2 options--either a lot of people already k

      • That's not true at all. Options have all sorts of uses beyond just betting. Naked options are gambling.

        However doing covered calls for example can be extremely rewarding and are very low risk. You own a stock that's worth $50. You sell a call against the option for $1 to sell if it goes to $55. The scenarios are:

        Stock goes down to say $45, you still own the stock and you made $1.

        Stock goes somewhere between $50 and $55, let's say $54, you still own the stock, you made $4 on growth, and you made

      • And if you think you(or someone) has an algorithm to make betting work, well then you are are wrong.

        This is false, the entire original premise of betting against a stock was only for one you already bought to insulate yourself against loss due to a large dip after purchase. You forgo maximum profits and spend those on insuring you don’t suffer large losses either. When done sanely, it is a realistic option for those that want that insurance at the expense of maximum profits. It’s when it’s done naked, without holding the asset, when additional synthetic shares are used to leverage i

        • Re: (Score:2)

          by rahmrh ( 939610 )

          In that case it is "insurance" and in the insurance game, the house has rigged the game so the house also always wins.

          • Options trades are not done "against the house" like gambling. there is another investor on the other side of the transaction and often all parties come out ahead.

            If you buy a stock that has appreciated quite significantly to the point that it's an outsized portion of your portfolio, rather than sell the shares, you can write covered calls for a portion of the shares. If the stock continues to go way up, you end up getting assigned and that's good as you don't wan to be so heavy that one stock. If th

          • Re: (Score:2)

            by JMZero ( 449047 )

            Insurance can still be a good idea even if the EV isn't positive, as it's usually inversely correlated with your other investments. Lowering correlation is a very reasonable goal.

            And if you think selling options is rigged, you're welcome to do it yourself and make your guaranteed money.

            Back to your other post, computers are already better than humans at lots of things. Sure I could technically play chess (or compress a video file) the same way a computer does, but it would take me a thousand lifetimes to

    • Shorting is not an investment in fixed percentage of a company. It is a bet you make, a raw gamble and you can lose far more than your initial investment in the process. Shorting is very high risk compared to simply buying shares.

      Yes, but

      These clients are high-net-worth individuals and corporate entities, according to the report.

      It’s hurting the wrong people! We need to actually do something this time! My god, if a hedge fund manager can’t afford a backup island to house all the second tier toys from the main island, well I don’t know what this world has come to...

    • " Shorting is very high risk compared to simply buying shares."

      It's very low risk if you are doing it with other people's money.

  • Now they are slightly less high net-worth individuals. Anyone want to buy a tiny violin?
  • I trade crypto lightly and most analysts, even youtubers warned about the risky game Terra is playing with Luna, I thought a company trading with other people's money would be even more cautious but apparently it wasn't
    • Trading with other people's money makes them less cautious. If they throw a "Hail Mary" pass and it pays off they get to claim to be geniuses with all kinds of follow-on benefits. If it doesn't work out, it's not their money lost.

  • The problem is that many automated trading systems don't automate their ledger and fund provisioning.

    Selling while the price is going down is the right thing.
    However you need to be able to manage your balance.

  • AI? (Score:2)

    by msauve ( 701917 )
    Shouldn't it be called AG (Artificial Gambling)?

  • $20 million for high net worth and corporate entities? I'd be surprised if any of them lost any sleep.

    This isn't significant.

  • That I wish fuckedcompany.com [slashdot.org] was still around.

    • Re: (Score:2)

      by Briareos ( 21163 )

      That I wish fuckedcompany.com [slashdot.org] was still around.

      I know it's not quite the same, but if you want to keep up with all the Crypto shenanigans happening daily there's always Web3 is going just great [web3isgoinggreat.com] ("...and is definitely not an enormous grift that's pouring lighter fluid on our already smoldering planet.").

  • you shorted one of the single biggest crashes in history (at least on paper) and _still_ lost money. Bravo good sirs, bravo!

    • Goes along with having three casinos go bankrupt within a year of each other, businesses which are literally in the business of taking other people's money.

      • Re: (Score:2)

        by bws111 ( 1216812 )

        Every business is 'in the business of taking other peoples money'. It is why they are businesses. Casino's can have ridiculously high expenses, and if those expenses exceed revenue they go bankrupt, just like every other business. There is nothing remotely surprising about this.

  • ...mine a few more digitals?

    ROTFLMAO! Oh, crypto's *so* much safer than government money....

  • Let's see. What is crypto based on? Gold? No. Silver? No. Copper? No. Dirt? No, not even dirt. It's inherently worthless, so trading it like stocks is like, well, nothing like trading stocks. Stocks have some inherent value, though its real value may differ between its assets (minus liabilities) and what stockholders feel it's worth, what they're willing to pay for it. With crypto, its entire worth is only in people's minds. There are no assets to back up the "currency," if you can even call it a

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