Now that FTX has been chalked up as the latest ponzi-ish corner of the crypto universe, it is very likely more implosions are brewing behind the scenes.
Remember, I wrote back in June, in the midst of bitcoin’s crash, that “secretly insolvent” crypto firms had already gone bust and we didn’t even know it yet. In that article, I cited analysis from FTX founder Sam Bankman-Fried himself. Little did I know that Sam was referring to himself.
In the same article, I did what I have been doing for the last 4-5 months: cautioning people that the $20,000 “floor” in bitcoin, as I have heard it referred to as, must hold, otherwise the chaos on crypto “investors” and companies would be visited two-fold on those who doubled down after the crash earlier this year:
As I said on my podcast last week and my brand new podcast with Mark Spiegel, everybody is acting as though this $20,000 level is the definitive floor. Refinancings, bailouts and consolidation have all taken place and people are starting to reposition themselves to the long side under the impression that the chaos is over.
When bitcoin falls another 50% from here, if it does, will see some real shit hit the fan – including potentially unprecedented investor panic – in the asset class. That, in turn, will trigger another round of insolvencies and bankruptcies in the space. Maybe then we can talk about consolidation for a while.
I concluded by saying:
But remember, the lower that bitcoin goes, the bigger and more prominent the names will be that blow up – which becomes a self-fulfilling prophecy in the wrong direction.
And here we are, with the ruined remains of FTX – considered just days ago to be one of the largest and most responsible crypto names, the company responsible for consolidating all the crypto distressed assets of earlier this year – torched in the background.
I also wrote during the summer about how Bankman-Fried openly admitted that yield farming – basically the process of paying large (unsustainable) yields on deposited crypto – was basically a Ponzi scheme.
It was an admission that stood out to me not only because of how brutally honest it was, but because nobody seemed to notice it when it happened.
Now, I’m betting people will notice it.
I put down a podcast last night to offer my thoughts on the topic instead of writing about it because I felt like going on a good old-fashioned rant.
The podcast is free to listen to, and it covers:
- The timeline behind the FTX collapse
- Why a collapse in crypto’s should be more alarming than a collapse in equities
- Why the macro economic backdrop is making the situation far worse
- Why, I am completely stunned – not so much about the fact that yield farming was a ponzi scheme, which everybody knew – but by the fact that sentiment about Bankman-Fried changed in a matter of just hours
- Why it’s important for investors to remember that sentiment can change instantly, as we just saw. This can happen not only in crypto, but more importantly, with equities.
- At what point would I consider buying any crypto / crypto assets
- Who I think needs to go bust next in the crypto world
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