Bitcoin, Blockchain, Battlestar Galactica

Discussion in 'Politics & Current Events' started by Cascarino's Pizzeria, Feb 5, 2019.

  1. The Jitty Slitter

    The Jitty Slitter Moderator
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    Genesis is going to file Chapter 11

    Now everyone is going to find out where the money went

     
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  2. Cascarino's Pizzeria

    Apr 29, 2001
    New Jersey, USA
    I might've told this story a decade or so ago, but one of the major "oh shit" moments for banking & the feds in the 2008 collapse was the "breaking of the buck" by the Reserve Fund, the first money market fund. I worked there for a brief time several years later in a totally unrelated-to-money markets capacity. But the father & failson were still obnoxious dickheads who pretended like they didn't almost bring down the US economy.

    [​IMG]
    Buck Ennis
    The SEC says Reserve's Bruce Bent Sr., pictured, and Bruce Bent II misled investors last fall during a two-day, $40 billion run on their money funds.

    The evening of Sept. 15, 2008, was the worst of Bruce Bent II’s career. Panicked investors, who woke up that Monday morning to news of Lehman Brothers’ bankruptcy, had yanked billions of dollars out of the money-market fund Mr. Bent ran with his father, money-market fund inventor Bruce Bent Sr. The business the Bent family had dedicated their lives to, Reserve Management Co., faced disaster if the run on their fund continued...

    ...It turned out much worse than that. “5.2 billion already?” a stunned Reserve executive wrote in an e-mail on Monday at 8:37 a.m. Meanwhile, Mr. Bent and his father, who was in Italy on vacation, were working behind the scenes. Some 45 minutes earlier, unbeknownst to their board, the SEC alleges, they had contacted the Federal Reserve Bank of New York for assistance. The Fed declined.

    By midmorning, redemptions were accelerating $40 billion over two days — and Reserve couldn’t meet the demand because its bank, State Street Corp., stopped wiring funds shortly after 10 a.m.

    This was the moment. With his father far away, Mr. Bent had to show he had matters in hand. Was he up to it? Known in the industry as Bruce Two, his long hair and a beard hinted at his youthful past as a drum-playing philosophy major. “He was very quiet, very mellow, very introspective,” says Peter Crane, president of money-market tracker Crane Data.

    But the 42-year-old had greatly expanded his father’s business. Assets under management grew from about $4 billion in the mid-1990s, when he was handed day-to-day control of operations, to $18 billion in 2002, and swelled to $125 billion last year. Reserve shifted from courting individuals to attracting big corporate accounts like Time Warner Inc. Its biggest client last year, with $5.4 billion in the Primary Fund, was China Investment Corp.

    https://www.pionline.com/article/20090511/ONLINE/905119997/inside-the-panic-at-reserve-fund
     
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  3. spejic

    spejic Cautionary example

    Mar 1, 1999
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    This should have happened months ago, but DCG couldn't let it because all parts of DCG are tied together and if one goes off the end of a cliff they all do. But now Gemini is forcing their hand.

    They are tied to so much of crypto. This is giant. I'm investing in popcorn futures. By that I mean I'm buying three bags at Trader Joe's.
     
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  4. The Jitty Slitter

    The Jitty Slitter Moderator
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    Yes - the stupid note that DCG issued to Genesis should bring them down, not to mention the half billion cash 'borrowed'
     
  5. xtomx

    xtomx Member+

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    Sep 6, 2001
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    DCG? Is that like ABACAB for Genesis?
    Oh, that was issued BY Genesis.
     
  6. Cascarino's Pizzeria

    Apr 29, 2001
    New Jersey, USA
    BTC a trick of the tail? :whistling:
     
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  7. The Jitty Slitter

    The Jitty Slitter Moderator
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    #957 The Jitty Slitter, Jan 19, 2023
    Last edited: Jan 19, 2023
    Digital Currency Group owns Genesis - they borrowed 500m from Genesis (wow where's all the cash gone) and also issues a promissory note in favour of genesis to pretend genesis was not insolvent - probably a fraud right there
     
  8. xtomx

    xtomx Member+

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    Goddamn that Phil Collins, Mike Rutherford, and Tony Banks. Never trusted them.
     
  9. Cascarino's Pizzeria

    Apr 29, 2001
    New Jersey, USA
    Well I've been waiting, waiting here so long
    But thinking nothing, nothing could go wrong, ooh now I know
    He has a built in ability
    To steal everything he sees
    And now it seems my wealth is falling, falling oh-oh
    He seems to have a despicable touch, yeah
    He reaches in, and stabs you right in the heart
    He seems to have a despicable touch, yeah
    He takes control and quickly tears wealth apart
     
  10. ceezmad

    ceezmad Member+

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  11. spejic

    spejic Cautionary example

    Mar 1, 1999
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  12. Cascarino's Pizzeria

    Apr 29, 2001
    New Jersey, USA
    It'll be funny - not in a haha way - if there's crypto regulation passed with no crypto industry left to regulate.
     
  13. The Jitty Slitter

    The Jitty Slitter Moderator
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    Ed Zitron has some interesting stuff on how Gensis and 3AC 'stuffed' GBTC - this is likely fraudulent IMO. Essentially they used 3AC to pass through Genesis cash into GBTC but let 3AC take the premiums. So this trade benefitted DCG but not Genesis or Gemini

    The Winklevii allege that Genesis and Three Arrows Capital were entering into a “recursive trade” that worked by Three Arrows Capital sending Bitcoin to Grayscale, creating GBTC shares that, thanks to the premium on the share price (which was trading above the value of 0.001 BTC at the time), worth more than the money that the cost of the Bitcoin they issued.

    3AC then took these shares to Genesis and used them as collateral to borrow more Bitcoin. The Winklevii also allege that 3AC was selling shares for a premium after the lockup expired.

    This worked for a while, because these shares continued to trade at a higher price than the cost of the Bitcoin that 3AC provided. However, in early 2021, GBTC began to trade at a discount to Bitcoin. This meant that the stock held by 3AC - and the collateral posted for loans with Genesis - was no longer profitable. Yet Genesis kept accepting GBTC as collateral on loans.

    https://ez.substack.com/p/facing-the-wheel
     
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  14. spejic

    spejic Cautionary example

    Mar 1, 1999
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    Signature Bank will no longer be doing SWIFT transfers with crypto exchanges starting February 1. Looks like they got a talking to from US regulators. This affects Binance and pretty much all the other notable exchanges. That means if you try to deposit or withdraw money from them you can't get it transferred to your bank account directly. Unless they can find a Bank of Third World Corruption to take over, you will need to do peer-to-peer conversion of crypto to money, which is all kinds of shady.

    A number of European banks are stopping SEPA (the Euro version of SWIFT) transfers dealing with crypto as well. Looks like the US regulators have been talking to them too.

    This is how to do regulation on crypto without doing regulation on crypto. If I found out I had to go to the swap meet and deal with a guy named Larry to deposit money at Wells Fargo, I'd think twice about depositing money at Wells Fargo. That's going to start happening to the exchanges. Is the recent and curiously broad bump in all crypto a preemptive grab at money before exchanges can't get any more? The part of me that wears a tinfoil hat say yes.
     
  15. The Jitty Slitter

    The Jitty Slitter Moderator
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    There is a somewhat hard to follow story playing out in Crypto at the moment where Crypto firms are being debanked following the revelations of fraud etc - seems to be a crackdown? Credible banks tend not to handle crypto because of the money laundering rules, or they only handle the US versions of the companies which supposedly don't do crimes and meet regulatory requirements.

    It is said Crypto.com have had a lot of money frozen because of crime reasons.
     
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  16. spejic

    spejic Cautionary example

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    We have to wait a bit to see what is going on. There's certainly something big happening on multiple fronts, but the exchanges have been very tight lipped hoping to find some way out and resume normal operations without anyone knowing.

    What we do know is that Crypto.com lost their Europe bank - Lithuania based Transactive Systems UAB - because the bank is suspected of laundering money and worse. The bank had to stop dealing with crypto immediately. So not only did Crypto.com have to switch banks, all customer money sent to Transactive after the order have been seized by regulators for investigation. Who knows when those will be released. In fact, it may be all money Crypto.com had at the bank has been seized. Crypto.com now uses a Malta payment processor for Europe funds, which many banks won't deal with.

    The Binance thing is murky because lots of the headlines you see now were written by Binance. But an increasing number of banks are not allowing customers to deal with them. And recent takedowns of crypto launderer Bitzlato and the ransomware network Hive have links to the US Fed's investigation of Binance. And something is supposed to happen February 1st. I'm hopeful we see the bomb dropped on them early next month. Financial or GBU-54, I'm not picky.
     
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  17. Cascarino's Pizzeria

    Apr 29, 2001
    New Jersey, USA
    Not optimal:

    The answer isn’t clear, even to those close to the industry. John Mack, the former CEO of Morgan Stanley, told the Financial Times last November that even he was confused by the phenomenon: “I’ve played in the crypto market. I still don’t understand it. Believe it or not, I made money and I still don’t know how I made money in crypto. I don’t know what crypto is.”
     
  18. derek750

    derek750 Member+

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    [​IMG]
     
  19. The Jitty Slitter

    The Jitty Slitter Moderator
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    Odd Lots podcast has a really good episode on the "Widow Maker" trade. Basically how the GBTC trade was a source of disaster for the entire CeFi industry (think 3AC, celsius)

    In the good old days when crypto was going up, GBTC was an easy way for professional financial firms to get exposure to BTC without buying it. A proper fund can't really go out and buy crypto! At least not before coinbase can along. The idea of GBTC is it is a bit like an ETF - a so called tracker fund. GBTC holds BTC as assets, and the investor owns 'shares in GBTC' so in theory these shares track the value of the underlying bitcoin assets. So buying GBTC is like buying Bitcoin - except a proper registered security that you can buy and sell.

    How does an ETF work?

    The podcast doesn't cover this fully, but seeing many Americans invest in ETFs:

    With ETFs, only Authorized Participants, or “APs” may transact directly with the fund. APs are ordinarily large investment firms and unlike individual investors, they are allowed to deal directly with the ETF fund through a participant agreement with the fund sponsor.

    The process by which an AP interacts with the ETF is called the creation/redemption process. APs usually create and redeem shares “in kind” with the ETF -- meaning that they exchange shares (not cash) directly with the fund. Because of the “in-kind” nature of the creation/redemption process, ETFs, are different to other fund structures which directly buy and sell in a fund. To put it another way, imagine in the creation process, the AP gathers together all the Lego blocks (shares) to make a car and gives them to the ETF who gives back a car made from the same blocks (ETF shares) in exchange. And then later in the redemption process the AP gives back the lego car, and gets back the individual lego blocks. This is called an in-kind transaction

    Though GBTC is not an ETF (the SEC is not allowing crypto ETFs) the process is similar. You can't just buy some crypto and give it to GBTC in exchange for shares in the trust. Rather you have to go through a legal 6 month process, at the end of which you get your GBTC shares which you can then sell on the secondary market. Only "APs" can interact with GBTC. Genesis is the AP for GBTC

    The Widow Maker Trade

    This is where Genesis comes in as a crypto prime broker. As a prime broker, Genesis allows trading and staking of crypto assets. So for example, a large crypto hedge fund like 3AC can do its investing and trading via Genesis. All supposedly above board for professional investors and traders like funds

    So what happened is 3AC has loads of Wall Street cash and needs to deliver returns. So they take cash to Genesis and stake it for BTC. Then they take the BTC and do a 'carry trade' for GBTC - via Genesis as the AP

    Basically what you do is you commit your BTC into this 6 month process, at the end of which you get GBTC. This is a carry trade in that you 'carry' the 6 month price risk. GBTC was trading at a 20-50% premium to the underlying BTC because of the convenience. So if you borrow $1m in BTC, do the carry trade, then 6 months later you have $1.25-1.5m in GBTC shares.

    This is free money. So 3AC do a recursive trade. They can stake or sell their GBTC to Genesis and do the loop again. You keep doing this loop because it's free money. In this way, investors locked up $10bn in BTC into GBTC

    The problem if GBTC were to start trading at a discount to BTC, which began to happen. GBTC isn't an ETF tracker. The assets aren't dynamically adjusted by the fund manager so the value of GBTC shares tracks the assets.

    Now suddenly you hold loads of GBTC which is worth less than the BTC assets you put into the fund. Then you can no longer pay yield to your investors in your hedge fund. And because GBTC doesn't allow redemption, you can't get your BTC back - you can only sell your crappy GBTC shares at a huge loss.

    Apparently this was a big driver of the crypto bubble. CeFi firms like 3AC were big into this trade and could pay silly yield to their investors because they were making 25-50% returns in 6 months! Then when the trade went south, they had a big problem. 3AC limped along, before going bust in the Terra/Luna collapse.

    This was the beginning of another huge problem. Genesis is owned by DCG, who also own GBTC. In theory this is fine. Genesis is simply a brokerage, helping people invest in GBTC in exchange for fees.

    But what had been happening was that 3AC had been borrowing BTC from Genesis, to put into GBTC. The security for these loans was often the GBTC that 3AC had collected on previous carry trades! This is a big no no in finance because the investment risk is correlated. for example, if the price of BTC were to collapse, then the price of GBTC would collapse, and the security on the loan would be worthless. Which is pretty much what happened.

    So when 3AC went bust, Genesis became the major holder in the trash GBTC shares, because they didn't collateralise these loans properly. Now Genesis have a giant hole in their balance sheet. if they try to sell all the GBTC, they will crash the GBTC price even more (remember GBTC is owned by their parent company).

    So basically this idiotic trade has bankrupted a large piece of the supposed 'legit' crypto industry

    You can't make this up
     
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  20. The Jitty Slitter

    The Jitty Slitter Moderator
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    @spejic I think we've discussed before whether all crypto is a ponzi

    It is interesting the 3AC/Genesis/GBTC trade in the before times is a legit trade of a registered security. So far so good. But DCG seem to have worked a scam to 'stuff' GBTC with bitcoin, because as fund manager, they rake their 2% fee of the billions under management. This amounted to as much as 300m last year. These fees are essentially free money, because unlike a real fund (e.g a tech fund) that does research and makes regular investments, GBTC does nothing but hold bitcoin and collect fees.

    So to turbocharge that process, they enabled 3AC to borrow huge amounts of bitcoins using GBTC as security, to stuff coins into GBTC - err.... obviously this was fab as long as bitcoin/GBTC only went up

    When 3AC blew up, this risked exposing the scam so they simply did some fraud.

    But same thing at Gemini Earn. The WinkleBros were also relying on this Genesis nonsense to deliver absurd returns to their legit customers. So when rather than ask Genesis to repay 900m, and risk revealing the money was all gone, they let the scam continue for many more months until Gemini simply lacked liquidity to pay people out.

    So this doesn't seem to have been a ponzi as such - more fraud and scam?

    All the money was gone so they just didn't tell anyone.
     
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  21. The Jitty Slitter

    The Jitty Slitter Moderator
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    Celsius on the other hand is now revealed as a ponzi. They simply paid out yield using the capital of other investors

     
  22. spejic

    spejic Cautionary example

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    We have to remember that back in 2013, the only way to get Bitcoin was to mine it, do peer-to-pear trades, or use the very amateur and shaky exchanges that existed then. This state existed for a long time, which kept demand for the shares on the second-hand market high.

    This happened for two reasons. First, the number of Bitcoins shoved into Grayscale to get shares really ballooned in late 2020. And around that time, a number of friendly and robust exchanges like Coinbase became popular. So very quickly you had a large amount of shares trying to be sold on the secondary market while buyers were switching to exchanges. The arbitrage situation went from money creator to money destroyer very quickly in Feb 2021, and it just got worse at time went on.

    It gets even worse because Genesis themselves bought a lot of GBTC shares to try to prop up the price. Now they own 10% of them. And then there's the question of where the Bitcoins are.
     
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  23. spejic

    spejic Cautionary example

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    I think the wildcat bank era is a better metaphor for what crypto is doing - it encompasses a wide array of related scams. But I like the way this tweet put it:


    skfgsdgwvr8a1s.jpg
     
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  24. The Jitty Slitter

    The Jitty Slitter Moderator
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    Yes - in fact it is not that long ago we were posting about the Quadriga dead man laptop scam on here!

    Yes - and also there is a flaw in the construction of the trust. In a proper ETF, the ETF manager continually buys/sells and structures the underlying assets to follow an index. So you can't go out and buy the underlying parcel of shares at a significant Arb to the ETF shares. In GBTC, they don't do that. The only price signal is the sale of the GBTC shares on the secondary market. And especially you can't redeem your GBTC shares for the underlying assets. This is a very stupid one way trade that traps bag holders.


    I mean in theory, that shoe should not be able to drop because this is a proper regulated, audited security. The assets should exist - presumably with Genesis which provides custodian services?

    On the other hand - this is crypto - and what would have stopped them leveraging those assets?
     
  25. spejic

    spejic Cautionary example

    Mar 1, 1999
    San Rafael, CA
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    Here's a good rundown of the Celsius bankruptcy examiner's 689 page report:

    https://davidgerard.co.uk/blockchai...examiner-lies-incompetence-and-ponzi-schemes/

    The short version - Celsius lost money from the start. Celsius was insolvent from the start. Celsius was a con from the start. Every second the incompetent, lying, self-important, and self-deluding Mashinksy is not in prison is a miracle for him.
     
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