WTFTX?

It's Probably Nothing 41 Comments

As my grasp of crypto could perform the Nutcracker on the head of a pin, I reached out to old friend Melinda Romanoff for a summary (via email).

This all started months ago, when Coinbase changed its Terms of Service to declare that all customer funds would no longer be considered “segregated” but as “general unsecured creditors” in the event of bankruptcy. This revelation exposed two things, that management was pooling customer monies and probably were borrowing against them to boot, so as to maintain their “Exchange”.

FTX was being run in a similar matter, it seems, just that the CEO went from billionaire Heavy Democrat donor to owing $650 million in just under 48 hours. Investors wiped out, BlackRock and the Ontario Teachers Pension being 1 & 2 in the second seed funding. This is OTP’s 3rd hit of similar size in as many months, I believe.

Bottom line? Crypto markets can use UNLIMITED Leverage in their trading schemes. There is no regulatory body in place, yet. Just this week, SCOTUS ruled that ANY crypto trading in the US or territories is considered a “security”. An earlier ruling declared it a “commodity”, a more specific security subset, and is regulated by the CFTC, who is super strict on credit creation (excess leverage) in that space.

Needless to say, “Contagion“ will be the next “Word Of The Day”, as any minority leveraged investors try to get out of the way of the collapse of the the maximally leveraged. Like everyone trying to hit the door at the same time when the police come by for a raid. It doesn’t work except one at a time, if that.

Still digging for a succinct encapsulation, but it’s an old fashioned bank run all the same.

So all the usual suspects dragged the fan bois and wannabes into a blind alley and they all got pantsed?

This is going to get so much worse because of these idiots. DotCom Bubble, just with more inflated US$……

Needs a name, soon. Crypto Singularity? (Because it’s going to zero.)

When Michael Lewis tags along to write a book about you…

More at Zerohedge.

41 Replies to “WTFTX?”

  1. Ontario Teachers’ Pension Plan, like so many other defined benefit plans, has been crushed by zero percent interest rates and forced to go further and further out on the risk curve in a frantic search for yield. They finally got a great yield, except that it turned out to be negative.

    We’re just getting started, folks.

    1. Oh yeah … we are ALL gonna get … reset … good and hard. And after Blackrock scoops up all our assets for pennies on the devalued dollar … we will beg to rent there and ask … please sir, May I have another bashing?

      1. Kenji, years ago I went all cash with relatively safe interest-bearing notes. The government has worked real hard to decimate my efforts to remain solvent until death. They have inflated the currency beyond any sane amount accounting for growth and it is getting worse.

  2. This is all because the World Series is over and there’s no more FTX branded umpire uniforms to keep the crypto afloat, right?

  3. So how much did the crypto-billionaire give to Biden? And I don’t mean his re-election campaign.

    Actually, perhaps a US SDA reader can tell me. If he did donate to the Biden re-election campaign, and Biden doesn’t run, who gets the unused campaign contributions?

    1. Joe, the answer to your question is “yes”.
      Sam Bankman-Fried gave a fair chunk to Democrat PAC’s and “President” Joe Biden.

      https://www.forbes.com/sites/mattdurot/2022/11/08/ahead-of-his-crypto-firms-cash-crunch-billionaire-sam-bankman-fried-spent-tens-of-millions-on-politics/?sh=17ca88a9db79

      Once upon a time he mused that he’d spend $1 Billion on the Democrats, then walked it back.

      https://www.coindesk.com/business/2022/10/14/ftxs-sam-bankman-fried-backtracks-on-1b-political-donation-calls-it-dumb-quote/

      So everyone should know who’s side this guy was on.

  4. If OTPP, a supposed ‘conservative’ pension plan got sucked into the crypto craze, one wonders how many of the other ‘Blue Chip’ investment vehicles have crashed. I’m not expecting OTPP to be the only loser.

    1. C79, I am a retired university professor, with a “hybrid” pension plan which only pays out a cost-of-living increase if the pension plan enjoys a capital gain increase. So for next year my wife and I expect a zero increase, given that stock and bond markets have done poorly in 2022.

      And I expect other private pensionmpland will do worse than us.

  5. The DotCom bust led to Amazon and Google and the others that revolutionized the world for the better. The ongoing crypto bust will cleanse the space of weakly managed projects and other bad trash, and bring us closer to GOOD MONEY. Because lord do we ever need it.

    1. Ah, yes. Amazon & Gaggle, those bastions of planetary improvement. What could possibly go wrong?

  7. Tom Brady invested most of his money in this. His dogs going to die soon you want ch. Then he’ll be writing country songs.

    2. Will probably buy a self driving electric truck; then he can write about his truck leaving him too.

  8. Hahahah!

    Ben Hunt
    @EpsilonTheory
    It’s so weird that CFTC Commissioner Caroline Pham has deleted this tweet (along with every other chummy reference to FTX, apparently).

    Meanwhile, somewhere a small RIA is being referred to Enforcement for not captioning an S&P500 chart as non-investable.

    Ben Hunt @EpsilonTheory
    5h
    I mean, the regulatory capture and smiley-face corruption here is just breathtaking.
    twitter.com/SBF_FTX/status…

    SBF @SBF_FTX
    Welcome to FTX, Commissioner Sommers!

    prnewswire.com/news-releases/…

    https://twitter.com/EpsilonTheory/status/1590458516548259845

    Looks like the dredging has begun in earnest! Can’t wait for what the morrow brings!

  9. This is consistent with Killer Marmot’s rule of equity investing…

    Boring is better. Avoid hype like it’s Polonium-210.

  10. My grasp of crypto currencies is a lot of expansive, overpriced 0s and 1s.
    For some reason, a dragon’s breath comes to mind.

      1. Kenji, just wait until derivatives start their fall. There is more out there in derivatives than all the real wealth on the planet.

  11. He was a bad actor.
    I don’t think the entire crypto world should be tainted with the same brush.
    I think crypto (digital gold) is the future, as more bond issues are set to fail in the next year due to widespread gov’t malfeasance, and the general debasement of fiat currencies.

    It isn’t “just the gov’t” that’s at risk… Credit Swiss is offering 9% here:
    https://twitter.com/Jkylebass/status/1590361514917101569

    Assets of 755 Billion Swiss Francs … https://en.wikipedia.org/wiki/Credit_Suisse
    For comparison, Royal Bank of Canada has assets of about $1.7 Trillion Canadian.

    Very few of the gov’ts around the world have told any of the truth in the past 3 years, and their grotesque underfunding of pension funds is going to lead to major problems around the world.
    Mark Levin was saying a decade ago that the USA public sector pension funds were unfunded to the tune of $200 Trillion. This has been done by government plan. This isn’t “one rogue guy” … it’s an entire sector of society gone mad with OTHER PEOPLE’S MONEY.

    while 1 of the crypto exchange owners used the funds to buy influence and have a 4 years long party.
    And NONE of the Democrats are going to be giving those funds back.

    I don’t care that the Ontario Teachers Pension Plan lost some money in this.
    The gov’t employees can lick me where I poop, but they’ve made it mandatory for everyone else to participate in their Ponzi scheme, and we have no recourse.

    and “CZ” from Binance seems to be one of the good guys.

    1. Glad you mentioned CZ he had a really good tweet up today outlining his 2 golden rules that he enforces on Binance: 1) Do not use your own token as collateral 2) No debt. Do not use capital ‘efficiently’; have generous reserves

      I like CZ and Binance a lot. They defy government regulations and take some risks but also employ common sense and grounded rules. Rare combo.

  12. OTPP has targets in place to reduce portfolio carbon emissions intensity by 45% by 2025, 67% by 2030, and net zero by 2050 (2019 baseline).
    If I understand this correctly, when they take a 150million hit on a “net zero emissions” investment, they have to sell oil and gas investments to maintain their ratio.

    A couple of questions.
    Do they include downstream emissions in their investment assessments?

    Will their teachers be impressed with a net zero pension when they retire?

    1. “Will they be impressed with a net zero pension when they retire”

      Good question. Suspect many will die from cold in their homes. Either low temperature itself, or the inevitable respiratory illnesses that seem to proliferate with cold. Thus they won’t collect much of the pension.

      Jagmeet will be happy, because the net zero investments won’t pay any dividends.

  13. and.. “Property rights”. (something near and dear to SDA’s hearts).

    If the crypto holdings were held in cold wallets outside of the exchange, none of the crypto holders would have lost any of their funds, the exchange only had access to these funds while they were left in the exchange. (for months or years).

    During the trucker protest in Canada this spring, the gov’t accessed funds which were held in private banks, and simply got away with it as it’s “their rules” in tier 2 Old Canada.
    If those funds were held in privately held cold wallets, (with funds instantly exchangeable between citizens) the gov’t would be powerless to stop them. Think about the gov’t no longer having control of your finances…. and think about how crappy Old Canada will be when the gov’t brings the social credit system to the citizenry. You’ll have no recourse. You’ll have no entry into the good restaurants, no theatres, no sports events, no access to airplanes, just like covid times. The highest court in AB ruled this week that AB Health can prevent you from being put on a transplant list if you’re not vaxed. What are you going to do about it? “Nothing! and you’ll enjoy it…”

    Unless you have “private money” or as some of us say, “digital gold” … in which case you can always skip across the border and keep driving until you find a #Pureblood Dr.

    This is the control, that big gov’t has on you, and your crappy paper currency

    Related:
    https://www.youtube.com/watch?v=coHC_9ApBdg&t=781s

    If the gov’t is idiotic enough to start their own “gov’t crypto coins, it’s close to a certainty they’ll misuse and spend it like dirty gov’t provided Canadian Indian Reserve water in Canada and it’ll be worthless or poison inside of a year.

    UnMe, I think I retweeted CZ’s statement on Binance’s 2 golden rules today… https://twitter.com/cz_binance/status/1590103159506341888
    I have funds held overnight at Binance. But I’m not about to lose the house if Binance goes under.

  15. So the Crypto psy op goes bust, so that everyone will run around asking the government for central bank digital currencies because only the government can be trusted to issue currency. In fact, you could say central bank digital currency is “safe and effective.”

    Are you getting the picture yet?

      1. Buy gram gold instead: you break off one gram square at a time. 1 gram today is worth about $150. Much easier to get change on a purchase than handing someone a 1 ounce gold coin worth $2600. Try buying groceries with your crypto.

        And I OWN that gold. I can hold it my hand. Crypto? Not with a barge pole.

          1. I’ve long felt bullets might be a medium of exchange. Hard part is assigning value. How does $1 per .22 cartridge, $5 per center-fire pistol cartridge, and $10 per center-fire rifle cartridge sound? If that seems expensive, bear in mind that if it comes to this, bullets are going to jump in value.

        2. Weyland, I’ve NEVER touched crypto, always seemed to be a dancing shadow to me. Yes to only physical gold and silver. However, as per your post re ammo, I also have lots, (with the required ejection units too) plus alcohol, cigs, canned and dry foods, very little in funds at any bank, and very little debt and no mortgage. I’ve been expecting the crash for the last ten years, been ready for five, maybe this crypto bubble will be the final straw! Jeez, I’;m getting impatient, lets get on with the final decline already!

          Once digital currency is in place, the underground/black market economy will explode, and the final battles will begin. I want it to happen while I’m still young enough to participate!

  16. Yeah, got it around 2008, governments will save us from the mess they made.

    Why not eliminate the middleman? Instead the middleman is eliminating us.

  17. I wish I could walk into a bank (with a mask on) holding an empty paper and say, “I want to make a deposit.”

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