Colour me cultured
So many titles I could give to this note today
- reflexive up & reflexive down....reflexive in jail...
- super cycle to zero...
- novogrets.... Novogratz goes to CNBC and quotes a tweet (from a parody account) about El Salvador asking for Sam to be extradited as a fact!!
- brick or treat...bit late for Halloween
- clown town...
- spills galore - gary's aisle 3....
- front run customers; make 7+ figures daily profit; somehow still go bankrupt...
- crypto don't kill people; custodians do...
- 10 billion down the drain...
- ok, I give up...
Just after the turn of the century, early 1900s, families in surrounding areas of my ancestral lands reached out to my great-grandfather. They asked him to be the custodian of their valuables. There was an increase in robberies and folks wanted to store their heirlooms or expensive wedding gifts for bride/groom. The thought was that no one will dare to rob an educated landlord. Surprise-surprise some years later 7 politically well-connected armed robbers not just robbed but also left my great-grandfather for dead. The repercussions of this event can still be noticed in my immediate families way of life.
Firstly, the enforcement of justice required greasing of many palms of higher echelons of the police. The price was 7 gallons of ghee (https://en.wikipedia.org/wiki/Ghee) per commanding police officer up the chain of command. This led to each of robbers being arrested and jailed. Henceforth, we as a family became insular to an extent with aim to never displaying our hand so-to-speak in general public; weirdly we also don't pass down surnames to next generation - a tradition my generation is now trying to change.
This mentality of untrustworthiness I also had until I managed to 200x my net worth due to bitcoin in 2012-2013 period. Paid off all my debts and then forgot the one true lesson of Lord Satoshi; don't trust; verify. That put me back into the rightful place when my net worth got completely wiped out due to MtGox. I was too complacent, too pompous & aloof.
Thankfully, I was still single. Only one person knew that I only had $20 worth of money to live off for 3 weeks before salary would come; didn't have the guts to share with my parents the news. The shock of that is the reason I only started speaking about digital assets openly since 2020; even the 2017 period I acknowledged to few folks in passing / vague terms.
Some of you reached out to check on me over past few days - thanks for that. I wasn't impacted in any consequential manner however dust has not settled. The biggest takeaway will be that from now on there will be resounding crackdown on anything crypto / DeFi related as well as these centralised exchanges. Even if DeFi world is transparent with fully auditable holdings / collateral / leverage etc statistics; the visible impact politically speaking is much bigger than MtGox thus legislations will smite it all. Furthermore, there is going to be additional noise about taboo topics like cronyism of those in echelons of power. It can already be seen in some 3rd world countries that are slowly creeping towards what one can only describe as an impending French Revolution. Yes, mentally the level of dejection seems very much close to MtGox days but if we survived in past and we are honest to each other then there is hope.
Coming back to crypto; one notable aspect that is hard to explain is the cultural dynamics. Similar to the Divine Brotherhood of Pythagoras; its indeed a cult of sorts whose collective dreams, nightmares & struggles are shifting like a pendulum. It nurtures all manners of personas because it doesn't point to one ground truth. This continuous shape shifting of collective crypto hive mind is the reason we forget the tenants of Lord Satoshi. I recall being subscribed to some mailing lists around 2001 that spammed me many interesting technical info from cyber security to cryptography or history yet within those groups there were folks who were probably full of nefarious aims. I could recommend some crypto twitter accounts to follow but problem is that you require a very thick skin to not get annoyed with them. There are characters who on regular basis aim to reduce their follower count by spewing what I can only describe as moronic statements. Then once the count is low they start to discuss actual topics of interest like hunting down some of the FTX's shenanigans even prior to this public downfall.
Everyone I know was fully aware that FTX had been front-running us (e.g. trade matching hiccups even on market orders); it was accepted as a fact of life because Sam had become the face of our world. Regulators loved him; legislators listened to him; even ex-Presidents and Prime Ministers were turning up to his events (he probably paid 'speaking fees' I guess to the ex-Ps for some face time at his conferences but that's beside the point). It's only now being realised that from the FTX founders' perspective this has just been a logarithmic wealth accumulation game that turned into an all out war against older generation of crypto exchanges/leaders who had been there since nearly a decade.
Ian Allison
The train of destruction was started by Coindesk's article questioning the leaked FTX balance sheet. On the face of it there seemed to be interlinked companies borrowing & collateralising coins that Sam / FTX were the sole major investor of (e.g. FTT; and SOL to some extent etc). Industry folks started to put the jigsaw puzzle together whilst around same time Binance's CEO Changpeng Zhao (CZ) got a tweet response from Sam that sounded rude (could say borderline xenophobic). Binance being one of major holders of FTT publicly let it known that they will begin to exit it as part of their risk management protocol given the Coindesk leaks. This $500m position (at that time) triggered panic once Sam's other entity, the "hedge fund", Alameda Research's CEO Caroline publicly tweeted they will buy it all at $22. Binance never agreed to OTC. The seed for all this mess seems to be large transactions that were made between FTX & Alameda on 28th September; probably to shuffle the FTT coins in lieu of cash injection from FTX to Alameda.
FTX/Alameda seem to have defended this $22 price point with what little cash they had left until it fell through to single digits. Binance competitors were publicly voicing that CZ should leverage his balance sheet to backstop FTX. Especially, funny was to see OKX's Star giving advice to CZ when OKX themselves had been running fractional reserve as well as volumizer algo years ago. But I guess bygones-be-bygones.
Finally, what made matters worse from public perception perspective was the moment Sam went to CZ to get a letter of intent of buyout of FTX International. This was first public (as opposed to 24 hours of rumours) proof that no one wished to touch FTX and only the biggest player in this whole space could maybe do it. Eventually, Binance also walked away; whomever buys FTX will have to struggle through litigation and fines over the rest of the decade at minimum.
Furthermore, Solana ecosystem has postponed the tranche unlocking of SOL that would have flooded the market with additional supply of SOL - I guess we forgot decentralisation again to save a central counterparty. Lastly, there were ideas being floated that FTX wished to give all clients FTX-DEBT token as an IOU so the exchange doesn't go into bankruptcy. At the end they gave up & finally went to Chapter 11.
Frankly, this whole <pick any very bad word> storm had been a major ethical / moral test for me; which am glad I passed irrespective of temptations. I was in chat groups where folks were desperately looking to sell their accounts for anything between 0.1 to 0.25 cents on $. Furthermore, there were loop holes allowing one to buy up a Bahamian (resident) account and utilise it to withdraw assets. FTX International is based in the Bahamas and had to apparently by default prioritise withdrawals for residents there. The money transfer between accounts could be done by buying & reselling NFTs on FTX's marketplace (at least finally after these years we found a use case for NFTs!!!!). Literally, one could make 7 figure profit by just doing this for desperate souls within couple of hours! I fail to understand how FTX's management allowed this to continue when all they had to do was to switch off their website. Its was no longer incompetence but rather wilful negligence after-the-fact. Hopefully, these intermediaries will get tracked down for AML/KYC fraud as online sleuths have shared ample info on these transactions.
In other news:
- BlockFi is probably done - too much evidence on-chain of their addresses sending ETH / USDC to FTX/Alameda.
- I am not subscribed to Real Vision so cannot review what allegedly Thomas Braziel of 507 Capital shared there; however I have interacted with him in past (anonymously). He's helpful & has some links (that's his job after all) but only noticed him appear after Fortress became a major public player in crypto distressed assets space. Usually found 507 Capital offers to be lower than Fortress. Their only selling point is that they attempt to close out the deal faster than Fortress.
- US DOJ finally released info that confirmed that indeed Loaded (pseudonym) got caught last year. They also got 50k BTC from him. He was one of few sleepy BTC whales who only rarely woke up when some drastic drama is occurring that requires a whale to put their foot down to ensure parties behave. Looks like majority of his BTC came from hack of dark web portal - Silk Road.
Tim Copeland
- All exchanges are slowly accepting they will have to produce proof of reserves; Binance have already shared their's; whilst Kraken has already been doing this since earlier in the year.
- Lastly, JP Morgan's Onyx team revealed they were working on a modified version of AAVE to perform a proof-of-concept for borrow/lend mechanism between fully KYC'ed parties (similar in concept to dark pools in tradFi). They intend to build further into this space by incorporating zero knowledge proofs; essentially you don't have to know all details but the mathematical mechanism will prove that what I say is indeed correct & can be verified in some manner.
Key takeaways for me:
- many folks I know got hit
- many big players are probably 50% down; if not wiped out
- some will attempt to revenge trade this
- personally, I feel next bull run is delayed by 2 more years - maybe summer of 2024 we see it commencing
- my last bingo card says - Saylor
Stay safe & I hope none of you or your loved ones were impacted.
