Bitcoin, Blockchain, Battlestar Galactica

Hmm - i wouldn't be so sure this time around.

FTX looks like a run on the mill fraud/ponzi - it's just the scale that is unusual

Nowhere similar to 2008

 

I suspect grayscale will have to be wound up.

sceptical if the 600k bitcoins still exist in custody or whether they were gambled away

 

Coppola has a very good article on how the Crypto ponzi developed and exploded in the last 3 years. The failure to make serious inroads into retail is why it has imploded - there just isn't enough actual cash there.

Unsurprisingly, crypto people have been selling up in droves. For crypto investors to cash out their extraordinary gains, there must be real money in the system - dollars, euros, yen, pounds. But the crypto system, unlike the traditional finance system, is unable to create real money. It can create tokens that represent dollars, euros, yen etc, but these aren't accepted for real-world transactions such as purchasing condos in the Bahamas. So the crypto system needs inflows of real money. The more it grows, the more real money it must attract.

....

There's already substantial evidence that the crypto space is infested with frauds, scams and ponzis. But I would go further. The entire crypto ecosystem is ponzi. The whole thing depends on ever more people parting with their savings and wages to pay the lunatic returns promised by the platforms to people who can provide the liquidity they so desperately need. No wonder platforms like FTX chase market share and insist that any problems are just "liquidity crises". The more people they can attract, the more liquidity they have and thus the longer they can survive. ​

https://www.coppolacomment.com/2022/11/the-entire-crypto-ecosystem-is-ponzi.html

 

Apocalypse now for crypto.

 

Yeah that was her point - because Crypto delivers no actual value, it must be a 'greater fool' ponzi

Institutional money headed for the doors as soon as the bull run of easy money was over - SBF was trying to get to the retail cash - that is why they were doing the FDIC scam

 

That is strictly true in the first example she gives i.e. you lose all your money buying bitcoin at the top in '18, then have to HODL for the next run up. That can happen with any illiquid asset.

But she is talking about the current ecosystem which was driven by yield, defi, cefi, tokenisation etc

Basically the 'returns' are just the capital of the greater fools. Now those people have left, there is no liquidity other than ponzi coins like Tether. The ecosystem is realistically insolvent.

 

Here is another way of looking at it - Gerard is one of the top crypto sceptics

*all* of crypto is bankrupt if you account the crypto assets at realisable value rather than mark-to-market

realisable value depends on the inflow of actual dollars into crypto, which has plummeted

flow drops, everything is suddenly worth much less in actual realisable dollars

— your #1 source for absurdist true crime 🐀 🐍👑 🌷 (@davidgerard) November 28, 2022

 

The BlockFi insolvency includes interesting details on it's 'bailout' from FTX

There seems to be a 250m line of credit from FTX US to BlockFi which gave it enough liquidity to keep trading. Matt Levine covers this in his latest newsletter. i.e. so long as everyone knew BlockFi would not run out of money, everyone left their money in.

However what is strange is that the loan appears to be 250m in FTX's ponzi token rather than actual money

I am beginning to agree with a previous article that the BlockFi bailout may have been a way to steal the real money out of FTX US and Blockfi and replace it with ponzi coins

So in simple terms BlockFi has a bank run but has real assets. FTX US has real assets which SBF can't so easily steal because it is US jurisdiction. So FTX US advances real money via line of credit to BlockFi. BlockFi then does transactions with Alameda which take the real money out of Blockfi and replace with FTX ponzi coins

end result is that BlockFi & FTX US have been stripped.

 

More on BlockFi 'bailout' which appears to have been a fraud

https://t.co/4aSGUlIAYg pic.twitter.com/s1sX8XSLlf

— Frances 'Cassandra' Coppola (@Frances_Coppola) November 29, 2022

 

This discussion from Coppola about the supposed safety of Nexo gets to the heart of the ponzi question

When you are creating yield in magic beans there is inevitably both a liquidity and insolvency problem. There is no way to automatically redeem your magic beans for cash.

They can't create real-world money. That's the problem. They take people's real-world money, exchange it for worthless tokens, and spend the real money. Then they have to stop people withdrawing their real money, because they don't have it.

— Frances 'Cassandra' Coppola (@Frances_Coppola) November 29, 2022

 

100%

It's comical. I saw an article I think on WaPo about Caroline Ellison that was equally embarassing talking about her personal interests and growing up as a math whiz and etc ...

Feels like they have connections that are protecting them or somehow, they still fall for the selfless altruism farce that he has actually already admitted to being an acting job.

 

This is a good analysis of one aspect of the FTX fraud

It seems Alameda could trade on FTX against the customers without suffering margin calls / providing sufficient collateral

FTX, like other crypto platforms and some conventional equity or commodity services, offered users “margin,” or loans, that they could use to make trades. However, these loans are generally collateralized – that is, users put up other funds or assets to back their borrowing. If the value of that collateral drops, or a margin trade loses enough money, the user’s collateral will be sold and the exchange will use that money to pay off the initial loan.

Liquidating bad margin positions is fundamental to keeping asset markets solvent. Exempting Alameda from these standards would give it huge advantages, while exposing other FTX users to immense hidden risks. Alameda could have kept losing positions open until they turned around, while competing users were closed out. Alameda was also in theory free to lose more money on FTX than it was able to pay back, leaving a hole where customer funds had been.

The exemption could be considered criminal from a number of angles. Above all, it means that FTX as a whole was fraudulently marketed. Rather than the even playing field an exchange is meant to be, it was a barrel full of customers.

Above them all, with shotgun poised, was Alameda Research.​

https://www.coindesk.com/layer2/2022/11/30/ftxs-collapse-was-a-crime-not-an-accident/