Next Phase of Crypto Winter: FTX Contagion
Next Phase of Crypto Winter: FTX Contagion
Bitcoin has been resilient at $16,500 but more pain to come.
Hey Guys,
The consensu in the industry is that there will be more contagion due to FTX exposure. The lending arm of the crypto investment bank Genesis Global Trading is pausing new loan originations and redemptions.
So what is the crypto competition world really like? After causing the downfall of FTX and SBF, CZ And Binance are calling him a psychopath. During a conversation with Binance CEO Changpeng Zhao (CZ) and the Milken Institute, the exchange executive called the former FTX CEO Sam Bankman-Fried (SBF) a “psychopath” for one of the tweets SBF wrote last week.
The problem is the exposure of so many firms and individuals to the downfall of FTX. The crypto exchange’s collapse is stoking fears of contagion across the industry. And I agree with analysts who say the worst is yet to come.
The total crypto market cap mostly tethered to the price of Bitcoin $BTC never made a whole lot of sense. Whether it’s $1 Trillion or less or triple, doesn’t really matter, it’s just so small compared to real money and the way the world still works today. Web 3 and crypto is not showing much impact on the financial system outside of crypto token trading, which is clearly not only volatile, but very dangerous.
Meanwhile, FTX’s founder, Sam Bankman-Fried, is still speaking out. His Twitter DM over-sharing was difficult to read. SBF on Twitter and with the media has clearly gone a bit off the rails. Blaming regulators and saying entering bankruptcy is a major regret already, is just really dumb. He’s not taking responsibility or even showing remorse for screwing so many people over, it’s a bit scary.
So what really happened at FTX? (a 55 min podcast)
In some respects we have seen “contagion” of FTX on some more volatile coins like Solana. Bitcoin that was stable around $20,000 is now at the $16,000 level.
Crypto industry executives are not too pleased with the former FTX CEO Sam Bankman-Fried (SBF) and in recent times SBF has been getting a lot of criticism. It’s hard to tell how real this is though, since the crypto media and twitter cryptosphere is so choreographed and mostly self-serving.
In response to the collapse of FTX, Binance, the world’s largest cryptocurrency exchange, has released details of its cold wallet reserves, disclosing proof of digital asset holdings worth more than $69 billion. It’s all a bit nefarious if you ask me, centralized crypto trading platforms shouldn’t really exist. They have no business existing.
The co-founder of the now-defunct Three Arrows Capital (3AC) crypto hedge fund, Kyle Davies, accused FTX and Alameda of colluding against the firm. There seems to be a lot of politics and bad blood in the “crypto bro” brotherhood. The revelations over FTX, FTT and Alameda have been a bit disconcerting. We knew behaviors like those were happening but usually the industry is too busy hyping something to care. But now in the heart of the crypto winter, a story like this leads to significant new behaviors of mistrust by crypto holders, traders and even whales that are selling Bitcoin.
Crypto Winter Turns to SBF Freeze
It’s chilly among the crypto bro culture.
We’re currently in the middle of the industry contagion and market panic taking shape.
Multicoin Capital, one of the top crypto venture firms, told investors in a letter on Thursday that FTX’s collapse will cause additional failures.
“Many trading firms will be wiped out and shut down,” the letter said.
I personally think the likes of crypto.com are vulnerable. In theory depending on how long the crypto winter lasts, even the likes of Coinbase could run out of money. A big fall like FTX will have ripple effects that will take months to play out. Realistically I think we are looking at many more players across funds, market makers, exchanges, miners and other businesses will follow suit.
We don’t know exactly how it will play out. But I think that’s the status-quo consensus expectations at this point, even amid insiders.
Because of its writedown of assets on FTX and the broader drop in crypto, Multicoin said its net performance is down 55% this month. Startups in the crypto winter were already struggling and on life-support before the FTX and SBF saga.
Contagion has a way of spreading in unexpected ways. Think about this: Plan C insisted that after Celsius fled, Alameda and FTX got stuck holding locked LUNA and UST bags.
To the Moon - Luna and FTX Compounds Contagion Worries
This is a similar playbook to what we’ve seen before in the previous crash sparked by Luna, except that this one will be more impactful to the market. Luna and FTX could just be the beginning.
130 entities within FTX, likely up to 1 million creditors.
It’s hard to even fathom the damage this will cause the future of tokens, crypto and trust in trading platforms.
On Thursday, November 10th, Changpeng “CZ” Zhao, the Founder and CEO of Binance, announced that his exchange remains committed to transparency, especially in light of the liquidity crunch faced by beleaguered crypto exchange FTX.
But given that by telegraphing the sale of FTT tokens by Binance, CZ “caused” the downfall of FTX, it’s a bit worrisome in the ruthless game of thrones we are seeing in the crypto bro culture. They talk in memes of ideology, but their actions are like the cut-throat Tycoons of a new mafia system.
They talk in memes of ideology, but their actions are like the cut-throat Tycoons of a new mafia system.
How are we going to trust crypto and these brands again? I just don’t get it.
Twitter itself feels like a crypto echo bubble. These crypto tycoons have millions of followers, but where are they? Are they bots, it’s very bizarre.
The Journal (WSJ), citing people familiar with the matter, added that BlockFi is also planning to lay off more of its workers as it braces for a possible Chapter 11 filing, though the firm stopped short of saying a majority of its assets are custodied by FTX.
I can’t fully get my head around the contagion story, but it feels like there are several mini chapters ahead extending the crypto winter into the year of the global recession, namely a looming 2023.
Huobi token (HT) follows the same path, down nearly 60% in the last two weeks. Huobi recently provided their list of assets on the platform, showing around $900 million in HT owned by both Huobi Global and Huobi users. So many brands and crypto companies will get hurt, if not go extinct.
In the FTX Chapter 11, approximately 130 additional affiliated companies are part of the proceedings, including Alameda Research, Bankman-Fried’s crypto trading firm, and FTX.us, the company’s U.S. subsidiary. The web of deceit of crypto tokens is a labyrinth of a stark lack of financial guardrails and ethical oversight. These is real criminal intent here, not just negligence. That much is clear.
The rumours are weird. Buying homes in the Bahamas with the money of customers? Is that even possible. What is real and what is half-truth? Crypto media has never been transparent or one with much journalistic integrity.
Mafia, tycoons and incredible centralization in an alternative asset that is supposed to be decentralized? It’s beyond belief. The boss of the world's largest cryptocurrency trading company has warned there will be "some cascading contagion effects" from the collapse of $32bn exchange FTX. Thanks CZ, but you are the authoritarian figure who caused this! Even if the foundations of FTX were vulnerable with deceit. The corruption runs deep in the crypto brotherhood of the cult of Bitcoin.
It’s upsetting because it’s now reached a scale of fraud that’s quite damaging to the life-savings of thousands perhaps even millions of people and America refused to even try to regulate crypto. It’s a huge absence of rule of law. If you don’t regulate a ponzi scheme that leads to thousands of tokens, what does that say about your society of free-market capitalism? It’s arguably worse than an over-regulated state. Because it erodes trust on every level. The entire point of Bitcoin and decentralization was about a mistrust of banks, governments and politicians.
Mr “CZ” Zhao pulled out of last minute talks to rescue FTX last week before it imploded, warning of "reports regarding mishandled customer funds and alleged US agency investigations". This after he caused the demise of FTT and FTX to go under, who was a significant “competitor”. So why aren’t we investigating Binance as well? I don’t get it. Nobody is in charge and nobody is taking responsibility.
Advocates of Bitcoin just say the crypto winters and the Bitcoin cycle are normal. But what is normal about this situation of FTX?
They will call the damaging results of “contagion” part of the natural consolidation, so it’s bullet proof misinformation of traders that just prey upon the hype and consumers whose behavior can be manipulated by the FOMO motive. Young people are so screwed in Capitalism, getting rich fast is attractive to them it turns out. The U.S. can’t even regulate inflation or QE with moderation.
Now Binance claims it’s “too big to fail”. As of November 10th, 2022 Binance says it held 475,000 BTC, 4.8 million Ether, 17.6 billion USDT, 601 million USDC, 58 million BNB. and approximately 21.7 billion of its own stablecoin, BUSD. The total reserves held by Binance, as of Thursday, stand at an approximate worth of $69 billion. Should we be impressed or horrified? CZ’s total net worth is likely near or over $20 billion.
Leaders of LUNA and FTX are very young and immature. Crypto as a youth movement is failing the cult of Bitcoin.
Multicoin said there’s a chance the firm will recover some of its funds from FTX, but because those assets are now wrapped up in bankruptcy proceedings, it anticipates marking them down to zero. The question is how many others are having to do the same? Welcome to the next chapter of the crypto winter.
But Crypto Contagion of this magnitude, well it could be the crypto apocalypse. That risk is not being fully explored by either the MSM or the crypto hype media. Ironic isn’t it.
Crypto historians might argue the counterintuitive Bitcoin performance will continue. Since a low in 2018, Bitcoin has posted a weekly loss of at least 20% six times apart from the recent slide. Is this normal for crypto? Does that excuse the corruption?
Why Bitcoin isn’t “lower than current levels is a big question” is a big question for many of us. What’s propping it up? So little transparency by the distributed ledger technology that’s supposed to make things more open and trustworthy.
My own tracking of Bitcoin’s price suggests Bitcoin will drop to between $5,000 and $10,000 before the token bottoms out. I’ve been a long believer in this cycle that $8,500 is closer to the bottom. If that guess-estimate is true, then we have another 50% at least to go. What do you think?
Full disclosure, I do not invest or hold any crypto as of November 18th, 2022. If you want to support my contrarian rants you can do so: