We can start this morning with some good news for holders of Bitcoin which is that it has bounced a thousand Dollars overnight to US $16,750. Of course in terms of the bigger picture that is also bad news as that level is way below where it was only recently. In terms of economic analysis we have seen a shrinkage in a type of money supply and combining that with the losses seen both realised and unrealised we have yet another deflationary influence on the world economy. This adds to what the central banks are doing. From today’s ECB monthly bulletin.
Bank lending rates for firms and households have increased further, as banks tighten their loan supply. Since February 2022, increases in bank funding costs have pushed up lending rates in all euro area countries, while credit standards have become tighter.
What has caused this?
The first issue is simply the rise in interest-rates I have just referred too. Out of those the main player is the reserve currency or US Dollar as that is what Bitcoin is priced in. In a crypto dream Bitcoin would have its own value but it has never really got anywhere near that. So it has faced a situation of being compared to a currency which has an interest-rate of 4% and rising. In a sense we are looking at a similar situation to the Japanese Yen we have looked at frequently. although the Yen has declined by 27% in 2022 as opposed to the 65% of Bitcoin. So there is more.
Binance and FTX
There has been quite a destructive dance going on between these two.
The Cold War between FTX’s Sam Bankman-Fried (SBF) and Binance’s Changpeng Zhao (CZ) went nuclear this week. Crypto was the biggest loser in the ensuing radioactive fallout. ( FT Alphaville)
Maybe the Inagine Dragons were right.
I’m breaking in, shaping up, then checking out on the prison busThis is it, the apocalypseWhoa
Somehow we end up with this.
Namely, it was fragile enough that the founder of Binance, a major competitor, could spark a market panic with a series of tweets. Those tweets reportedly led SBF to shop around for a new round of investments, and eventually forced him to go, cap in hand, to CZ.
Yes that is the same FTX which was run by this man. From Fortune magazine in August.
Exclusive: 30-year-old billionaire Sam Bankman-Fried has been called the next Warren Buffett……..In 2019 he founded crypto exchange FTX, hailed by some as the best derivatives platform ever built.
Fortune have taken a beating for this but we are fair on here so I will point out they also stated this.
His counterintuitive investment strategy will either build him an empire—or end in disaster.
Actually he seems to have managed both and it is only early November. Life is sure fast in the crypto scene. Indeed it turned out to be fast in another way too.
The billionaire founder of crypto exchange FTX, Sam Bankman-Fried, has plans to give away the vast majority of his wealth thanks to the philosophy of “effective altruism,” which he learned in college.
Despite running a multibillion-dollar global crypto exchange, the 30-year-old drives a Toyota Corolla, lives like a college student, and has a goal of making as much money as possible so that he will have more to give away, according to Bloomberg.
That was from April although it was on the 4th not the 1st. How did he give it away? Not by conventional means. As FT Alphaville explains Binance/CZ ended purchase negotiations with a volley of torpedoes.
But Binance only signed a “non-binding LOI”, or letter of intent. And the now-indisputably preeminent crypto exchange very publicly walked away from the deal with a killer parting shot:
“As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com.”
Regulation or not?
The story takes another twist because we have become used to the lack of regulation and hence official meddling has been one of the perceived strengths of the crypto world. Right now the idea of them being a safe haven has had better times to say the least and there is a particular irony.
FTX’s US platform is separate from its international exchange, as SBF said in his Tuesday tweets. He described FTX US on Twitter as “not currently impacted by this”, without saying whether “this” is the need for cash or the Binance LOI. FTX US also appears to be open for dollar withdrawals. ( FT Alphaville )
So the only investors who might be okay are doing so because they are in a regulated space. That is of course the opposite of the modus operandi of the crypto world. I would also add a so far to that as regulation does often turn out to have holes in it.
Also there is the issue of whether the actions of Binance are illegal? They certainly look illegal but which court do you prosecute in? No-one seems to have much idea.
Alameda
There is another leg to this story and it is in a way the beginning of the crisis.
Though it’s not obvious exactly how separate Alameda is from FTX. While CEO Caroline Ellison told Bloomberg that there is a “Chinese wall” to stop information sharing between Alameda and FTX, ( FT Alphaville)
Information maybe but money not so much.
Coindesk saw documents showing at least one part of Alameda held a very large amount of FTT on its balance sheet as of June 30, with $2.2bn in FTT held as “collateral”.
Ironically we are now in the world of off balance sheet vehicles and in a sense SPVs that the Euro area has loved so much. Essentially for the same reason that you can spin money around in a dizzying whirl. But of course the Euro area does have treasuries and taxpayers at the limit whereas the token world had this.
The report implied that FTX was able to effectively add leverage by issuing tokens to Alameda, because Alameda could then borrow against those tokens and redeploy the cash back on to FTX’s platform. But when the price of a token — or any collateral really — slides, a firm needs to put up more cash against its loans. ( FT Alphaville)
We are back to the adventures of Stevie V.
Money talks, mmm, mmm, money talksDirty cash I want you, dirty cash I need you, oohMoney talks, money talks
We see another irony as the crypto world built to escape US Dollars requires the very same as a rescue act. Then there is another problem as on the way up there is cash everywhere but on the way down it disappears and each Dollar seemed to need to be in at least 2 places at once. If the news that has just been released turns out to be true maybe a few more than 2.
JUST IN: Sam Bankman-Fried previously transferred at least $4 billion in FTX funds to support Alameda, including user deposits, Reuters reports. ( @WatcherGuru )
Comment
If we now bring this back to economics we see that we had an expansionary and inflationary influence from what was a type of international virtual money supply. Only a fraction of it will have been used but back last November when the price went above US $65,000 some will have spent their gains. But now we face a deflationary influence as losses replace profits as we are reminded that much of it was singing along with Imagination.
It’s just an illusion (ooh, ooh, ooh, ooh, ah)Illusion (ooh, ooh, ooh, ooh, ah)Illusion
I hear some of you saying where are Credit Suisse or Deutsche Bank? Well Alpaca can help a little.
In honor of Women’s History Month, we hosted a panel on Twitter Spaces with eight inspiring women in fintech and crypto.
Okay so?
Constance Wang: Hi guys. I’m Constance, I’m the CEO of FTX and the co-CEO of FTX Digital Markets…….. I joined Credit Suisse, but was totally bored in banking industry and moved to crypto two years later and joined SIM to build out FTX since the beginning of 2019.
Well she certainly wont have been bored at FTX as we see you can take the girl out of Credit Suisse but maybe you cannot take Credit Suisse out of the girl. This sounds right out of the Credit Suisse playbook.
The space is chaotic, and people didn’t know what they were talking about. I thought that was a chance for me because I didn’t know and you didn’t know, so yeah, I’m not so sure and a disadvantage. So that’s why I chose crypto
Notayesmanseconomics's Blog 
Yet another consequence of the endless interfering in markets by central banks and governments, due to ZIRP and interest rate suppression to keep their various housing and asset bubbles from bursting, pension funds have been increasingly going out on the risk curve trying to achieve the returns necessary to fund their liabilities, we spoke recently of UK pension fund managers having to resort to exotic highly geared instruments like LDI to make their targets, but there are many others, the Canadian Teachers pension fund($420bn assets) diversified into such things as buying Camelot – the extremely dodgy operator of our lottery – which has now lost its licence, and also it now transpires that they had an investment in FTX, the exposure is unknown at this point but it looks like it has all gone.
The current state of financial markets is very unstable and getting much worse, the more interference by central banks and government leads to more and more problems that require even bigger interventions that lead to ………. I’m sure you get the picture.
Unfortunately, central banks will never give up the hold and control they have over governments and their people, and as the crises unfold the people are entirely ignorant as to who is responsible, the situation is made much worse by the MSM portraying the resultant actions of the central bank or the government as being “the solution” when in fact they caused the problems in the first place – the arsonists showing up as the firefighters after the event if you like.
The latest inflation numbers are out in the US later today and should result in a massive move in the markets.
Hi Kevin
You were right about massive moves as a better than expected US CPI has seen the Japanese Yen rally by more than 5 big figures through 141. Even Bitcoin found a bid as it followed pretty much everything higher ( not the US Dollar obviously)
I see you mentioned a Canadian pension fund. Some might have thought it was only UK ones which were desperate for yield in the ZIRP era but there were always going to be others. I expect troubles for Euro area ones as they had NIRP for a sustained period.
As soon as you deposit your coins to an exchange they are no longer your coins, You get an IOU which is only as good as the company.
Best keep them in a cold wallet offline.
Hi Rzzr
I am sure a lot more people are aware of that issue now. That creates the danger of a run on the exchange which makes people more likely to want to leave. Which makes an exchange run even more likely…..
Great blog as usual, Shaun.
I don’t really follow the cryptocurrency market since it seems to be so complicated and the prices are so volatile you really have to do nothing else to stay on top of it.
It is bigger news for at least the last year or so in Canada than in most places. The new Opposition Leader here, Pierre Poilievre, is decidedly libertarian in his views. He is opposed to a Bank of Canada digital currency and in April tweeted: “We need sound money again—and also the freedom for buyers and sellers to choose #bitcoin and other technology.” “[A] fellow Conservative leadership candidate at the May debate pointed out that had people bought a bitcoin when he was praising it, they would have lost US$37,000.” PM Trudeau opined a couple of days after Poilievre became Opposition Leader: ““Telling people they can opt out of inflation by investing their savings in volatile cryptocurrencies is not responsible leadership” without taking any responsibility for the four-decade high inflation rates under his leadership. Poilievre has maintained that he was not offering investment advice, but simply defending Canadians’ freedom to invest in cryptocurrencies. Poilievre’s own assets include units of Purpose Bitcoin, a Canadian-based, exchange-traded fund that holds cryptocurrencies, according to his May 4 disclosure to the federal ethics commissioner. These would have been worth around $10,000 then, and constituted a small part of his portfolio. So, pace Trudeau, he has not himself chosen to opt out of inflation by investing his savings in volatile cryptocurrencies.
Now that the Freedom Convoy is history, promoters of Bitcoin are pointing out that when the federal government invoked the Emergencies Act, and went after donations to the convoy, only Bitcoin donations escaped largely unscathed:
https://bitcoinmagazine.com/2022-censorship-resistant-issue
Econoalchemist wrote: “With no central authority to deny transactions based on some floating moral standard, peers within the Bitcoin network can transact free from anyone’s permission. No government blacklist or class action lawsuit can stop a Bitcoin transaction from going through.” However, the police actually did freeze 6 BTC intended for the truckers, so while Bitcoin donations did much better in getting through than other donations, they were not unstoppable.
Hi Andrew and thank you
I see the attraction of Bitcoin in Canada as the Trudeau administration has looked particularly authoritarian. I see that even a Canadian pension fund got in on the game.
The problem is that some of the exchanges have been built on hopium and sadly some of the behaviour looks like fraud.
Should have been banned years ago imo.
Hi Peter
On what grounds?
Off topic express says Bailer worst governor ever and blames all the central banks for their cheap money and QE which has raised inflation the aouthor says with China opening up we could be set for cheaper goods which in turn will reduce inflation.
https://www.msn.com/en-gb/money/other/worst-bank-of-england-boss-ever-takes-risky-gamble-on-inflation-better-be-right/ar-AA13WIDn?ocid=msedgntp&cvid=49aca9b3a1b04a70b6207e684b912311
Interestingly US inflation came out at 7.7% below forecasts of 8%.
Yes Peter it was very interesting Us inflation figures.
They have certainly given Bitcoin and all US shares a boost.
In consequence GBP as also risen/
Danny Blanchflower in his element today he has been arguing inflation would start to fall significantly and forecasting inflation. He has been saying central banks should be reducing rates not raising them when we face a global downturn.
Container prices fallen significantly last few months.
Markets both sides of the water seen a bounce this afternoon most retail shares I follow have had a significant boost.
“Little wonder then, that the technocracy is pushing hard for central bank digital currencies which, in addition to controlling what we think and say, can be used to regulate spending. If, for example, inflation is running too high, a CBDC can be used to curb our spending. If, on the other hand, we are deemed to be saving too much, the CBDC can be devalued with each day we continue to hoard it. And it goes without saying that a CBDC can be used to make protest almost impossible, for example, preventing striking trade unionists from accessing their bank accounts.”?
https://consciousnessofsheep.co.uk/2022/11/10/the-slaves-revolt-the-elites-cant-defeat/?fbclid=IwAR3UiZWktQ0JeyvjxGKohO0m9Z2Y5kAJLOvrv6KAI-GfbRma_hqI7u55pIA