Author Topic: I'd like to thank Sam Bankman-Fried, FTX and Alameda Research . . .  (Read 1536 times)

bwall

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. . . for helping the Fed to get excess liquidity out of the financial system.

Not only did SBF remove his personal fortune (estimated at $16 billion or so), he also removed another $9 billion of customer deposits. That's a total of $25 billion that cannot be spent on Lambo's and what-not, thereby stopping (some) inflation in its tracks.

Since de-leveraging is the gift that keeps on giving, the grand total might be ever larger by the time the knock-on effects are added up. This will be fun to watch over the next few months.

If everyone were to work so hard at draining liquidity as SBF, then we'd have whipped inflation a long time ago.

BicycleB

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Re: I'd like to thank Sam Bankman-Fried, FTX and Alameda Research . . .
« Reply #1 on: November 15, 2022, 01:27:48 PM »
. . . for helping the Fed to get excess liquidity out of the financial system.

Not only did SBF remove his personal fortune (estimated at $16 billion or so), he also removed another $9 billion of customer deposits. That's a total of $25 billion that cannot be spent on Lambo's and what-not, thereby stopping (some) inflation in its tracks.

Since de-leveraging is the gift that keeps on giving, the grand total might be ever larger by the time the knock-on effects are added up. This will be fun to watch over the next few months.

If everyone were to work so hard at draining liquidity as SBF, then we'd have whipped inflation a long time ago.

LOL!

SBF for Inflation Fighter of the Year.

ChpBstrd

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Re: I'd like to thank Sam Bankman-Fried, FTX and Alameda Research . . .
« Reply #2 on: November 15, 2022, 01:47:56 PM »
Interesting thought about the implications of "crypto winter"!

Part of me wants to say this is separate from USD money supply and monetary velocity, except for the psychological wealth effects. If cryptocoins lose value in terms of USD, that's no different than any other asset losing value in terms of USD. It shouldn't affect people's willingness to borrow, spend, or save dollars. And if a hacker or fraudster steals crypto or cash from a person, that only changes who owns the crypto and cash, not the amount in circulation or the speed at which it circulates.

My original understanding was that FTX took dollar deposits, allowed people to buy cryptocoins, sold their clients' coins, leaving them with IOU's (so far very similar to what your stock brokerage does to a limited extent), and used the proceeds to run pump-and-dumps on smaller coins like Serum or stocks like Robinhood, running 10:1 leverage. If that were the case, they'd only be unable to handle a bank run if the arbitrage between their coin liabilities and their coin/stock assets went the wrong way, and maybe Robinhood stock would crash because FTX would have to sell their entire stake all at once. Even in that case, it would be a matter of the brokerage being unable to supply the assets their customers demanded to sell, and the supply of dollars would merely be redistributed from FTX account holders to FTX's counterparties.

However, according to the Financial Times, FTX also had dollar-denominated liabilities, though it's not clear if those dollar liabilities emerged when clients tried to sell their crypto and get out of the platform. I'm not sure anyone but FTX or Binance employees understand at this point. FTX apparently did not have the cryptocoins people were asking for during the bank run because they were essentially shorting their customers' coins while going long more illiquid things. They only held IOUs for their depositors' assets, and these IOUs represent a liability. So when a client clicked sell on the X number of bitcoin showing on their screen, in the background there were not X bitcoins in FTX's possession that could be sold!

https://www.ft.com/content/f05fe9f8-ca0a-48d5-8ef2-7a4d813af558

Again, I think all this damage stays confined to the crypto universe until we find a link to the dollar economy, or the contagion spreads to Binance and other crypto exchanges. So far, the episode seems to have sparked a run on U.S. treasuries as people flee to safety. Rates have fallen dramatically in a week. Some banks and hedge funds loaned FTX money and will likely experience losses, but this only affects inflation or the real economy to the extent they're less able to make loans. The redistribution of dollars from FTX account holders to FTX counterparties does not change the number of dollars in circulation, and probably won't do much to change their velocity unless the new owners of that money have a different propensity to spend.

Now, if a major dollar-based bank reveals crippling losses from crypto, or tens of thousands of crypto/tech workers lose their jobs, or whiplash in the futures markets destroy a hedge fund, then all bets are off.

bwall

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Re: I'd like to thank Sam Bankman-Fried, FTX and Alameda Research . . .
« Reply #3 on: November 16, 2022, 06:56:43 AM »
I follow your thoughts and comments, @ChpBstrd , and they seem imminently logical and straightforward.

My corner of the world seems to have attracted a few crypto speculators who consider themselves investors. So, I've seen a few people cash out some chips for fiat and spend this fiat either with reckless abandon or with thoughtful consideration based on personality. Thus, I see a link between crypto price craziness and real world spending. While this will not reduce the number of dollars in circulation, as you correctly state, I do expect SBF's belly-flop to reduce marginally the velocity of money. I say this because the new owners of the dollars have enjoyed them for a few months already (when FTX made the losing trades--presumably over the summer, although this hasn't been determined, IIRC) and many, many FTX account holders (1 million?) are waking up to zero account balances.

I believe that total crypto market cap was at $3 trillion at it's peak. Now it's down to $800 billion (or so). https://coinmarketcap.com

As you state, it's the same as any other asset class value reduction of $2.2 trillion putting aside for a minute that crypto 'assets' are ones and zeros and non productive, unlike stocks, bonds, real estate or even art, which at a minimum can be displayed.

At the end of the day crypto winter correlates strongly with Fed rate hikes. So, to the extent that reducing the purchasing power of crypto hodl-ers reduces their actual real world spending, this means that the Fed may not have to hike rates as high as they would have had to in a ceteris paribus world where crypto doesn't exist. As a thought experiment, how much does the stock market fall (in % and USD terms) in a typical rate hike cycle?

cool7hand

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Re: I'd like to thank Sam Bankman-Fried, FTX and Alameda Research . . .
« Reply #4 on: November 16, 2022, 07:32:27 AM »
Interesting thought about the implications of "crypto winter"!

Part of me wants to say this is separate from USD money supply and monetary velocity, except for the psychological wealth effects. If cryptocoins lose value in terms of USD, that's no different than any other asset losing value in terms of USD. It shouldn't affect people's willingness to borrow, spend, or save dollars. And if a hacker or fraudster steals crypto or cash from a person, that only changes who owns the crypto and cash, not the amount in circulation or the speed at which it circulates.

My original understanding was that FTX took dollar deposits, allowed people to buy cryptocoins, sold their clients' coins, leaving them with IOU's (so far very similar to what your stock brokerage does to a limited extent), and used the proceeds to run pump-and-dumps on smaller coins like Serum or stocks like Robinhood, running 10:1 leverage. If that were the case, they'd only be unable to handle a bank run if the arbitrage between their coin liabilities and their coin/stock assets went the wrong way, and maybe Robinhood stock would crash because FTX would have to sell their entire stake all at once. Even in that case, it would be a matter of the brokerage being unable to supply the assets their customers demanded to sell, and the supply of dollars would merely be redistributed from FTX account holders to FTX's counterparties.

However, according to the Financial Times, FTX also had dollar-denominated liabilities, though it's not clear if those dollar liabilities emerged when clients tried to sell their crypto and get out of the platform. I'm not sure anyone but FTX or Binance employees understand at this point. FTX apparently did not have the cryptocoins people were asking for during the bank run because they were essentially shorting their customers' coins while going long more illiquid things. They only held IOUs for their depositors' assets, and these IOUs represent a liability. So when a client clicked sell on the X number of bitcoin showing on their screen, in the background there were not X bitcoins in FTX's possession that could be sold!

https://www.ft.com/content/f05fe9f8-ca0a-48d5-8ef2-7a4d813af558

Again, I think all this damage stays confined to the crypto universe until we find a link to the dollar economy, or the contagion spreads to Binance and other crypto exchanges. So far, the episode seems to have sparked a run on U.S. treasuries as people flee to safety. Rates have fallen dramatically in a week. Some banks and hedge funds loaned FTX money and will likely experience losses, but this only affects inflation or the real economy to the extent they're less able to make loans. The redistribution of dollars from FTX account holders to FTX counterparties does not change the number of dollars in circulation, and probably won't do much to change their velocity unless the new owners of that money have a different propensity to spend.

Now, if a major dollar-based bank reveals crippling losses from crypto, or tens of thousands of crypto/tech workers lose their jobs, or whiplash in the futures markets destroy a hedge fund, then all bets are off.

Thanks for sharing!

GilesMM

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Re: I'd like to thank Sam Bankman-Fried, FTX and Alameda Research . . .
« Reply #5 on: November 16, 2022, 08:52:17 AM »
I agree the contagion appears restricted to the crypto world at the moment, but it is likely to wipe it out entirely.  There will be some value discovered in the aftermath and a few large, stable companies will probably revive cryptocurrency once the dust settles from the implosion.

lemonlyman

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Re: I'd like to thank Sam Bankman-Fried, FTX and Alameda Research . . .
« Reply #6 on: November 16, 2022, 06:00:16 PM »
Thankful someone committed theft and fraud 🙄.

 

Wow, a phone plan for fifteen bucks!