We can start this morning with some good news for holders of Bitcoin which is that it has bounced a thousand Dollars overnight to US $16,750. Of course in terms of the bigger picture that is also bad news as that level is way below where it was only recently. In terms of economic analysis we have seen a shrinkage in a type of money supply and combining that with the losses seen both realised and unrealised we have yet another deflationary influence on the world economy. This adds to what the central banks are doing. From today’s ECB monthly bulletin.
Bank lending rates for firms and households have increased further, as banks tighten their loan supply. Since February 2022, increases in bank funding costs have pushed up lending rates in all euro area countries, while credit standards have become tighter.
What has caused this?
The first issue is simply the rise in interest-rates I have just referred too. Out of those the main player is the reserve currency or US Dollar as that is what Bitcoin is priced in. In a crypto dream Bitcoin would have its own value but it has never really got anywhere near that. So it has faced a situation of being compared to a currency which has an interest-rate of 4% and rising. In a sense we are looking at a similar situation to the Japanese Yen we have looked at frequently. although the Yen has declined by 27% in 2022 as opposed to the 65% of Bitcoin. So there is more.
Binance and FTX
There has been quite a destructive dance going on between these two.
The Cold War between FTX’s Sam Bankman-Fried (SBF) and Binance’s Changpeng Zhao (CZ) went nuclear this week. Crypto was the biggest loser in the ensuing radioactive fallout. ( FT Alphaville)
Maybe the Inagine Dragons were right.
I’m breaking in, shaping up, then checking out on the prison busThis is it, the apocalypseWhoa
Somehow we end up with this.
Namely, it was fragile enough that the founder of Binance, a major competitor, could spark a market panic with a series of tweets. Those tweets reportedly led SBF to shop around for a new round of investments, and eventually forced him to go, cap in hand, to CZ.
Yes that is the same FTX which was run by this man. From Fortune magazine in August.
Exclusive: 30-year-old billionaire Sam Bankman-Fried has been called the next Warren Buffett……..In 2019 he founded crypto exchange FTX, hailed by some as the best derivatives platform ever built.
Fortune have taken a beating for this but we are fair on here so I will point out they also stated this.
His counterintuitive investment strategy will either build him an empire—or end in disaster.
Actually he seems to have managed both and it is only early November. Life is sure fast in the crypto scene. Indeed it turned out to be fast in another way too.
The billionaire founder of crypto exchange FTX, Sam Bankman-Fried, has plans to give away the vast majority of his wealth thanks to the philosophy of “effective altruism,” which he learned in college.
Despite running a multibillion-dollar global crypto exchange, the 30-year-old drives a Toyota Corolla, lives like a college student, and has a goal of making as much money as possible so that he will have more to give away, according to Bloomberg.
That was from April although it was on the 4th not the 1st. How did he give it away? Not by conventional means. As FT Alphaville explains Binance/CZ ended purchase negotiations with a volley of torpedoes.
But Binance only signed a “non-binding LOI”, or letter of intent. And the now-indisputably preeminent crypto exchange very publicly walked away from the deal with a killer parting shot:
“As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com.”
Regulation or not?
The story takes another twist because we have become used to the lack of regulation and hence official meddling has been one of the perceived strengths of the crypto world. Right now the idea of them being a safe haven has had better times to say the least and there is a particular irony.
FTX’s US platform is separate from its international exchange, as SBF said in his Tuesday tweets. He described FTX US on Twitter as “not currently impacted by this”, without saying whether “this” is the need for cash or the Binance LOI. FTX US also appears to be open for dollar withdrawals. ( FT Alphaville )
So the only investors who might be okay are doing so because they are in a regulated space. That is of course the opposite of the modus operandi of the crypto world. I would also add a so far to that as regulation does often turn out to have holes in it.
Also there is the issue of whether the actions of Binance are illegal? They certainly look illegal but which court do you prosecute in? No-one seems to have much idea.
Alameda
There is another leg to this story and it is in a way the beginning of the crisis.
Though it’s not obvious exactly how separate Alameda is from FTX. While CEO Caroline Ellison told Bloomberg that there is a “Chinese wall” to stop information sharing between Alameda and FTX, ( FT Alphaville)
Information maybe but money not so much.
Coindesk saw documents showing at least one part of Alameda held a very large amount of FTT on its balance sheet as of June 30, with $2.2bn in FTT held as “collateral”.
Ironically we are now in the world of off balance sheet vehicles and in a sense SPVs that the Euro area has loved so much. Essentially for the same reason that you can spin money around in a dizzying whirl. But of course the Euro area does have treasuries and taxpayers at the limit whereas the token world had this.
The report implied that FTX was able to effectively add leverage by issuing tokens to Alameda, because Alameda could then borrow against those tokens and redeploy the cash back on to FTX’s platform. But when the price of a token — or any collateral really — slides, a firm needs to put up more cash against its loans. ( FT Alphaville)
We are back to the adventures of Stevie V.
Money talks, mmm, mmm, money talksDirty cash I want you, dirty cash I need you, oohMoney talks, money talks
We see another irony as the crypto world built to escape US Dollars requires the very same as a rescue act. Then there is another problem as on the way up there is cash everywhere but on the way down it disappears and each Dollar seemed to need to be in at least 2 places at once. If the news that has just been released turns out to be true maybe a few more than 2.
JUST IN: Sam Bankman-Fried previously transferred at least $4 billion in FTX funds to support Alameda, including user deposits, Reuters reports. ( @WatcherGuru )
Comment
If we now bring this back to economics we see that we had an expansionary and inflationary influence from what was a type of international virtual money supply. Only a fraction of it will have been used but back last November when the price went above US $65,000 some will have spent their gains. But now we face a deflationary influence as losses replace profits as we are reminded that much of it was singing along with Imagination.
It’s just an illusion (ooh, ooh, ooh, ooh, ah)Illusion (ooh, ooh, ooh, ooh, ah)Illusion
I hear some of you saying where are Credit Suisse or Deutsche Bank? Well Alpaca can help a little.
In honor of Women’s History Month, we hosted a panel on Twitter Spaces with eight inspiring women in fintech and crypto.
Okay so?
Constance Wang: Hi guys. I’m Constance, I’m the CEO of FTX and the co-CEO of FTX Digital Markets…….. I joined Credit Suisse, but was totally bored in banking industry and moved to crypto two years later and joined SIM to build out FTX since the beginning of 2019.
Well she certainly wont have been bored at FTX as we see you can take the girl out of Credit Suisse but maybe you cannot take Credit Suisse out of the girl. This sounds right out of the Credit Suisse playbook.
The space is chaotic, and people didn’t know what they were talking about. I thought that was a chance for me because I didn’t know and you didn’t know, so yeah, I’m not so sure and a disadvantage. So that’s why I chose crypto