Alameda, FTX, Silvergate discussed on The Breakdown

The Breakdown


Dubious relationship between FTX and Alameda. Basically, the issue is that Sam during his extensive PR tour has been saying that before FTX was able to get its own banking relationships, it would have exchanged clients send money to Alameda instead. In a regulatory filing on Monday, silvergate acknowledged that it had processed wire transfers for Alameda. Silvergate CEO Alan lane is basically pushing back saying that whatever the intent was from Sam and co, Alameda had bank accounts with them, so when they got payments to Alameda, they processed them in credited to those accounts at Alameda. In other words, to the extent that these were FTX clients that should have gone to FTX accounts, that's FTX job, not silver Gates job. At least that's the claim that Allen lane seems to be making. Still, some aren't content with silver Gates answers to questions around due diligence. Count markets among those as silvergate stock prices down 84% this year and around 50% since all the FTX revelations came about compared to 23% in general for banks. Politicians are also getting up in this right now. Yesterday, senators Elizabeth Warren and John Kennedy, as well as congressman roger Marshall, wrote silvergate a letter demanding some answers. The letter cuts straight to the quick of the $10 billion of customer funds transferred to Alameda and what silver Gates potential role was. From the letter, quote, mister bankman fried has himself admitted that FTX customer funds were improperly transferred to Alameda's bank accounts. When asked how FTX customer deposits ended up in Alameda's accounts, mister free told vox that the company did not originally have a bank account, and so it directed customers to wire money to Alameda's account with silvergate in exchange for assets on FTX. According to mister bankman freed, executives at the company quote forgot about the scheme until the company imploded, telling a reporter, quote, it looks like people wired 8 billion to Alameda and oh God, we basically forgot about the stub account that corresponded to that, and so it was never delivered to FTX. Silvergate provided banking services to both Alameda and FTX, raising questions about the bank's role in facilitating the improper transfer of FTX customer funds to Alameda. quote some FTX customers continue to send wire transfers to Alameda silvergate account as recently as this year. It appears that silvergate did nothing to halt these activities. Simply put they write later, Alameda's depository account with your bank appears to be at the center of the improper transmission of FTX customer funds. Now where this led the congressman and senators, who was a set of questions. Were you aware that FTX was directing its customers to wire money to Alameda's account with your bank? Did silvergate flag a suspicious the movement of funds to Alameda accounts or between Alameda accounts and FTX or FTX affiliate accounts. Before November 11th, 2022, were you aware that Alameda research LLC was a distinct company from FTX and its subsidiaries. Has silvergate ever undergone an independent audit of its BSA anti money laundering compliance program. Did silvergate have any communication with representatives from Alameda FTX or FTX affiliated entities regarding concerns about the transfer of funds into silvergate. Et cetera, et cetera, et cetera now I'm certainly not jumping on some screw silvergate bandwagon. There are plenty of people there already, including short seller Mark cahoots, who is one of the loudest voices calling out SPF for months. Still, silvergate has been one of the only banks actually willing to take the risk of banking crypto companies, and I'm going to be pretty pissed if they didn't behave improperly and get caught up in Sam's fallout. However, to the extent that they helped perpetrate the fraud, this really does need to be investigated, no matter how unpalatable or unfunded it seems. All of this continues to leave crypto in a very liminal in between moment. The industry is waiting to see justice served to Sam. But it's also waiting to see whether other institutions will fall. DCG and genesis are high on that list of WTF is going on. But in the vacuum there is emerging a clear category of winner and I'm not talking about binance, although clearly they're the last exchange standing when it comes to inside the industry itself. Know that likely winner is trad 5. That was reinforced today when Reuters reported that Goldman Sachs is planning to spend tens of millions of dollars to invest in or buy outright crypto companies that are newly repriced, let's say, in the wake of MTX is collapse. Matthew McDermott, who's Goldman's head of digital assets, told Reuters that FTX is implosion, has heightened the need for more trustworthy, regulated cryptocurrency players, and big banks are seeing an opportunity to pick up business. In an interview McDermott said, quote, we do see some really interesting opportunities priced much more sensibly. On FTX, he said, it's definitely set the market back in terms of sentiment. There's absolutely no doubt of that. If the X was a poster child in many parts of the ecosystem, but to reiterate, the underlying technology continues to perform. Now, as of this recording apparently, the firm is doing due diligence on a number of different crypto firms, although they didn't specify which. So I think there are a few ways to look at this. The first is obviously as a vote of confidence, and Reuters itself sort of nails his angle, saying, while the amount Goldman may potentially invest is not large for the Wall Street giant, which earned $21.6 billion last year, its willingness to keep investing amid the sector shakeout shows its senses a long-term opportunity. Second, I think that this does show a trend but not a ubiquitous one. On the trend side fidelity recently opened retail crypto trading for both Bitcoin and Ethereum. Fidelity is one of the largest asset managers in the world and this is a huge vote of confidence. Of course, plenty of skepticism still remains. Morgan Stanley CEO James Corman said at the Reuters next conference on December 1st, quote, I don't think it's a fad or going away, but I can't put an intrinsic value on it. The HSBC CEO told the banking conference in London that they have no plans to extend into crypto trading, and Jamie Dimon was on CNBC today telling them that crypto was just pet rocks and that they spend way too much time on it. Still, it's certainly seems like trad fire is likely to become one of the winners. Again, from Reuters, quote, the ripple effects from FTX collapse have boosted Goldman's trading volumes, McDermott said, as investors sought to trade with regulated and well capitalized counterparties. He said what's increases the number of financial institutions wanting to trade with us. I suspect a number of them traded with FTX, but I can't say that with cast iron certainty. Goldman also sees recruitment opportunities as crypto and tech companies shed staff, although the bank is happy with the size of its team for now. Now that same piece also suggests that some institutions that hadn't gotten into crypto yet are now looking at it because their customers are just over doing business with crypto native institutions. The Britannia financial group said that it's now building out cryptocurrency related services. CEO Mark Bruce told Reuters, quote, we have seen more client interest since the demise of FTX. Customers have lost trust in some of the younger businesses in the sector that purely do crypto and are looking for more trusted counterparties. So the question that I want to pause it to you is is this a problem? Or is it just unreservedly good? I think the answer is of course it depends. On the one hand, it's hard not to be gratified that in a world where many antagonistic voices are calling for the end of this whole experiment, there are still big firms taking a big picture view and investing for the long term. Relatedly, I think there's a fairly good argument that for citizens of countries with sophisticated banking and investing infrastructure, try 5 brokerages and platforms were always going to capture the mainstream. So this might have just accelerated the inevitable. On the other hand, there are challenges with having this category of actor take the pole position in the industry. They are clearly more focused on compliance and integrating with the existing system than in challenging that system. This could lead to very different priorities. For example, fidelity launched their retail trading product without the ability for customers to withdraw and self custody assets. There's also the question of how synthetic products around Bitcoin undermine and supply limitations. If everyone can just play financial games without ever actually having exposure to the underlying Bitcoin, does that diminish the value of its 21 million supply cap? This is something that folks like Caitlyn long have warned about in the past. And the fact that when all was said and done, FTX had zero Bitcoin on its balance sheet, suggests it's already a problem. Now, I do believe that this was sort of a problem that was always going to happen and it has just been accelerated, but that doesn't mean it's not a problem. This is something that Ben hunt from epsilon theory has discussed quite a bit. He wrote multiple pieces on this and yesterday said, if you don't see that the crypto quote unquote industry has become just as blindingly corrupt as the traditional financial services industry, it was supposed to replace, well, you're just not paying attention. What made Bitcoin special is nearly lost and what remains is a false and constructed narrative that exists in service to Wall Street and Washington rather than in resistance. The Bitcoin narrative must be renewed. And that will change everything. Now, interestingly, on December 16th, 2020, as the last bull market was just getting up and running, I had human rights foundations Alex gladstein and Ben hunt on the show to debate will Wall Street ruin Bitcoin. Ben argued many of the same things he has argued around Sam over the last 6 months, even back then, although obviously in general at that time. He argued that Bitcoin was going to become just another financialized plaything for the already rich to extract value from. Gladstone's counterpoint was that even if that happened, it didn't change the value of Bitcoin as a transportable censorship resistant, hard to seize asset for people living under autocratic rule or in turmoil, conflict, et cetera. It's a really good conversation and I suggest you go back and listen. Like I said, December 16th, 2020, will Wall Street ruin Bitcoin with Ben hunt and Alex gladstein. I was reminded of it today thinking about all this, but especially when I saw a tweet from Troy cross. He wrote, do I want to live in a world where krugman Wall Street are laughing off Bitcoin? The EU and U.S. governments are trying to curb mining and mute demand through regulation while we see grassroots adoption throughout Africa, Latin America, Southeast Asia? Yes, yes I do actually. And I think that that speaks to the redemptive side of all of this. The question of whether, even Bitcoin getting caught up in these financial games. In markets like the U.S., can on a fundamental level undermine what it's valuable for in the places that need it most. There's a lot that we could discuss around that, but we are so short right now, an optimistic thoughts that that's one that I am going to hold on to. For now I want to say thanks again to my sponsors next to IO, circle and kraken, and again today, crypto watch for supporting the show, and thanks to you guys for listening. Until tomorrow be safe and take care of each other. Peace

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