FTX goes bankrupt – This is a Lehman moment…


I said this in the mid-week article.

And I’ll say it again.

Holy S***…. what a week!

For those following the FTX saga, I don’t remember things being this crazy even back in March 2020.

This felt almost like Lehman in 2008.

And for the world of crypto, I think the events of this week are as momentous as Lehman 2008.

Lots to unpack, so let’s get started.

Full Disclosure: I have assets on FTX

First off – in the spirit of transparency, I myself have assets held on FTX.

After the Binance ban in Singapore last year, I moved most of my Binance positions over to FTX.

As of this week I hold certain USD Stablecoin and Crypto trading positions on FTX.

For fellow investors out there with assets stuck on FTX, my heart goes out to you.

It’s one thing to lose money on a bad trade.

It’s another thing to lose money because your broker misappropriated client funds.

Don’t forget this was a Top 3 broker by trading volume before this, which counted Temasek, Blackrock and Sequoia among its investors.


FTX Timeline

November 2017:

Sam Bankman-Fried (SBF) leaves job at Jane Street capital (a top trading firm).

He founds Alameda Research as a quantitative trading firm.

Initial trades focus on Bitcoin arbitrage, moving up to $25 million Bitcoin a day to take advantage of higher prices in Japan (vs US).

May 2019:

Sam Bankman-Fried founded FTX cryptocurrency exchange.

To kick off volumes on FTX, it is rumoured that Alameda Research routes most of its trade flows via FTX.

For the next few years Alameda Research and FTX share a murky relationship, as it is never clear what is the relationship between the two on FTX’s trading platform.


July – A $900 million funding round valued FTX at $18 billion.

October – FTX raised capital at a valuation of $25 billion from investors including Singapore’s Temasek and Tiger Global.


Jan. 31 – FTX raised $400 million from investors including SoftBank at a valuation of $32 billion.

July 1 – FTX signed a deal with an option to buy embattled crypto lender BlockFi for up to $240 million.

July 22 – FTX offered a partial bailout of bankrupt crypto lender Voyager Digital. Voyager called it a “low-ball bid”.

November 2022 – Things start heating up…

Nov. 2 – Crypto news website CoinDesk reported a leaked balance sheet of Alameda Research. 

It shows that of Alameda Research’s $14.6 billion of assets, almost $4 billion is FTX’s native token, FTT.

Nov 6 – Alameda Research CEO Caroline confirms the balance sheet is true, but alleges that they have other assets not reflected there:

Nov. 6 – Binance CEO Changpeng Zhao said his firm would liquidate its holdings of FTT (approx. $500 million) due to unspecified “recent revelations”.

Nov. 7 – Bankman-Fried said “FTX is fine. Assets are fine”.

Nov. 8 – Alameda Research CEO Caroline offers to buy out CZ’s FTT stake at $22.

$22 becomes the unofficial floor price in FTT to be defended at all costs.

Nov. 8 – FTX receives withdrawal requests of over $6 billion in just 72 hours.

FTT (FTX’s token) collapses by 72%, breaking the $22 level.

This only sparks more withdrawals

Nov. 9FTX halts all withdrawals.

Binance announces they signed a non-binding LOI to buy out FTX.

Nov. 9Binance decided not to buy FTX:

Nov. 9 – Sequoia writes in a letter to shareholders that it has written off its $210 million investment in FTX to zero.

Nov. 10 – SBF shares that FTX has total market value of assets higher than client deposits. But liquidity for delivery is lower.

Nov. 11FTX files for bankruptcy.

How do you go from $24 billion net worth to bankrupt overnight?

3 months ago SBF was testifying before Congress, with a $24 billion net worth, counting Temasek, Blackrock and Sequoia among his investors:

This week he’s bankrupt, or at least on the verge of going bankrupt.

With a decent possibility of criminal proceedings.

How do you go from hero to zero this quick?

FTX was already insolvent by June 2022?

Reuters has an interesting report extracted below, emphasis mine:

This May and June, Bankman-Fried’s trading firm, Alameda Research, suffered a series of losses from deals, according to three people familiar with its operations. These included a $500-million loan agreement with failed crypto lender Voyager Digital, two of the people said. Voyager filed for bankruptcy protection the following month, with FTX’s U.S. arm paying $1.4 billion for its assets in a September auction. Reuters could not determine the full extent of losses Alameda suffered.

Seeking to prop up Alameda, which held almost $15 billion in assets, Bankman-Fried transferred at least $4 billion in FTX funds, secured by assets including FTT and shares in trading platform Robinhood Markets Inc, the people said. Alameda had disclosed a 7.6% share in Robinhood that May.

A portion of these FTX funds were customer deposits, two of the people said, though Reuters could not determine their value.

If the Reuters report is to be believed, the sequence of events may have gone like this:

  1. In June 2022, Alameda Research (the trading arm of FTX, 90% owned by SBF) suffered massive losses that resulted in its insolvency
  2. To stave off insolvency, SBF moved up to $4 billion in FTX funds to Alameda Research, which includes client funds

This means that in June 2022, by bailing out Alameda Research, FTX itself was already insolvent.

It was just that it took until November when the run on FTX’s assets exposed that insolvency.

But the numbers don’t add up

But… the numbers don’t add up.

Based on Reuter’s report the hole should only be around $4 billion.

Yet latest indications are that FTX needs to raise $8 – 10 billion to cover the hole in its books.

Where did the other losses come from?

If there’s one thing that I know, it is that when there is fraud, there is almost always more than meets the eye.

Or as Warren Buffet puts it so eloquently, “In the world of business, bad news often surfaces serially: you see a cockroach in your kitchen; as the days go by, you meet his relatives,”.

So I don’t have any insider information here.

But from what I can piece together from the public news reports, it looks like there has been:

  1. Misappropriation of client funds to cover losses elsewhere
  2. Very close relationship between FTX and Alameda Research, to the extent that a big chunk of Alameda Research’s balance sheet was FTT (FTX’s token)

This was why a plunge in FTT would lead to margin calls on Alameda Research, the exact same time as client withdrawals from FTX drained its liquidity.

But to what extent and how bad it is, frankly nobody knows.

It will take months for the liquidators to piece everything together and for information to come to light, if we go down that path.

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What happens next? This is a Lehman moment for crypto?

Funnily enough, the closest parallel to what is happening today for Crypto, is Lehman Brothers back in 2008.

To really understand the implications, we need to take a step back.

Broadly speaking, there are 3 kinds of wealth in this world.

They are:

  1. Real Wealth – Goods or Services (think food, cars, real estate etc)
  2. Money – Store of wealth, which can be exchanged for wealth (think cash, gold, maybe Bitcoin etc)
  3. Credit – Promise to pay money, which can be exchanged for money (think loans, bonds etc)

Now most of what people think of money or wealth, is really just credit.

Think about a supplier who sold goods to a customer, with a 60 days payment term. He exchanged Real Wealth (Goods), for Credit (promise to pay money within 60 days).

Think about your bank deposits (beyond SDIC insurance), or corporate bonds.

Are you holding money, or just credit?

Credit is only as good as the other guy’s creditworthiness

So in reality, most of the “wealth” in this world is really just credit.

And credit, is only as good as the creditworthiness of the other guy.

If the other guy goes insolvent, then his promise to pay you within 60 days disappears.

And what you thought was money that you had, disappears.

Who is swimming naked in Crypto?

The problem now with Crypto – is that no one knows who is swimming naked.

In June 2022 after the blowup of Luna, we talked about how this would blow open a hole in the balance sheets of an unknown number of counterparties.

It is now November and we are only just beginning to discover the extent of the damage caused by Luna’s blowup.

And now FTX themselves are going under.

FTX is immeasurably bigger than Luna, a Top 3 exchange with many top funds parking their funds there.

Heck, after the bankruptcy of Holdnaut (a Singapore crypto lender), the court appointed judicial managers parked Holdnaut’s assets with FTX.

That’s how broad this goes.

So how many people have exposure to FTX?

It will take many months for us to find out.

Counterparty risk just went through the roof

After Lehman in 2008, global financial markets completely froze up.

If you don’t know whether your counter party is solvent, you will not trade with them on credit.

And as we explained above, much of the world runs on credit.

Remove counterparty trust, remove credit, and the whole system breaks down.

How will this end?

Crypto is new, so we don’t have much precedent there.

But financial markets have been around a long time, and this trick is as old as the book itself.

When you have a crisis of confidence like that, it almost always only ends when (1) the deleveraging plays out in full to wipe out all the bad debts in the system, or (2) a bigger player comes in to backstop the entire system.

(1) is immeasurably painful.

The kind of deleveraging required will set the crypto industry back many years.

Which is why in the real world you almost always never see (1) play out in full.

Someone almost always comes in to backstop the system.

In 2008, it was the Federal Reserve that stepped in with Quantitative Easing to bail out the system.

Don’t forget that it was 2008 that gave birth to things like SDIC insurance on bank deposits – as governments struggled to find a way to rebuild confidence in banks.

Crypto has no central bank or government…

Unfortunately, the whole premise of Crypto is decentralisation.

Decentralisation, means no central bank, no government that can come in and backstop the whole system.

Without a backstop, how do you end a crisis of confidence and deleveraging spiral?

And frankly, I have no easy answers to that one.

I suppose the logical answer is that the deleveraging will continue to play out, until most of the bad debts are cleaned out.

But how much bad debt is in the system?

Frankly nobody knows.

Any systemic risk to the broader economy?

The events of the past 12 months have shown that you can have contagion in Crypto, without it spreading to the rest of the traditional finance industry.

So if you ask me, base case I would say the FTX contagion will be largely contained to Crypto.

But do I rule out systemic risk to the broader financial markets?

Absolutely not.

But take a step back…

But here I encourage you to take a step back.

What are the factors that led to the blow-ups in crypto this year?

A bubble inflated by rock bottom interest rates, and unlimited QE from the Feds.

Burst by the tightening of liquidity, that led to deleveraging across the crypto complex, eventually unveiling who was “swimming naked”.

Now think about traditional finance.

We had 40 years of declining interest rates. We had 15 years of rock bottom interest rates and QE, and we had QE infinity the past 2 years.

And now the tide of liquidity is going out. Interest rates are going to 5%.

What will happen to traditional finance?

Closing Thoughts: Does this rally have legs?

CPI report this month came in dovish, sparking a massive rally in risk assets.

Frankly, this was not unexpected.

We all knew that inflation would come down at some point, as rising rates kick in.

Now does this rally have legs?

Yes possibly.

After a big move like what we saw on Thursday, it usually forces money on the sidelines into the market, and as we blow through key technical levels on the way up, this market could run quite a bit in the months ahead.

To the point where you may even see market participants calling this the start of a new bull market.

Keeping interest rates at 5% is not bullish…

But like Powell said, the question now is less on how quickly rate hikes go, but how high they need to go, and more importantly how long they need to stay there.

While the Oct CPI was an encouraging first sign, we will need more before a Fed pause.

And that’s only for a Fed pause.

What do we need for Fed rate cuts?

I wrote a long post for Patreons this week on how to play the Fed pivot (and China reopening). Long story short is that there is the playbook that worked for the past 40 years. And another playbook to run if inflation is going to stay sticky.

How to trade this when the pivot does come, will depend very much on where inflation is at such time.

Will the Feds succeed in controlling inflation expectations, or will they fail to do so.

What you buy in each scenario is quite different.

You can check out my full views on how to play this, and target prices for Stocks / REITs on Patreon.

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  1. Hi FH,

    Though I have never dabble in crypto and know nothing about crypto, I find your article very informative and serves as a good cautionary tale to retail investors. Hope your losses are not substantial. I have seen many talented financial bloggers giving up blogging after incurring big losses in investment. Keep the faith and keep it going.


    • Thanks Gerald, appreciate the kind words. Yes I am properly sized so the loss as a % of my investment portfolio is not significant. Dollar value wise it still hurts though.

      But in any case, will move on and emerge stronger. Opportunities in markets are endless, there is always a chance to make it back and more when you live to fight another day.

      Will continue doing my best to contribute to the community, cheers.

  2. Great explainer FH!

    Was wondering what your thoughts are on risk taking post the surprisingly lower US CPI. Once off or the start of a down trend?

    Would this be your signal to add? Or are you sticking to your guns and waiting to see more. If I recall you were waiting for 1) clear fall in inflation 2) fed pivot or 3) something breaks in the system. Not sure if you think 1) has been triggered? After all one swallow does not a summer make.

    My initial thoughts are. Probably ok to go long treasuries now; via TLT ETF or something similar. A little more hesitant on equities because demand driven inflation slowing is not good for equities as it means a likely recession which is bad for earnings. So my bias is to trim some equity risk using this rally to up more cash positions more. I think oil does fine. Metals and big tech not so. Banks and REITs maybe but biased downwards into a recession as well. Not sure if I’m right and I could be just using level 1 thinking and missing the next big rally 🙂

    Gold’s rally is interesting and it strikes me that it coincides with the FTX meltdown. With big name instis involved this time; I think faith in crypto might have been Severely shaken in the insti crowd. And there might have been a reallocation towards gold. Just a hypothesis as i can’t verify.

    • Thanks Moomoo for the kind words as always. Good qn, been getting quite a few on the CPI so I might do a fuller article next week on this.

      I think it is fairly clear that inflation is peaking as higher rates transmit into the economy. But I think the better question is whether inflation will come down to the point required for the Feds to pivot.

      Let’s put it this way – if inflation averages 4-5% in 2023, will that be sufficient for a pivot? And if yes, what is going to happen to inflation expectations after that?

      Markets are pricing in a soft landing approach where the Feds can avoid a deep recession, while containing inflation. I’m not sure if that is realistic.

      I think before all this is over, the Feds are going to be forced to choose between (1) avoiding a deep recession or (2) giving up the fight on inflation. And which way they lean has massive implications for long term asset allocation.

      So to answer your question on asset allocation, much will depend on the question above. Without knowing the answer to that, we can only answer the short term, but not the mid term picture. Markets are frontrunning the trade as they always do (as they have done 3 times this year) but whether this time is correct remains to be seen depending on the answer to the qn above.

      Sidenote on Gold – I dont see it as related to FTX, and more due to the USD selling off. The past 12 months have shown that crypto contagion can be decoupled from tradfi.

  3. Dear FH
    Cautionary tale indeed. CC are always a big risk and I have thankfully stayed away all along except for a micro minuscule “experimental” exposure to Coinbase shares – needless to say, has lost 70% of its value! Am not surprised and I wanted to “earn this loss” so that my original stance of CC being uninvestable, is vindicated.
    You are right, the chances are that contagion spreading to the financial markets cannot be written off
    The reasonably strong correlation between the QQQ and BTC, that was seen in the first half of 2022, is now completely gone. This, in my opinion, is a welcome and important trend.
    Widespread liquidation of CC assets and BTC sinking below 10-12K, might exert some pressure though as people might sell equities to meet their obligations
    Overall, this will not change things from the equity markets perspective hopefully
    As regards the rally, it is likely to strengthen . Peace talks are being planned in Europe. Putin might grasp the opportunity to Dave face and save himself!
    Technicals wise, we are hardly 90 odd points lower than the SPY 200 DMA. If this gets taken out this week, as I do expect , we will rally till year end and 4200-4400 is feasible
    The ten year is crashing and the Dollar index is on the verge of falling below technically relevant 105/106 zone. The only thing that can hurt this rally is
    – A surprise higher CPI Dec print
    – A big oil price spike after Dec 5 when EU sanctions kick in
    – Putin upping his ante after rejecting peace overtures, if at all they are made
    The probability of one or more of these three happening are perhaps only around 30% at the maximum
    I am adding slowly and steadily and am cautiously optimistic

    • Thanks Garudadri, interesting comment as always!

      Agree on Crypto and QQQ breaking the correlation, funny that all it took for that to happen was the exposure of fraud.

      On the rally – while I may agree in the short term, I think the jury is still out on the mid term. The problem with a Fed pivot this early is that it remains to be seen what are the impacts on inflation – will it come down or not?

      So yes, I don’t deny that you could be right, but I think it is too early to make this call. If the Feds pivot and fail to control inflation for good, the market will sniff it out and you may see long end rates and inflation expectations jump. Which means you need to run a very different playbook than if the Feds pivot later and successfully contain inflation.

  4. How is this a Lehman moment? Does it hurt the broader US and global economy ?
    Crypto is basically quicksand, leverage upon leverage, bound to collapse. Crypto, high growth tech all crashed, basically DotCom 2.0 all over again. History never repeats but it rhythms. Human nature doesn’t change. Fear and greed are what drives the market. When u see exuberance , just make sure u sell near the peak cos what goes up too fast will come down just as fast. Buffett is right : crypto’s are rat poison. You wouldn’t know all the sh*t behind the scenes. No one can fully understand . Best to stay away.

    • No I meant it as a Lehman moment for Crypto. As shared in the article, base case is for contagion to be contained to crypto, but of course not able to rule out broader impacts.

  5. Dear FH,

    Thank you for another thought provoking article.

    You may not remember but a couple of years ago I said in this forum that I struggled to see any underlying value in cryptocurrencies. That is still my position.

    I personally see the collapse of FTX as a good thing for financial markets as it removes some of the speculative froth that has bedevilled investing in recent years due to central banks keeping interest rates far too low.

    Best regards.

    • Thanks for the kind words Eric, appreciate the sharing.

      With the events of the past 12 months, you might just be right!

      That said, I still believe in the potential of the blockchain technology, and the idealogy behind decentralisation.

      As for the tokens themselves – I think they are best viewed as a long dated OTM call option. Sure, there’s a good chance they go to zero, but also a chance they don’t. It’s the assymetric risk profile that is attractive – downside limited to the cost of the option, upside potentially much higher.

      So for investors with the right risk appetite, and can size them well, they may still have a role in the portfolio.

      That said after the events of this week, it might take quite a while for crypto to recover, confidence has been shattered and it will take years to recover.

  6. Much obliged to you for one more intriguing article.

    You may not recall however two or quite a while back I said in this gathering that I battled to see any fundamental worth in digital forms of money. That is as yet my situation.

    I for one see the breakdown of FTX as something beneficial for monetary business sectors as it eliminates a portion of the speculative foam that has beset putting resources into ongoing years because of national banks keeping loan costs very low.

    Best respects.

  7. Hi FH,

    Could I ask where you are putting your BTC and ETH investments then? (I’m assuming you have them). I have some (~$3k) in Gemini but thinking if I should transfer them to hot/cold wallet?

    • Funnily enough I still hold most of them in a hot wallet, but I should probably transfer into a cold wallet.

      But I have already withdrawn all my cash from all exchanges, you dont want to be taking counterparty risk right now.

  8. Hi FH,

    I think one needs to separate utility of blockchain vs utility of crypto.

    Blockchain certainly has utility e.g. cold chain monitoring, central bank digital currencies etc.

    Crypto has shown itself in the last 2 years to be devoid of utility and purpose. All the claims by proponents have been proven wrong.
    – hedge against inflation and devaluation of fiat currencies – nope, didn’t work in highest inflation in decades
    – store of value – nope, crashed like a rock in times of uncertainty
    – decentralized freedom from tyranny of central banks and financial system – nope, didn’t help the Russians much
    – medium of exchange – nope, higher transaction costs than fiat and can’t buy much with it except overpriced cartoons of monkeys
    – super secure system- nope, hacks being reported all the time, latest one with FTX.

    So, what is crypto useful for except as a source of speculation? Beats me. It is not an option with high upside and fixed downside, rather it is an option for limited upside and pretty high downside at today’s prices.

    Will crypto collapse cause contagion effect on real world financial stability? Highly unlikely. At its peak, crypto market cap was 3T, today it is 850B. Down 2T with hardly a splash on the real world. The remaining 850B can go to zero with no impact on the real world, no problem. This would be less than the market value lost by Meta alone. Crypto today is too small potatoes to make a difference.

    2 years ago, I think one could still say there was a chance that crypto would be the new digital gold. Today, I think this has been proven to be a fantasy and it is only a matter of time before it becomes irrelevant and people move on to the next get rich quick fad.

    • How did you so simply separate the utility of blockchain vs utility of crypto? You literally need to use Ether to pay gas fees to develop apps on the Ethereum blockchain, for example. The fact that the rest of the world (who actually knows next to nothing about the technology) went to speculate on Ether’s fiat value for a get rich quick scheme doesn’t change the blockchain’s potential, nor does it separate Ether from Ethereum. Feels like you’re just preferring regulated vs unregulated, that’s all.

      • One does not need to use the Ethereum blockchain to make use of blockchain. Any company can set up their own limited need specific blockchain just like everyone and their grandparents have issued their own crypto backed by thin air. Company created blockchains don’t even have to be public to have utility.

        • Of course one does not need to. I am just citing Ethereum as an example. You don’t think that’s a fair example if one is interested in investing in the actual blockchain technology? I mean you know, it’s only by far the most prevalently used right now.

          Feels like, again, you’re just saying it should be regulated. And to be frank I’m fully with you on that. But regulated or not, it’s incorrect to somehow call Ether/Ethereum as “crypto”, “devoid of all utility and purpose” (what!?), and just a “get rich quick fad”, and the much more undeveloped networks as “blockchain technology” simply because they’re some project of a central bank.

  9. To lump all of “crypto” together, both the Ethereums and the Dogecoins, and label all of them as completely devoid of potential and purpose, yet talk of “blockchain” as “certainly has utility”, is just nonsense.

    I’ve seen your comments over the years, CMC. Your views on the traditional market are truly brilliant, and I respect you for that. But as are Warren Buffett’s. The difference is you have many more years ahead of you.

  10. And it would do yourself good to be just a tad bit more open minded than him. What happened in the past 12 months was always necessary in the space. Much like the dotcom bubble, you weed out the memes and the scammy shit, the bubble bursts, and then the real technology names (hopefully) emerge. There will be some regulation, which is a good thing, and then we’ll see what happens. He’s not even calling it growth investing. He’s just calling it a long dated OTM call. I don’t see what’s wrong with that.

  11. Hi Zach,
    Interesting comments…hmm, how do you know I have many more years ahead than Warren Buffett, maybe I am as old as him? One never knows on the Net 🙂

    Anyhow, to each his own, debate helps clarify different viewpoints and hopefully arrive at a better answer.

    I actually have no view on whether the space should be regulated or not because I don’t ascribe any real world value to crypto. The Ethereum ecosystem may be the most well developed but I have yet to see any large scale real world impact of anything developed there and future useful developments in Blockchain could occur independent of this or any other existing ecosystem and thus not rely on Ether or any current crypto. There are many who view crypto as essentially worthless including Buffett, Jamie Dimon, Ray Dalio, Larry Summers etc. Maybe they are all old fogies who don’t “get it”. But maybe they are right. The events of the last 2 years make me think they are. Of course, one never really knows and we could all be wrong.

    Nonetheless, it is sometimes useful to take a step back, especially if one is already invested, to see if one’s original reasons for making an investment still hold true. As I mentioned in my first post, 2 years ago, I was uncertain if crypto made sense. 2 years later, I struggle to see the utility. Yes, on the margins, if one says to participate in a particular blockchain ecosystem, maybe, but then maybe it should be simply pegged to fiat like USD to reduce volatility. But if all crypto is pegged to fiat, then what is the point? In fact, from a productivity standpoint, it is incredibly inefficient to have multiple ecosystems using different transaction currencies.

  12. No worries. And happy to discuss openly. To be clear, I am not saying crypto and blockchain technology is for sure the future, nothing like that, so please don’t take me as a crypto fanatic. I run a very diversified portfolio with less than 1% in crypto, which I do see as a long dated call option where it either take offs, or it simply doesn’t work out. In fact I am not convinced about decentralized finance at all. I think finance is better centralized. So all that stuff about crypto as a global transactional currency, store of value like gold, what’s the hell’s the point if crypto is pegged to fiat, etc etc – I’m totally with you. I do think Web3 has some promise if they get around its big issues, but not defi. It’s still too early to tell.

    But I’m actually not commenting about your view on crypto being worthless. As per above, I myself am on the fence for that. What I’m instead commenting about is the inconsistency of you calling the decentralized blockchains worthless (and basically rat poison), but then somehow in the same line declares that the centralized blockchains “certainly has utility”. Wow. Is that a little old school and boomer? Yes. And a little Singaporean maybe. It’s as if the young independent creators and developers have zero hope of any useful contribution to the world and are just using Ethereum to play pointless NFT games, and we need the government and mega corporations to handhold us into something that has a real use case. And I’m not even going to talk about the part where you somehow separated the concepts of cryptocurrency and blockchain, where one is worthless, and one isn’t. What.

    And on to the last point on investment thesis. Since when was crypto’s use case a 2 year story? Were you expecting in 2020 that in 2022 we’ll already be using Ethereum smart contracts to access data and run the internet, and for P2P smart contracts to take over GIRO for our bills? Are you talking about purely the investment side of things like how Bitcoin is the new gold and all that stuff? Because I thought all along we were talking about utility here. If you had thought the utility part of it was a 2 year thing then your original thesis back in 2020 needed some work and I am not surprised you are disappointed.

    • Great discussion – I don’t think there is a right or wrong answer here.

      Many people have pointed out the issues with crypto. While on the flip side the technology has potential.

      Agree that one way of seeing it is the dot com bubble. It is clear there is a lot of speculation, leverage, and fraud. Most of this needs to be washed out, and is in the process of playing out.

      But rightly or wrongly – I still see this as a technology with the potential to change the world.

      What exactly is the use case is not very clear for now, but I do believe in the next decade or two it will gradually become clear.

      My own suspicion is that blockchain technology will become useful when there is loss of faith in centralised approaches because of potential abuse. This could come to the forefront if central banks continue to make mistakes in the handling of inflation and money printing this decade. But while finance is the most obvious use case, I don’t see it as being limited to finance.

      That being said, the success of blockchain =/= the success of bitcoin / ethereum. Blockchain as a technology can succeed without bitcoin / ethereum necessarily taking off.

      Which is why I still view this as a long dated OTM call.

      Maybe it works out, maybe it doesn’t.

  13. Reading your comments again makes me think you’re basically lumping the entire crypto space as just Bitcoin and its uses, and ignoring all the other technology that has come our way since then. Correct me if I’m wrong. No issues just wanted to check what page we’re each on before we discuss further.

    • Actually, I haven’t said anything about decentralised blockchain being worthless if you read my comments carefully. I said that blockchain has utility without comment on whether it was centralised or decentralised. Certainly, I expect the utility of blockchain to mature more in 20 years than in 2.

      What I did say was that I did not see crypto and blockchain as one and the same and that I do not see the utility of crypto as a currency which is what it is synonymous with now. The word that comes after crypto today is almost always “currencies”.

      As such, I do not see the value of buying crypto given it is a very expensive option. We can agree to disagree on this point. I shorted Bitcoin at 23K and am glad I did.

  14. Yup I am fully aligned that Bitcoin or Ethereum may not be what eventually takes off given their limitations, which is why even within the space, one needs to diversify one’s bets. Was just using Ethereum as an example as it’s still the dominant use case blockchain today and a great backbone for others to try to improve on. Declaring it worthless because of a lack of meaningful large scale adoption after just two years of observation, yet somehow ascribing worth/potential in some unnamed central bank blockchain, is like just super biased.

    And let’s just be clear. If anyone wants to have a discussion on utility, let’s discuss the technology itself. Let’s discuss scalability. Let’s discuss speed. Let’s discuss fees. Let’s discuss consensus mechanisms. We can then say whether it has potential or no potential. Let’s not say “hey it did not hedge us against fiat inflation in the past two years” and therefore conclude that the entire crypto space has no utility. That’s not the utility.

  15. This site’s comment function really needs some work. Despite refreshing the browser, I keep posting comments before I read the latest ones. Apologies.

    CMC – If you’re just saying crypto has no utility as a “currency” for real world transactions, then we’re much closer in view, though even then I still don’t think you should conclude that after just 2 years. Gold has practically no real use case and yet it has retained value, but that’s over 5000 years of confidence. (and no, wearing it to display one’s wealth is not a use case)

    Some background: The word “cryptocurrency” is basically a misnomer that got stuck thanks to the very initial concept behind Bitcoin and its use case as a gold-like, decentralized transactional currency. Today, there are lots of “cryptocurrencies” that are really not “currencies” at all. Take Ether for example. In layman terms, Ether is designed as an incentive token to pay for the work done by individuals who validates the transactions done on the Ethereum blockchain ledger. The process of paying validators is called “mining”, which today is also misunderstood because one would typically associate “mining Ether” as a “get rich quick fad”, but really what you’re doing with mining is to help validate transactions on the network thereby ensuring that the blockchain functions. The blockchain itself is used to develop apps and smart contracts, whether it’s for finance, data storage and retrieval, gaming, NFTs, paying for your kid’s school fees, and whatever future use cases. People who wish to develop these apps also need to pay in Ether as transactional fees known as gas fees. So Ether is not really a “currency” for you to buy real world items or hedge inflation, but more to use/sustain the network.

    Next we have USDT, which is a stablecoin/cryptocurrency that behaves more like a traditional currency obviously, but it doesn’t actually have its own blockchain. A lot of USDT actually runs and transacts on the Ethereum blockchain, so the school fees you’re paying is probably not even in Ether but in USDT. But mining for Ether validates your USDT transaction to the school. USDT is backed by fiat USD, but is able to transact digitally between you and your kid’s school without the need for an intermediary, via the Ethereum blockchain, a transaction that’s paid for in Ether gas fees validated by Ether miners.

    Now, with this simple example you can already tell the difference between Ether and USDT, two crypto “currencies” running on one blockchain, and yet they have very different utilities. It also answers the question “what’s the point of having crypto backed by fiat”. And although it’s very likely the Ethereum blockchain’s protocol described above is unlikely to scale into real world applications for various reasons I shall not describe here, its technology has become synonymous with its “cryptocurrency” due to the mining and validation process. It’s not a “currency”. It’s not a store of value for you to hedge inflation. It’s a blockchain technology that has potential but the concept has scalability issues.

    So to call Ether/Ethereum worthless in utility, but to call blockchain technology in general as having utility, just makes no sense. This literally is the technology today.

    And this is just one example. The info is available everyone online, really, including yourself and Warren Buffett. Anyway, it’s been a good discussion. Good night.

  16. This is just one example. There are other examples like Solana, Cardano, and whatever else that has different protocols. Some are scams sure, like how Luna and Terra is just a ponzi. But so were many fake tech companies in the 90s before the dotcom bubble.

    To me, this has potential. Blockchain technology has potential. You wanna invest in the potential of Ethereum? You buy Ether itself, because as the blockchain is adopted more, the value goes up due to demand for Ether to pay for the gas fees, but as I said, scalability issues.

    Tell me one central bank that has so far developed a better blockchain protocol. You can’t. Yet you called Ether worthless in utility and central bank digital currency as having worth. This was why I called you out on preferring regulation/centralization. But now I see that you’re only talking about the currency/store of value part of “utility”.


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