In Hindsight, It Was Obvious
FTX blew up today. It may be getting bailed out by Binance but that agreement is non-binding. The next question is what will the Miami Heat's home arena be called now.
If you care to take a short break from any choice election coverage you may be enjoying this fine evening, another apparent crypto Ponzi collapsed today as major crypto exchange FTX saw its native token (FTT-USD) plummet by 75% on Tuesday. FTX, which was one of three crypto exchanges that famously purchased Super Bowl ads earlier this year, was just possibly given a mercy buyout by Binance - the largest crypto exchange (did not have a Super Bowl ad).
FTX is just the latest major blow up in the crypto industry since May; the most notable previous blowups from this summer were Terra, 3 Arrows Capital, and Celsius Network. And frankly, that doesn’t really do the 2022 crypto insolvencies justice. If we include Bitcoin miners in this discussion, we’ve also seen Compute North file for bankruptcy, Core Scientific (CORZ) and Argo Blockchain (ARBK) (ARBKL) appear destined to do the same, and Iris Energy (IREN) is defaulting on loans collateralized by its mining machines. 2022 has been a banner year for crypto.
Yes, sarcasm. But back to FTX for a moment, I don’t want to get into the entire story of what transpired over the last 48 hours because I already detailed much of it for Seeking Alpha this afternoon. If I can sum it up in a nice neat package as I see it; FTX guy pokes Binance guy, Binance guy finds out FTX guy’s pain point, Binance guy has ace up sleeve, Binance guy plays the ace, FTX guy loses badly. It’s a lot more complex than that, but again, I don’t want to re-write my article.
However, there are parts of the story that didn’t fit into that article that will almost certainly be included in the future Netflix documentary about the FTX collapse - it will be a must watch if you’re into financial drama like the show “Billions.” The story appears to have some element of bad blood between FTX founder Sam Bankman-Fried and Binance founder Changpeng Zhao. We may never know the whole story but I can say I have no desire to sit at a chess table on the other side of Changpeng Zhao after what he just pulled off over the last few days; a legitimate masterclass in eviscerating a competitor. CZ is a cold-blooded killer. And I say that with nothing but respect for the move.
Dot Com Bubble 2.0
In hindsight, it should have been obvious that many of these crypto firms were going to blow up. Almost a year ago to the day, I wrote about how the proliferation of crypto firms sponsoring sports arenas was likely a terrible sign. From that mid-November 2021 post:
I can't help but notice this seems a bit like the tech bubble all over again. It is well documented how many dot com era stadium naming rights deals went to absolute hell when the bubble burst. Even my beloved Patriots are the brunt of this joke with CMGI Field.
If only I had read and re-read my own words. Mid-November 2021 was the literal top of the crypto market and I was acknowledging a major warning sign in real time with not one but two NBA arenas landing crypto exchange sponsorships, yet I was still bullish because of silly models like Stock to Flow. Since then, just your casual 75% decline over a 12 month period.
Hindsight is always 20/20, of course. The best we can do is try to reference models and indicators that offer value and that don’t confirm bias. Perhaps like this one?
I suppose time will tell.
Disclosure: I’m not an investment advisor. I merely share what I do and why I do it. You shouldn’t take anything I say as investment advice and always do your own research when making investment decisions. Cryptocurrencies, tokens, STONKs, and digital trinkets could all go to zero. I have no job and I live in my wife’s basement. I’m the last person on the face of the earth who you should listen to for financial advice or life advice.