The Highest Drama, FTX Creditors Damaged, Rates Expectations Fall: TBL Weekly #20
Recapping the action in bitcoin and macro.
Welcome to TBL Weekly #20—here are your highlights!
Our monitor for the week ending Sunday, November 13th, 2022:
We begin our weekly analysis with a tweet from April of last year from Matt Odell, staunch self-custody advocate and true bitcoiner:
This powerful meme rang true in one of the most, if not the most, dramatic few days in the history of bitcoin. FTX: bankrupt; a new rival for Bernie Madoff and Jon Corzine; BlockFi’s CEO goes on paternity leave without as much as an acknowledgement of his company’s current predicament; “crypto” diehards left speechless and demoralized. And all in all, bitcoin was only down ~20%.
Now, we know that there are dead bodies left to be uncovered, but at The Bitcoin Layer we are practically in awe of the price action considering the week’s events. And what’s scary is where that price might have been if it hadn’t been for the inflation data on Thursday that all but sealed the deal for the end of the fear of 5% Fed Funds.
Both posts this week were published without a paywall, as we felt it our duty to cover the FTX saga for all readers. After Thursday’s post, what other ramifications were felt?
FTX filed for Chapter 11 bankruptcy protection, and creditors are now fire selling assets in order to cover their now worthless FTX loan extensions. This places downward price pressure on bitcoin, which is unfortunately held across all impacted balance sheets.
So far, reported creditors are BlockFi ($250 million) and Genesis Trading ($175 million)—the former has paused withdrawals from its exchange. We are also beginning to understand that BlockFi’s rescue post-3AC by FTX was likely a ploy to capture BlockFi’s entire asset base into FTX custody—absolutely wild! Given the interconnectedness of FTX—it was the second largest cryptocurrency exchange at the time of its collapse—we suspect more large entities in the wider ecosystem will face liquidity issues, pushing the further sale of assets, potentially margin calls, liquidations, and insolvencies. Given the moment-to-moment nature of this unwind, stay updated by following Joe, as well as Dylan (from our neighbor publication BM Pro), who both have been reporting on exposed creditors and analyzing market implications.
A conveniently timed “hack” has drained $600 million from FTX and Alameda wallets—most of their remaining funds. Even after filing for Chapter 11, creditors are likely never going to see their assets again. FTX now holds just $13 million in assets, down from several billion a few days ago:
As for FTX’s bitcoin, it only held less than 2 BTC! The bankrupt exchange has $1.4 billion in client claims on bitcoin. For FTX clients, this is awful news. For bitcoin sell-side pressure, this is good news. The remainder from the FTX fallout will be comprised of impacted counterparties selling their bitcoin either to post margin elsewhere, or to redeem client withdrawals.
Don’t miss Thursday’s post, in which we cover the latest in interest rates and Fed hikes after a welcome slowdown in inflation. Lastly, tech layoffs en masse are sure to catch the Fed’s attention as it approaches another 0.5% of policy rate tightening in December.
If you’re enjoying today’s analysis, consider supporting us by becoming a paid subscriber. As a paid subscriber, you get full access to all research as it drops.
Now, here are your quick links to all of the TBL content for the week:
Joe analyzed the start-to-finish of Binance’s successful speculative attack on FTX, in which a CoinDesk balance sheet leak lead to the mass liquidation-hunting of the second-largest cryptocurrency exchange in the world. What happened, and what are the implications for creditors to FTX, and bitcoin? It’s all covered here:
Nik brought Jacob Shapiro onto the channel on Wednesday for a Guest Lecture. Jacob Shapiro is the Director of Geopolitics at Cognitive Investments. In this episode, he discusses the European energy situation, and the geopolitical landscape encompassing deglobalization and China. This was an incredible tour around the world from an expert we certainly hope to have back on. Don’t miss his suggested reading list early in the interview:
Nik followed up on Tuesday’s piece with a cathartic takedown of FTX’s fraudulent behavior and the rampant degeneracy that is the “cryptocurrency” industry. He also discusses how “proof of reserves” by itself is not a sufficient solution:
Direct attacks on bitcoin through disingenuous association, and ties to the global kleptocracy which run far deeper than a prop shop out of the Bahamas:
Joe breaks down the FTX situation from start to finish in video form. From the vaporware FTT token being used as collateral for real liabilities, to Binance's public declaration of sale which drove spot and derivatives selling pressure, to the ultimate admittance of insolvency and capitulation of FTX:
If you are craving real-time analysis over the weekend, here’s Joe’s ongoing thread about the FTX fallout and impacted creditors as they emerge, alongside implications for bitcoin sell-pressure:
Many people have been asking how nobody could have seen this coming. The truth is that many saw it. We will leave you with this video from October 11th:
SBF and his team: rotten to the core, while embraced by the world’s elite:
The Bitcoin Layer does not provide investment advice.
The Bitcoin Layer is sponsored by Voltage: provider of enterprise-grade Bitcoin infrastructure. Create a node in less than 2 minutes, just visit voltage.cloud