This error cannot be corrected, as Bankman-Fried, the now-deceased founder of FTX, will probably have plenty of time to read soon.
On the other hand, as the author of many books, I am very skeptical of Sam Bankman-Fried. As I said on May 1st. “There is a lot of free discussion among the crypto brothers.”
What about Sam Bankman-Fried,... who was asked to explain yield farming practices on the Bloomberg Odd Lots podcast? In simple terms, commercial farming borrows crypto tokens from other people in exchange for their own “control tokens” and then exchanges the borrowed tokens for more profitable DeFi (decentralized finance) instruments.
The Bankman-Fried explanation.
It is a valuable box, as evidenced by all the money that people seem to have decided to put in the box. And who are we to say that they are wrong about that? … And yeah, you know, the nominal price [of driving] keeps going up. And now it has a market cap of $130 million due to the growth of people using boxes. And now all of a sudden, of course, smart money [buys and throws] another $300 million in the box and... it goes on forever. And then everyone wins.
My comment was the following. It's Wacko West.
At a conference I attended in late September, Bankman-Fried was one of the speakers at the cryptocurrency session. I take notes in such cases. My first observation was that he had "constant knee problems and speech problems." The moderator politely asked what cryptocurrency meant. He answered helplessly. "The industry needs to get its act together." When asked when the “crypto winter” would end, he said, among other responses, that he “didn't want a stock market scam” and that a lack of regulatory clarity was “more than half the problem.”
At the conference it was said that SBF was worth a million dollars (I don't remember the exact figure they were talking about). It was reduced to "zero dollars and possible jail time" very quickly.
After all, as of November 10, the difference between FTX's liquid assets and liabilities was $8 billion. For a time it was believed to have been reduced to $477 million. In fact, these remaining assets were transferred to a wallet owned by the Bahamas Securities Commission, where FTX is located.
Cryptocurrency traders like Genesis and Galois Capital have discovered hundreds of millions of dollars in funds locked up on FTX. They have a lot of company. In short, many people who entrusted their money to the SBF will never see it again. Maybe they thought their crypto was in a vault. His crypt is located in the tomb.
So what is the correct analogy? I heard about it last week: Crypto's Lehman moment. Moment of long-term crypto capital management. no The Federal Reserve intervened in 1998 and 2008 to prevent these collapses from becoming financial crises; Treasury was supposed to help Lehman Bros. Some things really are "too big to fail." That doesn't happen here because neither FTX nor even crypto are that big.
A better analogy might be the dotcom crash of 1999-2000. But there wasn't much fraud involved in the Web 2.0 mass destruction event. Crypto's Enron time is perhaps more accurate. more bubble fraud.
In reality, however, these modern analogies do not justify the rise and fall of Bankman-Fried. To understand what happened, you really have to go back a century and a half to Anthony Trollope's As We Live Now (1875). In part inspired by the collapse of Overend, Gurney & Co. The novel takes place in 1866 and tells the story of the rise and fall of Auguste Melmotte, whom Victorian society considers a financial genius not because he is, but because offers the perspective of the elite. easy money. .
The easy money today will probably come from the internet if we can only "monetize" it. In the 19th century, easy money came from another type of network: the railway. Melmoth founded a company, the South Central Pacific-Mexico Railroad Board, to build a new railroad from Salt Lake City, Utah, to Veracruz, Mexico. The railway is a farce, but the promised future profits are large enough to attract Lady Matilda Carbery and her pioneer Sir Felix. From the hand of Melmoth, a wealthy American with the wonderful name of Hamilton K. Fisker.
Melmoth rises to the top of London society, buys property, and becomes an MP. Of course, it's all a massive fraud, which becomes apparent when Melmoth falsifies documents to find the estate's money. Everything is falling apart. Out of shame, Melmoth commits suicide.
Current Carberry ladies include Orlando Bloom, Tom Brady, Bill Clinton, Katy Perry and all the other celebrities who recently visited the FTX base in the Bahamas; The Miami Heat basketball team, which paid SBF $135 million to rename its stadium; not to mention comedian Larry David appears in FTX's Superbowl commercial.
But it wasn't just the celebrities. The Ontario Teachers' Pension Plan and Singapore's Temasek sovereign wealth fund were among the respected entities that invested in FTX.
Sequoia, one of the biggest names in venture capital, appears fully committed. In the 19th century it was very common for journalists to promote actions. Let's take a look at this profile of Sequoia. We read that SBF had a "vision for the future of money itself" and "could end up creating the dominant universal financial super app of the future."
Bankman-Fried was superhuman. You can win 10 out of 10 meetings with the best venture capitalists while playing the League of Legends video game. He "explained the principles of macroeconomics as well as anyone in the world today", but (unlike, say, Harvard's Greg Mankiw) could teach SBF macro by "playing Storybook Brawl round after round". The man was "obviously a genius." He was a "future billionaire."
How do you understand the sharp fall of Bankman-Fried from future billionaire to nothing? The New York Times presented interesting information. Yes, SBF lost "most of his abilities," but he was "surprisingly calm," slept pretty well, and was still playing Storybook Brawl during the interview. Did FTX misuse billions of dollars of client funds to back its Alameda Research hedge fund? He could "offer only limited details." You just want to "bite a lot less."
Still don't know what really happened? Let's try SBF's social networks. "I was ready and should have done better," he tweeted on Nov. 10. But relax. “IT'S ALL ABOUT FTX INTERNATIONAL, NOT THE US STOCK EXCHANGE. FTX USERS ARE GOOD." (An expression of a dog burning meme.)
he continued. “At FTX International, the total market value of assets/collateral currently exceeds client deposits (price adjusted). But this is different from liquidity for delivery. SBF was surprised, surprised to hear that some FTX users are using margin borrowing for speculation. to crypto tokens, and your exchange may be overwhelmed. "Because, of course, when it rains, it pours." It is not a joke!
Last Tuesday, he offered more relief. “As of 7/11…(a) Alameda had more M2M assets than [marked market] liabilities (but not liquid). (b) Alameda has a margin position in FTX Intl. Translated by the Wall Street Journal. "FTX behind the scenes used billions of dollars of client money to finance Alameda Research's risky operations."
FTX also spent real money in ways typically associated with drunken sailors: $1.1 billion in acquisitions between October 2021 and March 2022, plus $153 million in sales and marketing and $122 million in real estate.
Financial historians have seen this movie many times. To encourage SBF to try reading books when he has more time, here's what I wrote on the subject in my 2008 book, Money Growth:
In the four hundred years since stocks were bought and sold, there have been a series of financial bubbles. Time and time again, stock prices have risen to unbearable heights only to fall again. This process was repeatedly accompanied by deception, where unscrupulous members sought to make a living at the expense of gullible newcomers. This model is so well known that it can be divided into five phases.
• Transportation. Certain changes in economic conditions create new profitable opportunities for certain businesses.
• Euphoria or ecstasy. a feedback process is established whereby an increase in expected earnings leads to a rapid increase in the stock price.
• Madness or bubble. the prospect of easy capital gains attracts new investors and money-seeking scammers.
• Anxiety. Insiders see that the expected earnings cannot justify the excessively high stock price and begin to profit from the sale.
• Contempt or slander. when stock prices plummet, foreigners rush out, causing the bubble to burst completely.
The rise and fall of SBF is, in many ways, a classic case. As my consultancy Greenmantle explained to clients in January, Bitcoin, the original cryptocurrency that was supposed to be inflation-proof, has nevertheless dropped in price this year. “The main reason is that major central banks…are preparing to tighten monetary policy…Since the beginning of the pandemic, monetary and fiscal stimulus have been a major source of support for bitcoin prices. But That is coming to an end."
It seems we mistakenly saw “below $30,000” as a likely year-end price and gave Bitcoin only a 10% chance of falling below $15,000-$20,000. The misconception that it was widely used as a "digital gold option" becomes $: creates a higher tax than its previous flops. It was trading around $16,500 on Friday.
It seemed that the adoption trend had stalled and that the impact of rising interest rates on players with debt was greater. Among Alameda's reckless deals this year was a $500 million loan deal with bankrupt crypto lender Voyager Digital, which recently filed for bankruptcy due to exposure to Three Arrows.Capital (3AC), a hedge fund whose investments are supposedly "managed". ". » crypto strategy. 3AC's thesis was that the world is in a crypto "supercycle" where token prices will only increase.
However, 3AC was one of the biggest losers in the collapse of the stablecoin Terra and its sister Luna, losing between $200 million and $500 million in just a few days. This caused an industry-wide credit crunch, and as prices fell and interest rates rose, 3AC faced margin calls that it could not meet. 3AC members on strike. Blockchain.com lost $270 million in 3AC loans. There was a chain reaction that led from 3AC to Voyager to Alameda to FTX.
Nothing in this story will shock the ghost of John Lowe, the Scottish financier who burst the Mississippi bubble in early 18th century France. Bubbles are almost always inflated by cheap credit. When monetary conditions tighten, the most indebted players go first, but the result is a cascade of illiquidity that then turns into insolvency as asset prices fall.
Another classic feature of the FTX story is the role of shadow political influence. Just as Lowe favored the Duc d'Orléans, regent during Louis XV's minority, financial swindlers have for centuries relied on friends in high places to shield them from judicial or regulatory scrutiny.
Take, for example, Enron, the energy trading company that filed for bankruptcy in December 2001. Ken Lay, its CEO, couldn't have blown up his castle without Fed Chairman Alan Greenspan, who "set" monetary policy. , but Enron also protected itself that way. $6 million in political donations, a third of which went to Republicans. Additionally, the company tried to gain popularity by paying the Houston Astros to rename their ballpark Enron Field.
Sounds familiar? In 2020, Bankman-Fried donated at least $10 million to the Joe Biden campaign. In the 2022 midterm election cycle, he was the second largest Democratic donor behind George Soros, with $39.8 million in federal contributions. Most of those donations, about $27 million, went to the Protect Our Future PAC, which supported candidates who prioritized epidemic prevention.
Not all bubbles claim to be philosopher kings. The law has; Don't lie down so much. As the son of two law professors, SBF was uniquely positioned to thrive. Sequoia's profile is full of pips.
Ask. You live in the most important moment in the future history of racing. An existential point! Oh, okay
SBF. Of course, this would not be a priority for anyone, at least naively. But if you really want to, there are anthropological considerations that may not be as crazy as they sound.
When a young man wants to earn billions of dollars very quickly, many suspect that he is driven by greed. Raising him as a doctrinaire, Professor Bankman and Fried gave their son the perfect alibi; Because you can do the most good for the most amount if you make the most money first.
Effective altruism also appears to have led SBF and his ex-girlfriend, Alameda CEO Caroline Ellison, to rationalize the insane risk they were taking as investors. In an interview with my Bloomberg Opinion colleague Tyler Cowen, Bankman-Fried came close to agreeing that a game that has a 51% chance of duplicating Earth elsewhere, but a 49% chance is worth playing. About the disappearance of the earth.
This was music to the ears of the Democratic donor class. A young man willing to take big risks to earn billions, give his all to solve all the world's problems, and elect Democratic candidates in tough congressional races. Will you meet such a prodigy? Of course you will. If you are lucky, you will become the world's first billionaire. It doesn't matter that it has a 90% chance to explode.
Three unanswered questions remain, each of which distinguishes the FTX case from other bubbles in history. First, what were the regulators thinking? Last week we read in the Financial Times that "The US Securities and Exchange Commission is investigating FTX for its crypto lending activities and handling of client funds." Wait, the SEC is only now investigating Bankman-Fried. Is it different from a month ago?
Second, what is the future of crypto exchanges? For one, SBF's fall was the result of a war between FTX and the largest exchange Binance, founded in 2017 by Changpeng Zhao, aka CZ. At one point, as an investor in FTX, CZ still had a large amount of FTT, the FTX token. In a Nov. 2 post, crypto news site CoinDesk revealed a large amount of FTT on Alameda balance at generous prices. Four days later, CZ announced on Twitter that he would be selling FTT for around $530 million for "risk management" reasons.
This was not his only motivation. "After the divorce, we will not pretend to have sex," he wrote. "We will not support people who oppose others in the industry." It was the declaration of war that pushed the price of FTT down and FTX up.
"A competitor is trying to hit us with fake news," Bankman-Fried tweeted on Nov. 7. “FTX is good: active ingredients are good”: (Dardal: Shang Eurovga Tan Mem :) My John Vacz red smell, John's gold smell, oeeeeeeeeeeee Hot Months Chapazant: CZ”: Benkman-Friedn told his team that Binance “probably…never plans to complete the transaction”:
Any 19th century student of financial history will note the dynamics: this is how commercial banks and railways wage their wars for market dominance: but in the case of cryptocurrencies, there is a mystery. Why these exchanges exist: The company's original theory, originating from an original white paper by fake bitcoin creator Satoshi Nakamoto, was that the cryptocurrency would enable peer-to-peer payments without third-party mediation: all transactions would be immutably recorded in the chain of blocks:
Decentralized finance puritans like my Harvard colleague Manny Rincón-Cruz have long argued that exchanges are a distraction from DeFi's unwanted intrusion into the world of TradFi (decentralized finance): sure, exchanges They provide convenience, especially speculative ones. For savvy altruists who wanted to make billions quickly, transparency was an obstacle, so the SBF pushed to “kill DeFi” through the Digital Goods Consumer Protection Act of 2022:
Я ніколі не быў карыстальнікам FTX, таму для тэставых паездак выбраў больш аўтарытэтную амерыканскую біржу Cryptoland: аднак, як толькі криптовалюта пачала бурна развівацца. కార్క్క్క్యు ఆర్క్ దేక్డానికికిక్యిక్ట్రి దేక్డానికికిక్యిక్ట్రి దేక్డానికికిక్యిక్ట్రి 15 billion USD was the stable collapse of the terra, and delegated the lot and story it in the material portfolio of the big book: Those Who Continued to Trust Ftx Learned to The Hard "Not" Your Keys, Not Your металічныя манеты" першыя прынцыпы крыпта-крыпта праўда:
Правёўшы неспакойныя гадзіны, асвяжаючы свае ўспаміны пра Ledger, Uniswap і MetaMask, я б сказаў, што DeFi у цяперашні час такі ж зручны, як і ПК у эпоху да Windows: пакуль гэта праўда, крыптаабмены будуць гуляць пэўную ролю: гэта магчыма што, як і ў выпадку з Web 2.0, біржа стане дамінуючым гульцом, цэнтралізуючы тое, што павінна было быць дэцэнтралізаванай сеткай, такой як цэнтралізаваная электронная камерцыя Amazon, цэнтралізаваны пошук Google, сацыяльная сетка, арыентаваная на Facebook, і версія, арыентаваная на Twitter: . Але я мяркую, што спроба адрадзіць crypto Web 3.0 была заснавана на памылковай аналогіі: стаўкі занадта высокія, калі фінансавыя паслугі, у адрозненне ад асабістых даных, прадаюцца ў Інтэрнэце:
У рэшце рэшт, калі біржы не патрэбныя ў будучыні, што застанецца ад крыптавалюты: для тых, як мой сябар Нурыэль Рубін, які даўно прадказаў крах «sh* *metal drums», 2022 год добры: яго новая кніга: Megathreats Чытачы будуць атрымліваць асалоду ад знішчэння крыптаграфіі, як гіганцкай схемы Понцы, прыдуманай «махлярамі і паляўнічымі на карнавал», наіўнымі дробнымі інвестарамі, якія пакутуюць ад FOMO, выкліканага Інтэрнэтам: многія крыптаманеты і жэтоны дасягнуць нуля, насамрэч, многія ўжо гэта зрабілі такім чынам: Аднак я ўсё яшчэ не ўпеўнены, што ф_нанансавы эксперыMENT на аснове блокчейна закончыцца поўным правалам:
Калі б Рубін жыў у 1720-х гадах, ён, верагодна, адкінуў бы апошнія рытуалы фондавага рынку з такой жа стараннасцю: Але лопненне бурбалак Місісіпі і Паўднёвага мора не азначала канца фінансавання і біржавога гандлю, як і многія фінансавыя крызісы 19-га стагоддзя адзначылі канец біржавога банка:
І наадварот, фондавыя рынкі і банкі працягвалі адыгрываць вырашальную ролю ў фінансаванні наступных этапаў прамысловай рэвалюцыі: як казаў Антоніа Гарсія Марцінес, «Інавацыі пачынаюцца з вар'яцкага генія, прагнасці і паветраных шароў і заканчваюцца ў інстытуцыянальных установах: ... Кожны тытан Інтэрнэту, вы бачыце самі: Square, Stripe, Twitter, Facebook, Airbnb, Uber, усе запушчаныя або масава развітыя такім чынам… Пасля краху: …А далей рушыў услед самы вялікі тэхналагічны бум пакалення»:
অত্র্য়্তি ক্রিপ্ট্ট ক্র্যান কাজ্র্ড্ডি
І гэта яшчэ адна прычына, чаму Сэм Бэнкен-Фрыдзі pav_neн чытаць кнігі: я прапаную пачаць з Увена»
Больш з Bloomberg Opinion.
• El_zabet ХоLMс_ навастачэменныя ізна панз_ мі расне е. Стывен Л. carter
• Малаткі FTX паклалі больш інструментаў у куфар Crypto. Л_янэль Ларан
• ФРС не выправ_ла сваіх найгоршых памылак з 1970-х Ніл Фергюсан
Гэтая калонка неабавязкова адлюстроўвае погляды редактараў або Bloomberg LP і яе ўладальнікаў:
Ніл Фергюсан - аглядальнік Bloomberg Opinion: старшы навуковы супрацоўнік сям'і Мілбэнк Гарвардскага інстытута Стэнфардскага ўніверсітэта і заснавальнік Greenmantle Consulting, апошні аўтар кнігі «Doom.
Іншыя падобныя г_сторыі даступныя на bloomberg.com/opinion