YouSaid · the spoken record

Zachary Seward

lines on the record: 71
first: 2022-11-28
most recent: 2022-11-28
sittings or episodes: 1
sources: podcast

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“So, one example is NY Dig, NYDIG, I think it's NY Digital, has been making massive loans to a number of different Bitcoin miners all of which are failing. And the key point here is that hundreds of millions of dollars in loans and they're collateralized again by Bitcoin mining rigs, which are worthless or close to worthless. They're going to be very hard to liquidate. So what they did was they loaned based on collateral debt is not valuable. So now whether or not that's going to destroy this company, I have no clue. You know, I can't know what their balance sheet, their private company. But all I know is that there's going to be massive losses that are going to be taken by these lenders that probably haven't been recognized yet or are still kind of hiding. So that's just one example among many.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“Are they running to Bitcoin mining companies? Bitcoin mining companies, it's a very volatile business like copper mining or oil drilling, but oil drillers, they typically hedge. They typically buy puts on the price of oil or sell calls against it. I've heard rumors that Bitcoin miners buy calls and sell puts. They double down on their bet, which is quite extreme. But it doesn't seem to me like that's a systemic risk. You know, if pretty much close to every single publicly traded Bitcoin miner goes bankrupt. I don't see the sort of contagion risk, but tell me what you see there. And also, so they're taking loans from these players. Who are the players who are taking the loans from?”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“And contagion because they probably aren't going to get paid back. And the collateral that they took these loans out on was Bitcoin mining rigs, which the value of which has declined some 70 or 80 percent over the last year. So there are a lot of people at risk here. There are a lot.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“Your guess is as good as mine. I wouldn't have guessed that DCG would be going under as quickly as it did two weeks ago. I wouldn't have seen that coming. I didn't expect FTX to collapse as quickly as it did. I knew that they were in trouble, but I didn't expect that they were as bad as they were. So yeah, I have no clue, man. All I know is that everyone is at risk. There is no exception here. Just because of the collateral damage, even the companies are not directly exposed are going to have serious problems. The fact that a major exchange Gemini is now completely discredited because of their relationship with Genesis means that they're going to have faced serious problems. And all the reputational damage is going to have tremendous consequences. And it's just starting to play out. I am working on an article right now about companies that have been lending to these Bitcoin mining companies, which are all failing right now. I think that that's a major source of risk.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“I don't know either. So a lot of what we talked about so far is backward looking sort of looking back and seeing from stuff that's already happened. But now let's look forward. What do you think is the next shoe to drop? Obviously Genesis hangs on the balance as we speak close to noon. If there is an XU to drop, what do you think it would be? I mean, there's a lot of different players in the space.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“You tell me I have no idea. I have no idea how, you know, I mean, another good example, go back to Celsius. The guy who founded the company claims to have invented the VOIP software, the voiceover IP like Skype. That's totally false. That's just an outright, obvious, egregious lie that anybody can prove with two seconds of Googling. And other things about his career are the same way where it's just this gross exaggerations. Very easily proven. And yet none of the people that invest in this company thought that that was a red flag. They gave him $750 million. And they didn't think that maybe the fact that this person's been fabricating their entire career is maybe a red flag and we shouldn't invest in this company. So that's just one example among many of like the gross total failure of very basic due diligence by these guys. And you tell me I honestly don't know why what drives them to do that.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“Well, I mean Here's what I think. Okay, I think that if I had gone into finance and I was doing this as a job and I was hired by some venture capital firm to look into FTX and I wrote a report saying, hey, none of this makes any sense and these numbers are wrong, I think they would have either ignored it or fired me and gone on with the investment anyway. These companies ultimately it's this fear of missing out that drives their investment and they want to believe what they want to believe. They're clearly not doing any real due diligence here. They can't. They couldn't have been because like you said, I'm not an expert. I'm just some guy. If I'd had their balance sheet a year ago, I would have known they were insolvent a year ago. And anybody with any kind of experience in this crypto industry would have agreed with that.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, well, Mike, you have a full time job. You're doing this research on the side. You're a really smart guy. You're a financial bloodhound, but you were able to ferret this out before pretty much almost everybody. But what does it say that you have a full-time job and you were able to notice this? But there are venture capital firms, consulting firms who are paid hundreds of millions of dollars a year to be financial detectives. And they were completely asleep at the wheel. I mean, it's kind of an embarrassment if you ask me.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“I don't think so. I mean, just based on the blockchain evidence that they never seem to have a cold wallet, which is like the place where you store the assets that somebody gives you. I mean, they did have wallets with a lot of Ethereum and various other assets in them, but it was nowhere close to the amount that they owed people. Also, just went straight to Alabeda. So, yeah, they were just taking them, they were just taking the money. And that was probably true the whole time. And the fact that nobody noticed this, I mean, I didn't notice it. So it's just amazing that nobody really thought to check.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“Their pitch back in back then. Okay, back then was we will pay you 15% returns and there is no risk. And to me, when somebody says there's 15% returns and no risk, I say you're lying to me. So they were doing that back in 2019. My guess, and there's some good evidence of this, that they were probably always operating at a loss and that they created FTX as a way to kind of try and dig their way out of the hole that they had created back a couple years ago.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“And then, in addition to that, yeah, then they were borrowing customers' crypto assets and then doing whatever they were doing with them, whether it was these trades that went badly or if they were just selling the assets off and spending the money on real estate in the Bahamas and advertisements and Tom Brady and all that stuff. But yeah, I mean, they've been doing that for probably a long time, if not the entire history of the company. There's something interesting that I don't know if it's gotten a lot of public attention, but some of something circulating around is Alameda's proposal sheet from like 2018 or 2019 to institutional investors. And their pitch”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“Well, so what I'm seeing from a number of people who have posted these pictures of the wire transfers they were sending to FTX back in like 2019, the dollars, the actual real money that went to FTX went to Almeda's bank accounts. Was under Alamedo's bank account. You literally could look at the transfer. It's not going to FTX, it's going to Alamedo. So the dollars maybe never reached FTX ever.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“I want to return to sort of a fine detail of FTX, which is that they did the ultimate forbidden thing for an exchange, which is to lend client funds. That by itself is already egregious, but I think what is possible, which is sort of implied by Sam Bankman's Fried's DMs with a journalist from Vox, which I recommend people read, is that the money literally never was at FTX. How did we know that these Sam Bankman-Fried Empire of Alameda and FTX had all of these serum tokens and these maps tokens, oxygen, FTT that were at inflated values? But at what point did Sam Bacon essentially try and bail out Alameda by lending Alameda money in the same way that DCG lent money to Genesis, or excuse me, I guess the other way around, Genesis lent money to DCG. And yeah, what are the details there? Because I'm still a little fuzzy on that.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“Well, I mean, right, the legend of Charles Fonzi, right? Like initially his business actually worked. He was making money on the scam. He just decided to just start taking people's money and paying ridiculous interest rates out and stop actually doing the trade that was making him a decent return. So yeah, I mean, part of it's part of it is that maybe there are these opportunities to like temporarily make money, but yeah, they won't last. And then you're stuck with owning people all sorts of money that you can't pay back. And that's what's happened here.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“He did that trade. I'm sure he did that trade. I'm sure he made a lot of money doing the trade. Everyone did that trade. Everyone knew about that trade. It's not like he was the only one. And I think that, you know, so you say you are a student of fraud and scams. I think that is often a feature of scams is that it appears risk-free. It appears arbitrage. I think it was Bernie Madoff who said, oh, the way that we generate these returns is because we take advantage of an arbitrage within the options market where we basically we short the futures and we buy the options and it's just like that's one basis point. How are you getting 15%?”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“But the business model itself of security is not inherently a scam. Like in the traditional financial world, if there's some very illiquid stock that I want to short because it's a spack and it's a unprofitable tech stock, whatever, you're a brokerage. You can charge me 200% to borrow that stock, and I will. And that can be profitable.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“And that's exactly what this scam is. And that's what everyone, just about everyone has been doing. That's what all of these yield things depended on because there's no way, right? I mean, and look at like, again, go back to what Celsius was doing. They were offering these crazy high yields. What were they investing? They were investing in Bitcoin mining. And they were buying other companies involved in crypto that were essentially not revenue generators. And they were just projecting that, well, we're paying $100 million for this company right now and it was worth $2 million last year. So next year it'll be worth $5 billion. So we'll be able to pay everybody back.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“That's why in the letter that scam bankman fraud sent to FTX employees, he said, yeah, we had $60 billion in collateral before the sell-off in the spring. And I just really did not like that number because it was just, it made so many assumptions. And I mean, my opinion lies.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“That was the question that got me interested in crypto. I don't have a finance background, but I've always been interested in fraud and history of fraud and seeing companies offering these 10, 12, 14% interest rates when the free or the risk-free rate is zero on dollars, not even on other cryptoasses, but on dollar equivalents. Yeah, that was kind of a major red flag. Yeah, I think we're seeing that there is no magic money box to take Sam's phrase. There is no magic money box. And none of these things were creating anything of value. What they were doing was things like what 3AC was doing, which was capitalizing on these temporary market fluctuations that appeared to be permanent. That maybe made money for a while, right? I mean, you have to remember, like, for a good example would be Alameda, right? Alameda, these tokens that they had, like serum and stuff, they were worth like 10 times.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“When a year ago there were people saying, Oh, I not only do I own crypto, which is going up, but I'm staking. And staking, I can get 6%, 8%, 10%, 12%. And the dollar is yielding zero. Where did that, people, smart people at the time, not me, but smart people, asked, where is the yield coming from? Do you think we have now a better picture of where it's coming from, or is it still hazy where it's coming from?”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“Interest rates need to be low. So if the Fed decides to ease, maybe they'll have another bubble. But the other thing to consider here is that the effect of all of this stuff, all these failures on regulation, and if there's serious regulation and market rules are applied to these things. A lot of the techniques that have been used to dry prices up will not be available anymore. So it'll be interesting to see what happens and how that affects retail's willingness to participate in these things.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“Well, so nail in the coffin. Coffin is that's a little permanent. You know, 2018 was bad when I first started paying attention was like many people, the peak of the bull market, the bubble, let's call it that, in 2017. And then the bear market was brutal. And it just things went lower. Tons of scams, tons of Ponzis. But then, you know, it roared back. So hope springs eternal, you know.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“Idea, but I don't think we're early, but I don't think we're late either. I'd say we're about halfway through. With DCG, I mean, who knows? I mean, it could be a lot of this is based on rumor. We don't know how desperate they are for money. It sounds like they're pretty desperate. They haven't done much to counteract those rumors that they're very desperate. So it's very possible that maybe they go bankrupt the next few days. Who knows? But then in terms of the wider effects on everything else, I mean, the thing is that in terms of reputation, I mean, Sam and FTX were better known publicly But in terms of an institutional level, I was talking to people just a couple weeks ago who are institutional investors who are serious, like real people who know a lot about this business, who are saying, oh, DCG is probably fine.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“We'll find out, I guess. I mean, how did Sam Bankman Fry manage to fritter away billions of dollars? And we know he spent some of it on ads and other things, but ECG's not really, as far as I know all that, they're not spending that much money on ads or lobbying. I have no idea. It costs a lot of money to keep these businesses running, I guess, especially if they're not generating any returns. So who knows? And who knows what other exposures Genesis might have to other companies that are in trouble? We don't know what else. We've only scratched the surface at this thing what I'm saying. And I think we're going to find out more as the days go on. And I guess we'll see if anybody's willing to bail them out.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“So they have 800 million in revenue. We asked this earlier, but legitimately, where is the money going? Is it going to loans? I guess buying back their own stock, but hiring a lot of people, but acquisitions.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“And that's what gets back to the effective FTX on all this stuff, right? Like seeing FTX collapse and watching all these VCs get burned, a lot of people are going to be less likely to be inclined to buy assets from DCG now, right? I mean, they're not going to be interested in buying a company that services Bitcoin miners when all the Bitcoin mining companies are going bankrupt. Right? I mean, there's, or buying, I mean, there are other companies that don't apparently generate much of any revenue, even revenue. And then we're just talking about revenue. We're not even talking about what their actual net income is. And you'll notice as Leonard didn't mention how much money are we actually making on a real basis, the answer is probably that they're losing money annually. Even with grayscale, which is a profit center”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“Yeah. So there's the judgment of what is the true economic value, which based on what you're saying sounds like you think it is quite low. And that is somewhat subjective. But then there's the objective of what could you get if you could sell it at now? And that objectively is way lower. Like, for example, if there's a private equity company and you had a very profitable business, but you needed to sell it in March of 2020 when there was no liquidity, even though the economic value was quite high, the market value was low. And objectively, like the market value is pretty low.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“So Exactly Exactly. Yeah. So it is a fantastic business from their perspective. Ultimately, the goal is to turn it into an ETF and the SEC said, heck no, because Bitcoin markets are incredibly manipulated and they cite the evidence for it's worth reading the SEC decisions on these things. And I think Grayscale's suing the SEC over it, which good luck. Yeah. So, yeah, basically, their entire business is operating this trust. And then the rest of it is just Have all these venture capital investments, which I was going to go into in the article and just say, okay, what's the stuff actually worth? But I mean, it's not even worth it. Just go look at what they own. I mean, there's a great, the block has a great article kind of with this graphic that shows all the different companies under their umbrella that they've invested in.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“Where's the money going? The money's all gone. So the grayscale Bitcoin trust is kind of, and is Ethereum trust, they're kind of cash cows because they get 2%, a nice hefty fee, and I believe, correct me if I'm wrong, that they collect fees based on the net asset value, not the actual value of what the cling is trading. So if it's trading, the stock is trading at a 45%.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“Based on what they've disclosed. So remember, DCG is this kind of parent company for multiple different companies, the Genesis, Grayscale, and then there's CoinDesk, which is, like we mentioned, is one of the big crypto media outlets, Foundry, which is like a Bitcoin mining services company. And then there's a couple other ones as well. But if we look at how much of, according to this letter that Barry Silbert, the CEO sent out a couple days ago, they anticipate something like 800 million in annual revenue this year. Most of that revenue comes just from grayscale because Grayscale charges this massive 2% or 2.5% fee of annually against the asset center management of all of these trusts. If you figure it out, that's most of where their revenue is coming from. So all these other companies that are under their umbrella are really a fraction of the actual value of the company. Really all that's there is grayscale. So this company somehow spending hundreds of millions of dollars in revenue from grayscale in addition to having to borrow 575 billion from their own customers. In addition to borrowing another $300,000.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“Well, and that's not the only, you know, that's just one example. Celsius now worked to go back to my kind of my wheelhouse was doing something very similar. So they took a massive amount of their customers' money. Again, these are not time deposits. The customers could come back and say, I want my money back at any time. And they dumped hundreds of millions of dollars worth into investing in Bitcoin mining companies, into other venture funds and venture investments. things were totally illiquid. So this is something that's happening, I think, across the crypto industry. And yeah, so in addition to their incredibly risky and failed exposure to 3AC, they were also making incredibly bad moves by borrowing their own customers, essentially money that they were saying they were lending out to others they were lending to themselves.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“Are you telling me that if I someone who gave money to Gemini and put Gemini earned program, okay, we're going to get my 6%, I'm going to get my 8%, you're telling me that Gemini took that money, lent it to Genesis, who in turn lent it to its own parent company so that they could buy back their own stock”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“People can come back and request their money back at any time. So they took stuff that needed to be highly liquid and they dumped it in incredibly a liquid stock that probably has lost a significant amount of value in the intervening period. So yeah, it's incredible that they did this.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“Do they Well, so what happened? So, Genesis is ostensibly a prime brokerage, and part of what their business was, was they were lending funds to other crypto traders, et cetera, and where they were getting these funds from were institutions. So one of the biggest of them was Gemini, the exchange run by the Winklevoss twins, which operated its own earning products. So the retail investors would get like 6-8% return on their crypto by giving it to Gemini. Gemini would then give all of that money to Genesis to manage and then Genesis was supposed to lend it out and earn higher amounts of yield. In practice, what was happening, and this is what they've apparently admitted to, is that some almost $600 million worth of that money that they borrowed was taken by DCG as a loan, and then DCG used it to buy back their own shares and invest in other venture projects. So what they did, and you have to remember that these deposits, they're not locked. It's not like they're time deposits.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“Wow. So it's effectively. That the spread will narrowly widened into a wider and wider discount. Wow. And so Genesis was funding this. Genesis had a huge loss to three arrows capital, which was doing this failed trade, 1.2 billion dollar loss, but then the parent company, DCG, Digital Currency Group, assumed that $1.2 billion loss. So that's already kind of in the hole a little bit. And then do they have additional more money to buy them back to buy stock?”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“So, in order to make Grayscale Bitcoin trust shares, you have to have Bitcoin. So you can, in order to get the shares, you could either buy the shares from the company or you could give them Bitcoin and then they would lock it in the trust and then use that as the backing for new shares.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“So they were generating these shares and then going back and borrowing money from Genesis. It's a very interesting thing that has not gotten enough exposure yet. It was recently shared by some people on Twitter and got some more exposure. But this is a very questionable things that were going on, that these companies had a very, very, very close relationship. Yeah, that's a great”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“To kind of stave off collapse, the parent company DCG assumed all 1.1 or 1.2 billion dollars worth of losses onto their books. Apparently issued a promissory note to Genesis. So that's a big problem. That's a huge, huge, huge loss for any company. And then subsequently, it looks like they had losses on FTX. And it also turns out based on their current disclosures, including a letter that was sent out by their CEO, I think yesterday or the day before to their shareholders, that they borrowed another $575 million from their own customers in order to buy back their stock. So if you basically, if you go through the share counts, basically there's this very odd thing. Yeah, so Three Earth Capital was very long. They had massive numbers of shares. They had 39 million shares by December 2020. And then they were pledging it to Genesis for loans.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“They were one of the biggest holders of Grayscale Bitcoin Trust for a while. And there are some excellent work by a guy who writes under the name Data Finnovation that is worth pulling up. And what that shows essentially is that there is some very questionable dealings that were going on between grayscale or between 3AC and Genesis around that time. And let me pull that up really quick because it's worth talking about it quickly. I wish I could have included in my article. Essentially, what was happening was there's a lot of evidence that grayscale or Genesis may have been lending 3AC the Bitcoin to create Bitcoin trust shares. And that both of them would profit from this because Grayscale makes a lot of money on the fees. But I mean, the long and short of it is that they were very closely tied with this failed hedge fund and that they faced over a billion dollars in losses back in June of 2022.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“So, what the trade there was okay, GBTC, the grayscale Bitcoin trust is trading at a premium relative to its net asset value. So I can harvest inefficiency by shorting GBTC and buying Bitcoin to hedge. And as that spread narrows, I'm going to make money. But the spread did narrow. So where were the losses?”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“You can attribute a lot of the problems or a lot of the public problems back to their relationship with the three euros capital hedge fund, which collapsed back in June, I think May or June, I remember, I'll go so fast anymore, which was, among other things, had made a bunch of money on the GBTC, the Grayscale Bitcoin Trust Arbitrage. So essentially what was happening for a while was that this trust, which is this publicly traded product that holds Bitcoin, basically it's a way for institutional investors to get exposure to Bitcoin, at least in theory. 3AC had been basically making money on the difference between the price of Bitcoin and the price of the trust because for a while the trust was trading at a premium. And then, of course, that slitched.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“So Genesis and Grayscale are the real big, big entities in the digital currency group. Genesis is the, where did the losses start at Genesis and what does Genesis do? They're a lender. How big are they?”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and that's a classic example of how a lot of these companies have managed these crises, like FEX did the same thing. They'll say that they're solvent until the moment that they aren't. And it's very, very disappointing that they behave in this fashion. If DCG and Genesis had been upfront with their exposure and manage the public perception better, maybe they wouldn't be in the position they're in now. Although I kind of doubt it just based on looking at kind of the limited evidence we have about their financial state.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“Exposure. And we continued to meet the needs of our clients around the world. The next day they said, oh, by the way, we sold collateral resulting in a total loss of $7 million across all counterparties, including Alameda. And then two days later, they said, oh, by the way, our derivatives business currently has $175 in locked funds in FTX trading account. Then six days later, they say that they need a billion dollars and a day or two later, they say if we don't get this billion dollars, we're going to go bankrupt. Now we're recording on the 23rd of November, and things are very much in the air.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“Even the ones that are trying to be honest in doing things right, they face huge risks even as a consequence of that, even the ones that are honest are not making money. In fact, the ones that are honest are probably making less money.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“That's basically so different levels. So there's the obvious rug pulls that happen. And then there's also the companies that go for the longer scheme, which is the things that like Celsius and FTX were doing, which is prop the price of these things up and then use them as collateral or use them as evidence of solvency to then raise additional funds and keep the party going for longer. But yeah, across the board, that's very true. And we know for a fact that most of these things are incredibly manipulated in terms of their price. Yeah, there's a lot of really dirty stuff going on. And I think what really bothers me about the recent reporting around FTX is that the media is almost making out Sam to be the only bad guy in the room and everybody else is clean. And that's not true. We're going to find out that Sam was not an exception. He might be closer to the rule for the most obvious companies operate. He might be a particularly egregious example, but I think we're going to find out that a lot more of these companies were doing similar things to what FTX and Alabama were doing.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“Many crypto companies definitely are not making money. Coinbase is one of the few companies to actually be profitable in 2021 because their trading fees were so high. But yet now they definitely have to cut costs and then they have started to. Yeah, I feel like there's a little bit of a problem within crypto VC in terms of let's say you and I have the next Grand Theft Auto, but it's going to be on Web3. It's going to be decentralized and we create it and we sell these tokens. The price discovery is so immediate that we're incentivized to kind of just talk how amazing it is and then sell our tokens instead of actually building the project.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“Is that this is going to have a dramatic effect on the likelihood or the willingness of big investors like venture capital firms to invest in these crypto companies? And it turns out, unsurprisingly, that if you look at how these companies work, none of them actually produce anything of value. All they do is they trade these tokens around all day. And so really they're actually a negative sum. They destroy capital and they don't generate profits for the most part. Like look at how much money Coinbase has lost in the last year, about 1.5 billion dollars. So the problem is these companies depend on outside financing to keep going. And if the VCs are no longer willing to keep dumping money in, they're going to face serious problems. So it's not only a question of direct first order consequences of FTX and Alameda failing. It's a consequence of what effect is this going to have on the willingness.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“Very high. A lot of people got burned here and a lot of people who didn't expect to get burned got burned here. For example, BlockFi is gone now, which they have been supposedly bailed out by FTX. And we're going to talk about digital currency group in a bit. They got burned. A lot of hedge funds and crypto funds got burned and have money locked on these platforms. Unfortunately, they allowed FTX to make their 50 largest creditor sheet confidential at this time. So we actually don't know who has money locked on there yet. A number of funds have admitted that they have large sums on there. So there's a lot of people with immediate first order exposure to this thing. Who they had been borrowing all these billions of dollars from is a good question as well. Obviously a lot of it was customer assets, but we don't know who else maybe had lent FTX money, maybe even on a semi-secured basis. So that's the second problem. So yeah, there's definitely a huge risk of contagion. And it looks like that's already playing out. There's a lot of companies that are in serious trouble here. The other thing to consider.”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT
“So, in finance, there's something called contagion, which is in 2008. Okay, First Bear Stearns goes under, then Lehman goes under, the dominoes fall. How would you estimate the risk of financial contagion within the crypto industry, not talking about the macroeconomy outside of crypto, TradPi, but just within crypto? How are you assessing the risk right now?”
2022-11-28 · Forward Guidance · CeFi Crypto Contagion Is Just Getting Started, Says Analyst Who Predicted FTX's Fall · IDENTIFIED FROM THE TRANSCRIPT