HomeCryptoCurious Cryptos’ Commentary 9th November 2022 — FTX

Curious Cryptos’ Commentary 9th November 2022 — FTX


The collapse of FTX will cause short term pain.

Market Snap

Market Wrap

The margin of Ron DeSantis’ victory last night suggests that the next presidential election may be decided in the primaries. The CCC remains fiercely apolitical, though it is also fair to recognise the Republicans tend to be more enthused about cryptos than their counterparts.

Occasional Series — FTX

Just a few hours after the CCC warned subscribers to remove all assets from FTX, withdrawals were halted. This was not a good sign.

I have been asked what it might mean if FTX and Alameda are declared bankrupt.

As we saw with some other high profile events earlier this year (LUNA, Celsius, and Voyager) the initial impact will be for painful price action across the crypto world, price action that is already playing out.

Crypto haters, though they know not what they wish for, will be out in force proclaiming the death of BTC. The Financial Times, the IMF (International Monetary Fund), and convicted criminal Christine Lagarde, head of the ECB, will have one of their very few remaining days in the sun. I hope they enjoy it while it lasts, for it will be temporary.

Meanwhile, I will be happily hoovering up cheaper cryptos using DCA (dollar cost averaging).

Occasional Series — Oil and gas

There was an interesting piece published by Bloomberg yesterday suggesting that the election of Joe Biden as POTUS was all but guaranteed to favour the returns made by investors in oil and gas since his election:

Who’d have thought.

Curious Cryptos’ Commentary — And here we go again

I think we can safely assume that FTX is done and dusted, but it is not yet clear whether the deal with Binance will go through or not. Let us assume FTX is left to fail on its own, that being the worst possible outcome for all of us.

Investors who left cryptos or fiat on this centralised cryptocurrency exchange despite the warnings from the CCC yesterday are going to have to wait for many years to get just cents back on each dollar of value. Regular readers already know that leaving more than 10% of one’s crypto investments in a centralised exchange is simply a schoolboy error.

The failure of such a large and prominent crypto player will undoubtedly affect price sentiment of all cryptos in the short term.

This failure will undoubtedly help Coinbase and Binance to further cement their domination of the on-ramp from fiat into cryptos. Which is ironic given the decentralising philosophy of cryptos. But again this categorically demonstrates that cryptos and its libertarian ethos will have to learn to live side by side with the financial legacy institutions.

And frankly, however much I love cryptos and what they stand for in terms of personal liberty and freedoms, I think this accommodation — however it turns out — will be for the best.

The collapse of FTX shows again some of the naivety inherent in those who are building this crypto revolution.

MIM — Magic Internet Money — is the sort of name that might appeal to those who enjoy playing Dungeons and Dragons, but for the rest of the world’s adult population it elicits a somewhat sceptical emotional response.

MIM is a stablecoin issued by Abracadabra Money (another ridiculous name almost designed to destroy investors’ confidence in the project) a DeFi (decentralised finance) project that allows individuals to mint MIM at $1 each in exchange for an over-collateralised loan.

Which is all well and good in principle.

But what is often overlooked and is what is frequently the trigger for financial problems, be they specific or systemic, is correlation risk.

According to the protocol’s own data, FTT — the token native to FTX and possibly heading rapidly to zero — makes up nearly one fifth of the collateral behind MIM:

As the value of FTT falls, these loans start to get called, increasing the supply of FTT for sale execution immediately.

Selling begets more selling, leading to a downward spiral in the price of FTT.

This leaves the dollar peg of MIM at risk. And indeed, this is what has happened yesterday:

Correlation risk brought down LTCM (Long Term Capital Management) in 1998.

Correlation risk destroyed the banking system in 2008 resulting in vast quantities of money printing leading to the impoverishment of all of us today.

Correlation risk nearly destroyed the Euro in 2010 and is still an existential risk to this political project.

When will people ever learn?

Compliance Stuff

Trigger alert warning — if any reader feels that they are “literally shaking” (as claimed by a Durham student who cannot emotionally cope with a different point of view) after reading my commentary, then I can only suggest you don’t read, or don’t shake. It’s up to you.

Cryptos — none of my commentary should be seen as a recommendation to get involved in cryptos. I might be talking complete nonsense without knowing it. Any crypto investments must be viewed as extremely high risk and treated as if they are worth zero until sold.

Stocks — just to make it clear this is not a stock advisory service. The CCC team does not provide financial advice in any way at all. Any reference to asset prices in this commentary are there to simply give context to the commentary and to give colour to the performance of certain stocks related to cryptos.

For the avoidance of doubt, this newsletter is not an incitement to buy cryptos, buy stocks, or even to sell family members in the hope of buying cryptos or stocks.

Please note that all copyright is reserved to Curious Cryptos Ltd.

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