As the FTX collapse shows, the shenanigans guarantee smooth and efficient contagion inside the crypto zone. But beyond it?
By Wolf Richter. This is the transcript of my podcast on Sunday, Oct 30, THE WOLF STREET REPORT.
Exactly a year ago, in November 2021, during peak crypto craziness, the market cap of all of the many thousands of crypto tokens combined, from bitcoin on down, hit $3 trillion globally. Today, the market cap is at about $850 billion, so that’s down by 72%. In other words, $2.1 trillion have vanished in 12 months.
All kinds of cryptos have imploded, some so-called stablecoins that are supposed to be pegged 1 to 1 to the US dollar, have collapsed overnight.
The collapse of the cryptos has triggered the collapse and bankruptcy of a number of crypto exchanges, crypto lenders, crypto hedge funds, crypto miners, etc.
It seems the fundamental principal in the crypto zone is that every firm must be deeply interconnected with other firms, each lending to the other, and lending to affiliated hedge funds that then make huge leveraged bets on cryptos, and they’re bidding up each other’s tokens. This, as I like to call it, makes for very smooth and efficient contagion.
They all went to heaven together until November 2021. And now they’re all going to heck together.
But where is the contagion to the broader market, to other asset classes, to banks, to other players in the economy?
FTX, Alameda Research, and affiliated companies imploded spectacularly over the past week and have now filed for bankruptcy, and it’s a huge mess that will drag out for a long time and produce a lot more of the kinds of sordid revelations we’ve already seen.
These sordid revelations and allegations emerging on an hourly basis come with huge numbers attached to them, a billion bucks here, $10 billion there, like $10 billion in customer funds being lent by FTX to its affiliated trading outfit Alameda Research where they were then incinerated or whatever. Reports emerged of funds disappearing even after the bankruptcy filing – perhaps due to a hack.
The amounts in cryptos that vanished appear to be in the billions of fiat dollars. Every day, there are new twists and turns and revelations of an utterly sordid business with multi-billion-dollar tentacles reaching in all directions.
Before FTX there were Voyager Digital and Celsius that both filed for bankruptcy in July. Three Arrows Capital, a hedge fund cross connected with Voyager, also filed for bankruptcy. It was the collapse of Three Arrows Capital that triggered the collapse of Voyager.
As the bankruptcy proceedings of FTX.com, FTX US, Alameda Research, and affiliated companies move forward, it will get even messier and more complex, there will be lots more revelations about counterparties and vanished cryptos, about lending customers’ cryptos to hedge funds and other exchanges and whatever, and about relying on homemade collateral, such as native tokens, that then imploded, and about the endless tentacles of cross-connections in the crypto zone. And there will be other crypto lenders that suddenly halt withdrawals and hire bankruptcy counsel.
In the wake of FTX’s bankruptcy, another crypto lender, BlockFi, halted withdrawals, preventing customers from taking their cryptos and fiat out. And it hired bankruptcy counsel. BlockFi reportedly loaned Alameda Research some funds, but Alameda Research collapsed, taking these cryptos down with it.
The funny thing is that in June, BlockFi was already in trouble and then got a $200 million bailout from FTX, all in cryptos.
So the contagion within the crypto zone is smooth and efficient. Not much gets in the way of slowing it down.
These crypto companies, and all kinds of other crypto companies, were funded as startups by some of the biggest names in the venture capital industry. Just about the entire VC industry jumped on this crypto stuff. And they just threw hundreds of millions of dollars at each of them, willy-nilly, without oversight, without controls, just wanting to ride up the crypto-gravy train, and they just handed piles of money to some dazzling crypto characters and let them run with it, and they ran with it, and now the money is gone, and customer money may be gone, and billions of dollars of other people’s money are gone.
FTX had dozens of venture capital investors that invested $2 billion in FTX over the past two years, with the last round of funding earlier this year at a valuation of $32 billion.
These investors include well-known names, such as Sequoia Capital, SoftBank, Lightspeed, BlackRock, and a bunch of others. Their investments in FTX have vanished. And this is how the contagion from the crypto collapse spread to VC funds.
Contagion has also spread to companies that are straddling the crypto zone, for example to banks that have some exposure to crypto firms.
Silvergate Bank has specialized in dealing with crypto firms, and it has exposure to FTX. The bank is owned by Silvergate Capital, which also has some crypto exposure, and the shares of Silvergate Capital have collapsed by 85% from the peak crypto craziness a year ago.
Signature Bank, which tied its fortunes to cryptos, well, its shares are down 61% from the high.
SVB Financial Group, which owns Silicon Valley Bank, is heavily exposed to the entire startup scene, including crypto startup companies. Its shares have plunged by 69% from the high.
If regular commercial banks have some exposure to these collapsed companies, it’s going to be minor amounts for the bank. Banks are in the business of taking this kind of credit risk. And they can take those losses.
Robinhood is exposed to all kinds of stuff, but it said specifically that it has no “direct” exposure to FTX, though FTX founder and former CEO Sam Bankman-Fried owns a large equity stake in Robinhood.
Contagion has been spreading to other publicly traded companies with direct or indirect exposure to cryptos, whose shares have all plunged, such as crypto exchange Coinbase, whose shares collapsed by 86% from the high; MicroStrategy which is a dotcom-bust survivor and enterprise software company that decided to sell bonds and buy bitcoin with the proceeds, turning itself into a leveraged bitcoin fund, well, its shares have plunged 86% from their high.
Many of the crypto miners in the US have turned into penny stocks, down 97% or whatever. One bitcoin miner in the US, which wasn’t publicly traded, already filed for bankruptcy. Others have warned that they might have to file for bankruptcy. The problem for them is that the high cost of electricity makes it uneconomical to mine bitcoin, after the price of bitcoin collapsed.
As FTX gets dismembered and dissected, lots of people and entities will lose lots or all of their money, and when everything is said and done, it will be counted in the billions, or tens of billions of dollars.
The Luna crypto crash vaporized $60 billion, like overnight, but that was global, like all these things, it’s not just US money that vanishes, it’s global money. And outside of the crypto zone, the Luna implosion barely made a dent.
All this is minor stuff compared to a big stock such as Meta plunging 70% or Tesla plunging 50%. Tesla’s drop alone wiped out $620 billion. Amazon’s drop wiped out something like $800 billion. But like cryptos, this is all global money. People around the world invest in US stocks.
So, with cryptos and crypto-companies imploding, and the contagion spreading into neighboring areas, why hasn’t there been more contagion into the broader markets and the economy?
At one point, cryptos had a market cap of $3 trillion, now it’s down to $850 billion, over two-thirds has already vanished, and outside of the crypto zone – beyond all the mess and chaos in the crypto zone – the crypto implosion has been orderly. Really no big deal. But why?
It was money – or what people thought was money – that came out of nowhere over the prior years, and over the past 12 months, it went back to nowhere.
It was easy-come-easy-go money, much of it hadn’t been converted into fiat yet, hadn’t made its way to bank accounts yet. And for a lot of people, it was the gains that evaporated, more than their own capital.
And part of it had to do with where this money was lost. Lots of people lost lots of money, but that was spread around the globe. Those losses hit crypto investors around the world, not just in the US.
And a big part has to do with the numbers. They’re just not big enough. The US stock markets are around $40 trillion. The cryptos never amounted to one-tenth of that. Two-thirds of the losses are now already behind us. And the remainder of crypto, what’s left of it, just amounts to 2% of the stock market. If that remnant too goes away, like goes to zero, people outside the crypto zone won’t even notice – that remaining $850 billion on a global scale is just too small.
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It’s bad enough we found out SBF and Caroline were swimming naked. My virgin eyes can only take so much Wolf.
I hope they both know how to swim naked to a country without an extradition treaty.
Yeah they were trying to swim to Dubai its been said. Unfortunately, they short limp arms.
They should swim to Bicoin Beach in El Salvador…
Extradition treaties might be the least of SBF’s problems. Even if only a fraction of the stories of organized criminal enterprises using crypto to launder profits are true, SBF may face a long list of disgruntled account holders – Russian mobsters and the like – who are inclined to take more direct action without concerns about Miranda rights.
It’s interesting that he’s still walking around as a free man.
Please Im eating here
Absolutely hilarious to see masters of the universe, like Sequoia and Black Rock, also swimming naked in the pool. Gee, can you say fiduciary? Oh yeah, just more dumb asses in the casino betting on red. Whoever authorized those bets, most likely with passive pension money, should be hung out to dry, naked, of course!
I sure hope their ESG scores will be ok! Plant a tree or something to make up for this debacle.
What are the odds that Sequoia still made a ton of money (overall) on crypto?
Were they true believers? They shouldn’t have been. The VC way is to get in for peanuts and get out once there’s real money to take out. If I were forced to wager, I’d bet that most VC’s came out ahead on crypto.
I heard the sex tape is coming out on Friday, stay tuned….
“Fortune favors the brave”.
I’ve always been astonished how thousands of people can be taken advantage of just a single human. Perhaps our built in trust mechanisms need tweaked in the age of the Internet??? Before the Internet, hit was really difficult for a single human to take advantage of so many individuals at once…
One FTX executive vomited when he learned that the crypto exchange was missing billions of dollars of customer money. A company lawyer quit via a harsh text message to then-Chief Executive Sam Bankman-Fried. A top salesman who had bet big on FTX equity saw most of his wealth evaporate overnight.
What started as a dream job turned into a nightmare for employees of FTX…
Yet another down to earth observation Wolf. Whatever the value of the evaporated crypto, it is definitely tied to some fiat currency around the world, so I’d think those losses are felt by the “investor” be it a person or bank or whatever.
Crypto seemed like so many popular investments, a simple crap shoot, get in, get the profit on the rise, and get out. Those that didn’t get out or bought in at close to the top, are feeling the pain.
Then there are those who are simply high stakes criminal scammers. That’s another subject piled on top of these Crypto stories. I bet (pun intended) there are many many more to come.
There is one thing to always remember when the term “affiliates” is used to identify who got loans, grants or were financed by the primary company to which investor money was attracted. There are often several or many.
Each “affiliate” or related vendor also has a CEO, CFO, CIO, and perhaps dozens of managers to be paid salaries, bonuses, benefits and 401k retirement funds. An analysis of exactly WHO those people are, and how they are RELATED to the MANAGEMET in the primary company would likely be shocking to many so called investors.
This is a scam plan that is as old as money itself. Create a long stream of money, and position you, your family and all your friends along the banks of that stream with large dippers to pull from it. When the stream dries up, just walk away with your bag full.
Surprised this isn’t seen for what it is before money got turned into Unicorn Coins and vanished.
Just an observation of the passing parade.
“Might you be interested in buying some of these fine ‘indulgences’?” Get out of hell free cards. Oh… that was back in the Middle Ages.
I think the biggest reason this contagion didn’t spread to wider markets is because of a combination of a) many of the investors were novice retail investors who don’t know how to leverage their bets or b) didn’t have the type of relationships with banks that would allow them receive loans against their crypto assets.
While big fish like Elon Musk can get banks to lend against his TSLA shares, the random retail investor can barely get a margin account.
This meant that when cryptos collapsed, there was probably fairly little forced selling in other markets. And it seems to be limited to big fish like Bankman-Fried who seems to have used FTX as his own personal bank to loan him customer funds to play with in his hedge fund (What’s the old saying? The best way to rob a bank is to own one?).
It would be interesting to see leverage numbers and margin volumes in the crypto world, but those exchanges aren’t really regulated as well as stock markets, so I doubt we’d be able to get accurate numbers.
Very easy to find that data. Many services provide it. I know many people who used ftx over seas as it was the only place they could hold USD digitally. The platform itself was good and the services they provided were good too. Would have been a fine business if not run by a criminal.
Do Kwon, the Luna crypto fraud guy cannot be prosecuted by the relevant body in South Korea, a court in that country ruled, because crypto does not come under the jursdiction (yet) of the governing body in charge of securities fraud.
Many of the crypto fraudsters now live in Dubai as the UAE has no extradition treaty with the US.
All these victims of crypto-related fraud who wanted a decentralised metaverse still need a centralised law and order network to get recourse when they are swindled. They also want the restitution to be in fiat money.
Luckily for the overall system (but not for the losers in this game), every player was positioning to be outside conventional finance. So, the firms were walled off on purpose from the payments system and regulators. Firms were offshore. So far, the losses are scattered and idiosyncratic, not Lehman-esque.
There were various players and motives: utopians, fraudsters, fanboys, meme- stonk era gamblers, etc. Everybody had (or claimed) a reason to leave musty finance systems behind. That was part of the marketing. “Mainstream” was a dirty word in that era of all-things-new. It was sucker-bait.
Then, all the attached risks (always there) seemed to materialize at once. What a massive cluster-f***!
Funny thing, it was intended to provide a replacement for the trust systems evolved over a long time. It ended up with massive trust risks one could drive a galaxy through. It would be obvious to anyone except the disruptors who were too cool to learn history, so doomed to repeat it.
The FTX contagion could have been exponentially worse as Sam needed just a few more months to develop his “EVERYTHING APP” to become king of historic ponzi schemes…per Bloomberg:
Founder Sam Bankman-Fried had been trying to expand beyond crypto enthusiasts to capture the assets of everyday savers and investors in stocks and funds. The music stopped before he could get there….Bankman-Fried had been focused on creating what one of his executives called an “everything app.” It would handle a person’s total financial life, from crypto to equities to sending cash to friends.
Rich: “It ended up with massive trust risks one could drive a galaxy through.” Thanks. Nice start to an overcast and cold morning.
FTX isn’t a crypto implosion situation, it’s just the usual government-private partnership criminality in the financial space, with corporate media and celebrity shills and lackeys, this time really over-the-top – “And Sam drives a…Toy…o..ta…Cor…o…la!!!”
The Old Mob from ~ a hundred years ago or recent tv characters (Walt, Skyler, Marty and Wendy) laundering money shouldn’t call for more government involvement nor necessarily an implosion of second-hand furniture stores, florist shops, bars/restaurants/strip clubs, car washes, funeral homes, etc. in sympathy.
On the other hand, non-profits and charitable organizations are a different matter altogether. That’s where the real big-time crooks hang out, the pillars of the community, all with government and corporate media nodding favorably.
I respect crypto like I respect a King Cobra. I not going to kill them, but I will back away when confronted, just the same.
More regulation? Require a sign or banner on the physical building, paperwork or webpage: “Abandon All Hope Ye Who Enter Here.” I think the copyright on that wording is open to common usage by now.
Full disclosure: no dog in crypto. I’m almost all out of the Forever Stamps I stocked up on about 15 years ago.
interesting comment regarding non-profits- I knew a married couple who I used to run/jog with – they were very careful not to let any of us know what they did for a living – as I got to know them better they revealed they were both IRS agents specializing in fraud – they were native californians very liberal any hated business in general – they told me the biggest tax frauds cheats were churches and non-profits but they were untouchable – politicians of both flavors protected them ferociously from IRS investigations – look at the exponential growth of non-profits -there is good reason for it !
Non-profit = where does the profit go? They usually charge just as much or more than the regular market. I used to drive by one every day – they round up the daily cash workers, bring them there in a bus. The parking lot was filled with Mercedes and BMWs.
In the TV show Dukes of Hazard, Boss Hogg is famous for his quote “Profit is whatever is left after I take my cut”.
Seems like every time I see a pro athlete interviewed he mentions his “foundation.” Athletes didn’t used to be so charitable.
Good idea – “forever stamps”. Nice hedge against inflation.
Sam drives a Corolla. He also lives in a $40 million penthouse and travels in his personal $40 million private jet.
This reminds me of the old board game Monopoly with get out of jail free cards.
Does anyone know what a wood nymph is? I saw a photo of one that was supposed to be a part of the FTX brain trust. She had a led hair band. I also saw the orginazational chart of FTX. Corporations nested in corparations. Lovely. I really do not care who loses money as long as it is not me. I am hoping the Internet gossip around the non-gossip fact of $70+ million given to the DNC from FTX has a kick-back vector from Ukraine “financial aid”. I also hope that the GOP wallowed in a pile of cash also. Nothing will come of it if the kick back crime is all true since the Empire controls the Corporate Media and they ain’t nothing more Empire than Congress. It’s just a nicely packaged easy to understand ol’time kick back money laundering scam of public money that has a soft porn visual. Perfect.
The canary in the coal mine. Glass-Steagal was rescinded in 1997, but FDIC still applies. Beyond FDIC limits, depositors pay in most significant nations in the world. Equivalent FDIC in any nation is a miniscule per cent of potential liabilities; beyond that, fire up the printing press.
The crypto market is just a microcosm, a high voltage test model of what the banking business has evolved into in the last 25 years. What happens when too many depositors show up to withdraw if the stock market lays an egg? Or commodities?
A few years back, one of my banks showed a loss approaching a billion dollars on oil futures. What’s a bank, or at least one of its comingled divisions, doing in oil futures?
If a bank is lending to certain firms in oil, that is commercial banking. It should hedge the risk with derivatives futures, CDS, etc.), or if not, it is taking a huge risky one-way bet. That is not sound risk management. Try finance 101 some time.
Banks and crypto are not remotely equivalent. Nor are the countless risks involved in various of their deals. Banks are weird structures but highly regulated and insured for good reasons. Trying to lump them all in one category adds no information, IMO.
phleep said: “It should hedge the risk with derivatives futures, CDS, etc.), or if not, it is taking a huge risky one-way bet. That is not sound risk management. Try finance 101 some time.”
Please show, with supporting numbers, how a bank would hedge away the risk of a made loan, via derivatives futures, CDS, etc.
That’s well beyond finance 101.
“A few years back, one of my banks showed a loss approaching a billion dollars on oil futures. ”
and you responded
“If a bank is lending to certain firms in oil, that is commercial banking.”
First, a bank investing in oil futures is “not lending to certain firms in oil”,
The significant point is that the repeal of Glass Steagall allowed FDIC banks to use those insured funds to make risky bets. Prior to that repeal FDIC insured banks were limited to direct lending with customer deposits.
Since it’s repeal the entire banking system has lost it’s equilibrium contributing to the out of control credit expansion. This credit expansion is at the heart of the massive bubbles we’ve experienced this century.
So please spare us the snarky Finance 101 comments. You’re way off base
Thank you for saving me some typing to Phleep. Yes, all the Money Center banks that went BANKRUPT in 2008/09 (like Citi etc.) had bought off all the regulation. And it was a bi-partisan
crime spree, led by Robert Rubin and Chucky Prince, who were referred for indictment. Of course, that never happened and Rubin acts like his shit don’t smell. And his signature remains on our currency.
Eventually the leverage will produce margin calls. I believe we are in the “transferring assets to unknown locations” phase. All the pleading for mercy and high cost loans will be done by Friday. Next week there might just be a flood of people going under. The thing about risky behavior is that it produces recurrent and regressive behavior. Gamblers keep gambling and diversification is for rubes. There is a lot of concealed pain, but it is going to put a dent in inflation- binding that “wealth effect” to cement shoes.
“The funny thing is that in June, BlockFi was already in trouble and then got a $200 million bailout from FTX, all in cryptos.”
My understanding is that FTX bailed them out because BlockFi were holding a lot of FTT tokens that they would have to sell if they went bust, crashing the price of the FTT. And FTX “assets” were for a large part its own FTT tokens, so they would go bust too…
The whole thing is such an interconnected scam.
The funny thing is that the entire premise of crypto was to be decentralized and without counterparty risk, trading peer to peer, avoiding exactly the shenanigans that now brings down the entire space!
Utopia. Erewon. (same place)
MIT and Stanford University elite American Institutions have sent out their best minds to be the most famous Ponzi scheme artist and grifters. I saw article today that there will be a congressional hearing scheduled in December on crypto implosion and FTX. I guess the folks up top want to make sure this is not transitory, as Powell said about inflation. Liquidity brings out the worst in everything it seems this days, much like going to the bank to close an account, nobody wants to lose your business. Great article written in laymens terms.
The Game of Coins is the next HBO hit movie series…..
This is one ponzi we can’t blame on the Chinese. If the Chinese were in Bitcoin it would have peaked at least in the millions apiece or the ponzi would still be ongoing today.
Just like Chinese stocks (and their financial reporting) or property markets, or opaque and corrupted local government debt, right? Or their COVID management?Ror their regulation of fentanyl production and export? Or their intellectual property integrity? PLEASE.
China would have been the Nelson “Bunker” Hunt of the Bitcoin world had they been in the ponzi as they’re always late and the last ones standing in ponzi’s that originate outside of China. The Chinese government saved all of China by banning Bitcoin.
To me, crypto was like the game hot potato. Sure there was talk of paying for things with bitcoin. And there was talk of using bitcoin to avoid the IRS, FBI and to do illegal things. Mostly there was a lot of talk about how pointless crypto really is. Then, somehow the NFTs became a thing. Imagine, digital cartoon clipart becoming valuable. And then we had superheroes like Tom Brady advertising it. Crazy stuff. And yet in my small circle of acquaintances, most felt like they should own a little. I hope those folks will now look at ALL so-called investments with a critical eye. And that is a good thing. People all ran to one side of the ship to see the amazing crypto but then the boat started to tip. Now we run to the other side to find balance. Wall st would wither if people just stayed in the middle.
and yet bitcoin is still north of $16,000.
Down from $68000. And it still has a way long to fall.
One “contagion” may be in sentiment collapse: Crypto Winter to Crypto Ice Age? All the touts are still talking it up, including some pretty big entities that have thrown their hat in, such as Hong Kong trying to position itself as a reliable crypto center. Doubtless there is lots of unease in such quarters. The crypto market can stay illiquid longer than many can stay solvent (and keep incinerating money promoting it, etc.).
The Binance CEO, CZ, also faces new dilemmas, similar to what Bankman-Fried faced: to try to prop up the crumbling ecosystem, to preserve his own business? (Not so new, as J.P. Morgan faced this in 1907.) SBF tried to do that preservation act rolling up faltering firms, but based on his own magic beans (in-house tokens as collateral, ha!), and pilfered customers’ money, behind the opacity that was such a nifty “feature” of the crypto business.
“The problem for them (miners) is that the high cost of electricity makes it uneconomical to mine bitcoin, after the price of bitcoin collapsed.”
Actually, I’d say the real problem is that there is a limit to wasting resources on non-economic value-added activity. Crypto is actually nothing and it’s completely insane to waste real resources (including energy) on nothing.
Care for a Marlboro?
Smoking cigarettes is pleasurable to many people. Not sure there is an intrinsic value to a random combination of electrically charged gates on an intricately etched piece of face-centered cubic crystalline silicon.
A cigarette can be traded for a slice of bread with some fat rendering “Schmalz”. A pack of cagarettes can distract a scurity guard, etc. All without infrastructure.
What can a bitcoin beconverted into?
And in countries where IDs are like passports, great place to keep the spare Benjamin or Jackson. A George Washington ma get you a sympathetic wave thru?
Speaking of contagion, this on Twitter from GenesisTrading who also seem to be hit by some FTX fallout:
“… Our #1 priority is to serve our clients and preserve their assets. Therefore, in consultation with our professional financial advisors and counsel, we have taken the difficult decision to temporarily suspend redemptions and new loan originations in the lending business…”
So in the crypto universe, client assets are best protected by not returning them.
I’m learning something new every day.
In Barrons, additionally, Genesis said that they are experiencing “liquidity problems” but its “spot derivatives trading and custody businesses are fully operational.”
Ah, that is good to hear, I am completely reassured now and I will sleep well tonight knowing that my assets are in good hands.
Nothing to see here, move along please!
I still believe in Bitcoin. Opensource code backed by proof of work, secured by the largest computer network in the world. I do wish mining was more decentralized and there were more bitcoin developers, but that could still change.
I don’t believe in all the other shitcoins, anything proprietary or backed by proof of stake. All the other cryptos and exchanges are essentially centralized scams waiting to implode.
It’s not that hard, buy and hold bitcoin, hold your own keys, don’t chase leveraged returns. It’ll beat the dollar over time as a store of value, which frankly isn’t all that hard to do.
> It’ll beat the dollar over time as a store of value
Sure. It’s only possible, now, if you keep moving the time horizon, the goal posts, further and further out. But it is always heartening to hear someone recite their catechism, by rote, ending with the big promise in the sky, that just hasn’t happened to materialize here in a real world quite yet. Or rather, it has viciously dematerialized, to the tune of a big crash. But anchoring is powerful in human psychology and belief, as behavioral finance (and many religions and other faith-based things) show. It is just a messy world that refuses to cooperate, in any measurable way!
The dollar is programmed to do one thing and that is lose value forever. It shouldn’t be that hard to beat that, go ahead and defend it but that’s all it will ever do.
Sure, bitcoin is down this year. It had a boom for 2 years and then it came back down. So did a lot of stocks. I still like the overall performance and I still like it going forward. Do I wish it was less volatile sure, but it’s programmed to increase in value as new supply is more limited over time. So far so good for many, it just depends on when you entered the market.
Once enough people finally wise up and stop getting wrecked by the shitcoins, maybe they’ll figure it out also.
I hadn’t heard of faith as “anchoring” but it makes sense. We get anchored in our infancy. And just can’t slip out of the shackles. Or maybe we don’t want to. Why fix it if it ain’t broken?
Store of value?
BTC is measured in dollars. Dollars are not measured in BTC. One converts BTC to dollars to buy Lambo…not the other way around.
Stake and wallets are ponzi notions…beware.
Like Brian, I am sick and tired of all these Me-Too shitcoins and novelty tokens. The greedy fools who lost their fiat to something they had staked for 20% interest; and they traded on illiquid exchanges backed by other shitcoins and empty promises; and promoted by the lowest level predators. I despise all phony centralized shitcoins.
The original one and only Bitcoin is the only truly decentralized global digital store of value. It cannot be controlled by any government, there is no intermediary required.
Satoshi invented the blockchain to decentralize Bitcoin. Everyone thinks The Blockchain is a Wonderful Innovation.
So how about Bitcoin, without which you would not have the Blockchain being implemented in financial and manufacturing use cases. I say Bitcoin will live long and prosper after the dust settles on this shitcoin fiasco.
Ps – my Bitcoin stake is 150x at current price.
Yeah, “proof of work”. Like spending tons of valuable energy on calculations required to add records to a blockchain at the speed of molasses compared to any modern transaction processing system.
I am constantly being forced and harassed to lower my thermostat and drive less because energy is getting unaffordable and of course I must save the planet, while at the same time unheard-of quantities of energy are being squandered in this oh-so useful “proof of work” and “mining” nonsense.
The earlier this whole crypto fad including bitcoin disappears into the dustbin of history, the better off we’ll all be.
Nice post. I view the nonsense of crypto similar to the Middle Ages alchemists working to convert lead into gold. This was taken as serious work because people were ignorant about a) physics and b) economics. The same ignorance exists today.
If we had sound money and the privately owned central banks couldn’t inflate the money supply at a touch of a button, I agree, we wouldn’t need bitcoin. Unfortunately, that’s not the case and there is no fiscal restraint and also no mechanism to curb monetary expansion, especially while QE is still a tool that the banks can use on a whim. I love how everyone goes off about bitcoin while ignoring the destructive force of privately owned central banks and a money supply that can expand without restraint forever. It’s nice to also ignore that the money supply must expand forever or else the system implodes.
No question, the dollar does lose value thanks to Fed, but the dollar doesn’t drop 70% in 12 months. Bitcoin and all crypto has no intrinsic value and is a purely speculative asset like tulip bulbs and will eventually be worth about a tulip bulb.
True, and you can also get well over 4% on your dollar right now without any credit risk.
Sometimes I feel like we’re on the path to be the next Venezuela. It could happen when we have to monetize interest payments on the debt. It might not be that far off.
Believing is something you do in church. It is not a business plan.
I don’t know much about crypto, but it is possible that a good part of these huge valuations, $3 trillion you say, was created by the promoters of these crypto scams, e.g. by manipulating valuations up on relatively small volumes. Some big guys sit on huge “profits” then, but can’t sell, because the markets have not enough liquidity.
What I want to say is that the promoters had an interest in creating huge market caps in order to fool people to think crypto is a huge thing.
Now when cryptos fail, the real damage for investors may be much, much smaller than $ 2 trillion.
It was all virtual wealth. Even though cryptos hit 3 trillion in valuation, it would have been impossible to move much of that to purchase hard assets. Almost nobody would take crypto for payment on a farmland, real estate, etc. Sure there are some one offs but it was best if you could find a bank to maybe give you a loan against your cryptos. Otherwise, you could only swap it for another crypto.
That was why Bankman-fried was the JP Morgan in crypto land but if someone actually needed him to fund a venture in cash, there was probably no liquidity.
Thank you. What was also telling was that the implosion of FTX had not much effect on the stock market.
Large valuation as wolf mentioned allowed them to get real cash infusion from PE for their real cash needs. Not that I actually think they are scammers myself just without rules to follow just give it a shot.
> “without rules to follow just give it a shot.”
On which planet is that? Lying to people about how you are holding and handling their money is called fraud (and theft, and breach of fiduciary duty, and ….). It is a crime and a civil wrong in every legal system I ever heard of, back to ancient times. It is true that something not made illegal by law, in our system, is legal, but that is absolutely not the situation here. Ignorance of the law is no excuse. It is a ticket to a very real jail. My advice, sincerely: stay in school!
FYI – Citadel CEO just said he thinks inflation has peaked. There is chance of a recession next mid next year. Energy like oil and nat gas prices will roll over in price in 2023 further reducing inflation. Rent prices have stopped going up which will help lower the inflation rate. He said the FED cannot let up though and to make sure it goes down and do not make mistakes like the 1970s. He said we will be back to high 2% inflation by the end of 2023.
It’s already too late the wage-price spiral has already begun. Once Black Friday and Christmas are out of the way inflation should take a second leg up early next year. I always look at figures like PPI and CPI as dubious before such events.
Doesn’t Bernanke work for Citadel?
I hope a few more big sources of claim tickets on goods and services that came into existence without any true value-add to the economy die off like this. Maybe then we could all buy things with wages and gains from actual wealth production again.
The crypto implosion should make a lot of little guys feel a lot less wealthy and starve the bigger guys of some gains that can be used to manipulate markets.
Higher mortgage rates, and the freeze up in the housing market on sales and equity should knock out another hunk of unbacked spending.
If stocks get into enough trouble that might take another leg out. Just think of all the sales, mergers and acquisitions that would be impossible if it got too risky to lend against large portfolios. Could Musk still make a purchase like buying Twitter if stock share values become generally perceived as unstable?
Two other trends I’ve been watching are the productivity drops and difficulty hiring new workers.
With the drops I’m wondering how many folks can no longer be ground 50-80 hours a week due to Covid absences or complications like long Covid (colleague at work has this, yikes!). Companies have for years been paying workers based on 40 hours on salary and trying to get 10-40 extra hours for free on top of it. They could get away with that because during the off shoring craze there was a line of applicants out the door to replace anyone who refused. Not true now. In a few months? Who knows? But I’ve been wondering if a big enough percentage of workers have simply lost the ability to work the longer hours and there is no line of new folks waiting in the wings which should take some pressure off everyone.
Musk has seemingly doubled down on the long hours, in office expectations while reducing perks that make it bearable. Tesla pay has never been spectacular and shares were a balancing perk but if share prices aren’t a sure win anymore? Been watching Twitter and Tesla to see what their retention is against companies with different policies.
Everything is becoming fascinating right now as far as all the forces in play. Thanks Wolf for all the wonderful analysis and this engaging comment section.
Renowned economist Nouriel Roubini has denounced the cryptocurrency market as an “ecosystem that is totally corrupt,” and described some of its big players as “con men” after a major exchange collapse
There were “seven Cs of crypto: Concealed, corrupt, crooks, criminals, con men, carnival barkers, and finally, CZ,” Roubini said on Wednesday at a panel hosted by CNBC.
“The lesson of the last few weeks is these people should be out of here,” he added.
“Renowned economist Nouriel Roubini has denounced”
a little late ………………….
perhaps more helpful if he stated, years ago, “an ecosystem that is totally chimerical”
perhaps the renowned economist had no recognition ,,, and what does that say??? who cares to listen to him now?
I do. He’s totally candid and prescient. Who in their right mind would bother warning people about cryto? It’s like needing to warn people about an authoritarian – if they can’t recognize an obvious example, they wouldn’t know one if he hit him in the face.
Roubini has been clear about his view of crypto currencies since their inception. A couple of years ago he released a list of reasons that he thought even the best of em, bitcoin, was a flawed concept.
Roubini has earned recognition as a serious economist notwithstanding the risk of academic flaws that may entail.
How many small cuts does it take to kill the whole body? A hundred and thirty four in the case of FTX/Alameda. Consider Sam’s direction to appoint his CEO as case point man in bankruptcy. He cites “top 10” of over 130 entities of the “FTX Group”.
Just imagine the salaries and bonuses paid out by 134 entities in just one year! Wonder where your crypto went to? Down this rabbit hole filled with hungry rabbits each taking a chunk of the pie. Any investment in fiat or crypto is long gone, without a trace. The classic “operating expenses” soaking up all revenue and invested cash.
This should be a chapter 7 liquidation case with a bull dog Trustee. Still it will be shocking if there are any assets left, or anything to reorganize. Just like crypto itself, poof, and its gone.
First pages of the filing tell a story of over a hundred levels of loans, grants, contracted services, you name it. The filing goes on to list 134 world wide entities to be included in the FTX Group filing. Its simply too long to post here.
“I, Samuel Benjamin Bankman-Fried, as controlling owner, director, officer, manager or other authorized person with respect to West Realm Shires Inc., Paper Bird Inc., Hilltop Technology Services LLC, Cedar Grove Technologies Services, Ltd., FTX Trading Ltd, Alameda Research LLC and Clifton Bay Investments LLC (the “Top Companies”), and all of their directly and indirectly owned subsidiaries (together with the Top Companies, the “FTX Group”), hereby authorize, instruct and consent to the following corporate actions with respect to all members of the FTX Group”
When I Binged ‘Cedar Grove’ an organic composting company came up.
SBF is obviously a hard-core gamer.
PUBG maybe? You get killed, but you can always start over.
Winner winner chicken dinner!
“These investors include well-known names… Softbank”
Is there a bad investment that Softbank hasn’t been involved in? I keep getting the feeling that someday in the future, we’ll be reading a tasty Wolfstreet article about Softbank’s collapse. At least if there’s any justice in this world.
It is the world’s largest laundromat with 134 high capacity washing machines running day and night.
Unfortunately, even if you have your “tickee”, you still get “no washee”.
Somewhere all that vanished crypto was someone’s work product in terms of currency. Now both are gone.
And this time, it wasn’t regulation, but good old fashioned failure, that will bring about lessons for all, and market discipline. There is nothing like total loss to focus the attention.
Executions at dawn also work.
As this fraudulent space melts down into oblivion, one of the most comical parts to me is how they always come up with new “psychological support levels.” With BitCON, it was $60k, then $50k, then $40k, then $30k, then $20k. Now it’s $16k. When that buckles, it will be $15k. It’s all just made up nonsense.
This made me smile. Maybe a more appropriate term would require a minor abbreviation:
“Pshcyo Support Level”
I wonder what the Psycho Support Level was the day the account holders found nothing in their accounts?
Good observation Depth Charge!
I’d like to see Bitcoin go to zero. Is that a possibility?
Those persistent levels showed clearly that there were no fundamentals, instead just all sentiment, and air under it. Looking at a one-year graph of bitcoin, it was just like that: 30k, 20k, …. if there were fundamentals, real assets, real supply and demand, it would not behave like that. To me it spells certain whales behind the scenes, with manipulation and lots of stupid compliant fanboys.
So Softbank is in crypto. Perhaps they are trying to make up the money they lost in WeWork.
When will people stop paying attention to SoftBank? Masayoshi Son hit it big with Alibaba, and he has been wrong about almost everything since.
Who is backing that slow-motion train-wreck? How many billions can be incinerated before an endgame is reached? Does such a behemoth involve possible contagion? it is a big black box that seems to contain nothing but sh!t.
Many of these crypto exchanges sound like elaborate scams worthy of a criminal investigation.
Watching a breakdown of FTX .
Criminal? That is to polite of a word.
DC gets their kickbacks and campaign $$, and when it all goes to heck
they will then get to loot..errr.. regulate crypto.
Have you seen these kids? These little sh*ts would not last a day
doing physical work on our job sites.
Have you seen these kids?
SBF always stuck his feet on the furniture, in short pants. Shook his leg continuously, like an unruly kid. Never combed his hair. Is that slovenliness supposed to signify genius? Obviously the “little lost boy act” worked on the weird girlfriend/crony, though.
It’s a shame that this will be classified as investments that went down in value rather than a Ponzi scheme that makes Madoff look like an amateur.
And here comes the scammers ability to take away your savings and make you believe that the cause is your fault for not being lucky, and continue to believe that one day I would be lucky.
The speculative bubble in crypto helped absorb some of excess capital from C-19 QE, which upon its liquidation the outflows temporarily flow into stock and bonds, pushing the yields down on government treasuries that continue to launder money to U.S. defense contractors et al. as the biggest beneficiaries.
Tesla on its own would have more exposure/contagion to mainstream finance than the entirety of the crypto-assets.
It will be interesting to see how much further these assets depreciate as the Justice Dept. liquidates its crypto seizures on hand and incoming after the planned hiring of 87,000 IRS agents for expanding its “digital asset monitoring and compliance activities”.
The next domino to fall:
The lending arm of crypto investment bank Genesis Global Trading is temporarily suspending redemptions and new loan originations in the wake of FTX’s collapse, Interim CEO Derar Islim told customers on a call Wednesday.
The unit, known as Genesis Global Capital, serves an institutional client base and had $2.8 billion in total active loans as of the end of the third quarter of 2022, according to the company’s website.
nobody saying “Bitcoin is dead”?
“There’s a sucker born every minute.”
Or history rhymes. This is from the Wikipedia entry for Enron:
“Before its bankruptcy on December 2, 2001, Enron employed approximately 20,600 staff and was a major electricity, natural gas, communications, and pulp and paper company, with claimed revenues of nearly $101 billion during 2000. Fortune named Enron “America’s Most Innovative Company” for six consecutive years.”
I’m not sure I would be so quick to state there is no contagion. Bear Stearns happened almost 8 months before Lehman. There is still a lot of crypto being moved around and it will eventually result in fiat losses. I will be amazed if at the very least a couple hedge funds don’t collapse.
Hopefully, Bankman-Fried salted away enough money in an offshore account to get him through some tough times. It’s not his fault regulatory authorities fell asleep on the job.
“In other words, $2.1 trillion have vanished in 12 months.”
Wolf, with the above statement, you are falling into the trap I see with main-stream financial media.
“Mark Zuckerberg loses 50 billion in the last 3 months”
“Elon Musk gained 100 billion last year”
Such statements as above are designed to provoke envy and are clickbait – but are not true.
$3 trillion global value of crypto was only because a few incremental buyer fools were bidding for crypto at the margin. It did not imply that crypto as a whole was valued at that marginal price. and you know this as well !
Has anyone ever told you that ALL market prices are set at the margin? Stocks, houses, cryptos, bonds, etc.? And that this is how wealth is measured? Called mark-to-market?
I guess I’m the first one to tell you, LOL
fair enough, there is really no objective alternative to “mark-to-market” when measuring value of assets.
but, Wolf, you have catalogued in your blog how distorted the marking-to-market can be with the animal spirits unleashed over the past few years in crypto, tech (and even before that in the housing bubble)
instead, an alternative and more traditional (but not objective) measurement of asset value is using cash-flows, liquidation value etc, by which measure, crypto as a whole likely amounts to 0.
Probably other crypto exchanges will close. Other marks i.e. investors are rushing to the exists and they have no reserves nor a Fed Reserve to bail them out.