Bankmann, fried | Finance times

good morning. At the time of the submission, the results of the US intermediate elections were in the air. As noted a week ago, the decisive effect will be a decline in deficit editions and thus (over time) of the corporate profits if the Democrats should lose control of the congress. A shared government and lower expenses would also be anti -inflationary and should contribute to lower interest rates and support the shares. But the great story will remain how companies wean themselves from the generosity of the government, which was an absolute gold pit. Send us an email: robert.armstrong@ft.com and ethan.wu@ft.com.

ftx/bony

uff:

The industry for digital assets was shaken by the sam of Sam Bankman-Frieds Ftx, one of the greatest crypto bonds, which concluded a rescue agreement with the arch-rival Binance after an increase in customer withdrawals had triggered a liquidity crisis.

How did Sam Bankman-Fried from the Savior of the Crypto Industry to be saved? As far as we can judge this, things ran like this:

• Last Wednesday, Coindesk published an article with information about Alameda, a crypto hedge fund and market maker owned by Bankman-Fried. The article states that Alamedas contain $ 14.6 billion in assets $ 5.8 billion of a crypto token called FTT.

• ftt is the in -house currency for trading with FTX. Customers who use FTT as a trade medium receive discounts on stock market fees and other extras; For the company, FTT promotes trade, which means more fees. Think of carnival embroidery, but without a fixed exchange ratio. Instead, FTX supported the price of FTT with weekly return purchases.

• Alameda's stocks on FTT are worrying for three reasons.

  First: The tokens seemed to the majority of Alameda's equity (the fund denies that the balance sheet comes from a subsidiary). The solvency of a hedge fund should not depend on a carnival sticket that was invented to facilitate trading on a stock exchange that is owned by the same person as the hedge fund and which derives all of their value from it. This is circular and creepy and probably not sustainable.

  second: $ 2.2 billion of the FTT of Alameda were pledged as security for loans (again, alameda Competitions ). Carnival cards that are supposed to make trading on a stock exchange should not be pledged as security.

  third: The most important thing is that the market value of FTT-TOKEN that is actually used for trade is about $ 3 billion; Alameda's stocks were much larger than the entire traded market. And on top of that, the market looks thin. According to the cryptodata company Messari, only a few hundred crypto addresses actively act. The result is that Alameda could hardly sell FTT worth $ 2.2 billion or even a significant part of it without hunting the market. Under these circumstances, a large margin call can be fatal.

• On Sunday morning, Changpeng said "CZ" Zhao, the head of Binance, tweeted. to liquidate in our books ”. Was CZ careful or tried to drive a rival into the dirt? Unclear.

• Shortly afterwards, Caroline Ellison, CEO from Alameda, reports Twitter is ready to defend it for 22 $ per tok buys. The FTT will stay at this level by Monday evening.

• At the same time, the noise around Alameda and FTT FTT FTX customers seems to be scared. They start to withdraw money and the FTT falls to $ 17 late Monday. SBF reports to the FTX employees that net withdrawals of $ 6 billion were recorded in three days; Dozens of millions a day are the norm. In early Tuesday morning, FTX seemed to have exposed the withdrawals. Immediately afterwards the FTT began to collapse; It is now at $ 5.

• on Tuesday morning at 11 a.m. everything was over. Bankmann-Fried das tweeted The sale to Binance "will eliminate liquidity bottlenecks; all assets are covered 1: 1". In return, Binance makes FTX customers a whole.

• late on Tuesday, cz Tweets : "Two large lessons. 1: Never use a token you created as security. 2: Borrow nothing if you operate a crypto business. Do not use capital" efficiently ". Have a big reserve. " A round of honor?

We would not be surprised if it turned out that this summary requires a serious change. Many important facts are missing or are difficult to confirm. Several big questions remain open:

• What was that "crunch"? Twittered Bankman-Fried on Monday that "FTX has enough to cover all customer stocks. We do not invest any customer funds (not even in treasuries). We have edited all payments. The tweets were deleted. But if FTX had enough cash, why did it have to sell? Were the tweets untrue? Maybe it didn't have enough or what it had was not cash. Or, as Matt Levine from Bloomberg proposed, could it be that FTX had more liabilities than just customer deposits and they were requested? Providing the customers of a leverage, as FTX does, often means that they borrow something themselves. If these loans are all terminated at once, they are in trouble.

• Who are Alameda's counterparties? ? According to the balance viewed by Coindesk, the hedge fund had credit liabilities of $ 7.4 billion. A good part of the collateral for these loans consisted of FTT - which has now lost 80 percent of its value. Binance did not save Alameda. Is there a lender out there who maintains great losses, and who is that?

• will binance stuff the hole in the ftx balance? If this would be impossible, Binance would not have offered to save FTX. But the takeover offer gives Binance freedom of choice. It can withdraw if it thinks FTX is too insolvent to save it. In June, when it was busy saving the needy crypto groups, FTX refrained from taking over Celsius for this reason: the 2 billion dollar hole in its balance sheet was simply too great.

• How much will this make up for the crypto prices? Bitcoin tested new deep stalls yesterday and had fallen by 11 percent at the time of publication, which broke out of the incredibly stable span that it has kept since June. Nevertheless, the long -term price diagram looks okay:

The overall picture is that the most regulatory -friendly leader of Krypto was pushed by his base. Binance-a company against which the Ministry of Justice is investigating for weak money laundering security precautions-leaves his dismissal. The supervisory authorities could consider the unforeseen failure of FTX to be a lesson that even crypto groups that appear well managed and react quickly can implode.

At the same time, the Bitcoin maximalists and libertarians, who have always spoken out against Bankman-Fried's vision of relaxation with the regulatory authorities, have achieved an important victory. In the past few days they have been among the loudest voices that criticized FTX. The events of the past few days are a blow to the idea that crypto can be integrated into the financial mainstream. ( Wu & Armstrong )

a good reading

John Plender about William Cohan about Jack Welch.