Where finance and media intersect with reality

Spot Markets Live Transcript: 13/01/23

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Cryptenders edition

Izabella Kaminska10:58

Hello and welcome to this special crypto-themed edition of Spot Markets Live. Today’s show could be sponsored by anyone, but currently isn’t.

That means we are free to talk about absolutely everyone.

The advantages of sponsoring us are brand association with a geeky rabble of markets nerds but also a bit of awkwardness if we have to actually talk about your company. [Yes this is how independent media works.]

David Gerard10:59

This episode is sponsored by Big Nocoin, the Federal Reserve and the Pentagon.

Izabella Kaminska10:59

Lol. Before we crack on with the show, a moment of respect for Lisa-Marie Presley. RIP as of last night. 54. Very sad.

As a huge fan of the King, it had to be said. Rock-n-roll royalty.

Today, in case you haven’t already noticed, I’m joined by chief Nocoiner, David Gerard.

David Gerard11:00


Izabella Kaminska11:01

David is here because, well, he reads all the crypto blogs and Reddits so you don’t have to. That makes him an expert

David Gerard11:01

Indeed, I’m David Gerard, who finds myself a crypto expert. I wrote two books, Attack of the 50 Foot Blockchain and Libra Shrugged

I also have a news blog which is a Finance Newsletter cos people give me money davidgerard.co.uk/blockchain/

I also co-write a lot with Amy Castor, but it’s 3am in LA so she can’t be here.

tl;dr I read this stuff so you don’t have to

Izabella Kaminska11:02

And these days there’s nothing like a neutral expert to help you decipher what is important in crypto and what isn’t.

So without further ado, can you summarise the events of the last 3 months in one digestible paragraph?

David Gerard11:02

Retail went home when the bubble popped. Suddenly all these crypto firms had accounts in hundreds of millions of dollars of assets, but that was actually illiquid tokens at mark-to-market.

So now they’ve all been kiting cheques. You write a cheque you can’t cash, then you write another bad cheque to cover that one, then you account the uncashed cheque as an asset. Then you pray nobody ever cashes one, cos it’d take out everyone.

Now some are trying to.

Hilarity ensues

Izabella Kaminska11:03

Let’s get the FTX stuff out of the way first.

What’s the latest with SBF? I see he has written a Substack? (Wonder if anyone is paying him for that.)

Top line: He’s denying that he stole anyone’s money.

David Gerard11:04

yes, you can get to Sam’s substack by going to https://mycrimes.blog

(that link actually works)

Izabella Kaminska11:04


David Gerard11:04

So…! sam thinks he can post through it. I think he’s grievously wrong, but he’s clearly not a guy you can tell things. At least one and possibly two legal teams have already fired him as a client.

The bankruptcy proceeds. John Ray’s team (now in charge of FTX assets) are very expensive but they’re very good. Unfortunately, most of the crypto assets found so far are internal FTX exchange tokens.

This is very closely analogous to if Tesco said it was solvent but its assets were half Club Card points at face value.

ALL the exchanges do this, by the way. They’re solvent if you account their internal marketing points as money.

Izabella Kaminska11:06

Good point. I see that Bill Ackman has flagged SBF’s Substack in a neutral manner.

This contrasts with his last somewhat sycophantic reaction to the original SBF drama, hilariously made light of by Rob Smith’s imitation tweet yesterday:

Did we learn anything new from the Substack?

David Gerard11:07

tl;dr no

Sam is trying to blame everyone but himself. It’s the fault of Caroline Ellison from Alameda, CZ from Binance and probably FTX’s lawyers.

But it’s not Sam’s fault in any manner.

Izabella Kaminska11:08

The key points that stood out for me were that:

1) He didn’t have access to Alameda accounts for about 2 years.  He has extrapolated from unknown sources to conclude that at the start of 2022 Alameda had an asset book equal to about $114bn, $12bn of which was dependent on liquidity from third-party desks like Genesis.

2) He thinks that taking an $8bn loan on the back of an $100bn asset book was logical.

In fact the direct quote is:

“In that context, the ~$8b illiquid position (with tens of billions of dollars of available credit/margin from third party lenders) seemed reasonable and not very risky.”

3) The loans were taken out to invest in venture ($4bn worth), buyout CZ’s FTX stake ($3bn worth.) and about $1bn to pay interest payments to lenders.

This was at the start of 2022. So where exactly he thought he would have got the billions of real fiat currency to help Elon Musk buy Twitter with, I don’t know. He clearly didn’t have it to hand. He would have had to have liquidated the asset book.

David Gerard11:11

Ok … so I don’t believe Sam had nothing to do with Alameda for years at a time. Also, his “balance sheets” are weird gibberish. Also, he doesn’t at any point mention what everyone cares about, i.e. the bit where FTX customer funds ended up in Alameda.

I would not assume anything about this is meaningfully true. It’s a farrago of bullshit, in the technical sense.

I discount the truth value of any statement he makes here. If he posted that the sky was blue, I’d think first what his angle was.

Izabella Kaminska11:13

The fourth point I would make is that even if you take SBF’s comments at face value, the Substack reveals gross naivety.

He blames the stock market crashes, bad investments etc. He didn’t steal anyone’s money.

But on what planet was it ever logical for him to assume that crypto mark-to-market valuations of trash assets should be treated the same way as those of conventional bonds and equities?

This was worse than a penny stock or subprime portfolio.

We have indeed been here before however. In the GFC, banks made exactly the same mistake – assuming their trash assets would be worth more than they were in a liquidity crisis or a market downturn, but it turns out they were wrong.

Well, in SBF’s case these weren’t just level 3 assets. They were level 42 or worse.

As an aside, the lyrics of Level 42’s Lessons in Love seem strangely appropriate:

I’m not proud, I was wrong and the truth is hard to take

I felt sure we had enough but our marks went overboard

Lifeboat lies lost at sea I’ve been trying to reach your shore

Waves of doubt keep drowning me

All the dreams that we were building

We never fulfilled them

Could be better, should be better

For lessons in crypto

David Gerard11:14

[bass solo]

@Robert: I think Sam was sure he could trade his way out of it. He still thinks he can trade his way out of it! He thought he could have raised the money – i.e. got money from later investors to pay early investors.

There’s a word for that of course.

Izabella Kaminska11:16

According to the Substack, SBF insists FTX US is solvent and doesn’t understand why the liquidators aren’t paying customers back.

He also blames the Fed among a slew of other factors.

In fact, here’s his list of culprits/external factors:

–BTC crashed 30%

–BTC crashed another 30%

–BTC crashed another 30%

–rising interest rates curtailed global financial liquidity

–Luna went to $0

–3AC blew out

–Alameda’s co-CEO quit

–Voyager blew out

–BlockFi almost blew out

–Celsius blew out

–Genesis started shutting down

–Alameda’s borrow/lending liquidity went from ~$20b in late 2021 to ~$2b by late 2022

David Gerard11:16

And the key point:
-Sam did nothing wrong!!

As for FTX US vs FTX, I would trust everything John Ray says and nothing that SBF says.

Ray says it was all one commingled mass and they didn’t even keep proper accounts of anything.

Izabella Kaminska11:17

I think at this point, we need the educational system to force all students to take a course in historical financial scams and crises.

David Gerard11:17

Whereas I think the historical record is that Sam did quite a lot of things wrong.

Izabella Kaminska11:18

Scoopette: Turns out lots of OG bitcoiners were shocked when FTX first popped up on the scene claiming to be a multi-billion dollar exchange. It literally had appeared out of nowhere.

So when the Lunch with the FT with SBF first came out, they were all surprised they had no idea who that was. And then were too embarrassed to admit they didn’t know about FTX.

But it kind of tells you everything you need to know about the SBF phenomenon. If you rise that quickly, something weird is going on

David Gerard11:20

Sooo FTX came out of nowhere. Bitfinex’ed thinks Sam’s origin story of a “kimchi trade” arb in Japan is nonsense (cos it’s obviously either a lie, a confession of banking crime or both) – and actually he was quietly backed to start FTX by the Tether mob.

Izabella Kaminska11:20

@MS – yes, well i was at a family office panel with him in the summer just after the Luna collapse, and he was still talking the whole complex up.

David Gerard11:20

Now Bitfinex’ed thinks everything is Tether. And he has no evidence produceable for this claim. OTOH, Bitfinex’ed has a strong track record of being right about everything, so I thought it worth raising.

Also, everythng is Tether lol.

Izabella Kaminska11:21

All valid points. So what happens next?

David Gerard11:21

Well. FTX is dead. Creditors will get pennies on the dollar. FTX principals go to actual jail for the most part.


There are other players angling for the role of the next big crypto futures exchange to come out of nowhere.

Wintermute was one name being bandied about, there was a bit of a publicity push in December tho I haven’t heard anything since.

Wintermute is a “crypto hedge fund” based in London. Their main experience is getting hacked (or “hacked”, who knows) and losing money in FTX. In fact, they’re on the Unsecured Creditors Committee (UCC) for the FTX bankruptcy.

@Robert: Well I predicted Tether was going down by Dec 2017, so I don’t predict their end any more lol.

Izabella Kaminska11:24

I understand that ████████ are working on a challenger exchange.

David Gerard11:24

████████ doesn’t have an actual-money trading pair I think.

Izabella Kaminska11:24

And it will be differentiated from conventional exchanges by operating with ████████. Not sure how that will allow for liquidity.

I think let’s move on to the wealth of other stories in crypto…

David Gerard11:25

oh boy

Izabella Kaminska11:25

Quickly, what’s this Nexo story all about?

Nexo is a crypto lender, they play the Defi markets and offer this as an investment product.

A bit like Celsius (ch11) or Voyager (ch11), they’re rather questionable. Got kicked out of a pile of US states.

They DO NOT operate in their native Bulgaria.

This did’nt protect them. Yesterday morning they were raided by an *international* task force.

Money laundering, something sort of ponzi-like, similarities to OneCoin and also funding sanctions violations, particularly funding sanctioned Russian entities.

Izabella Kaminska11:27

Yikes. Why have I never heard of them?

David Gerard11:27

The sanctions busting is the big one, that’s kick-down-your-door stuff.

Nexo were just another crypto lender for a long time. But frankly anyone offering 36% interest rates, you can say the p-word.

Izabella Kaminska11:28

So, let’s move on to what everyone really wants to talk about and the stuff that has been making my head hurt.

What is going on with Genesis/Gemini/Grayscale/GBTC – every G word in crypto?’

David Gerard11:29

So the big thing is at the link above, with the latest as of 4pm UTC yesterday.

Genesis lent cryptos to Three Arrows Capital, who were blown out by Terra-Luna and blew out everyone else in turn.

Very 2008-like. Since May, crypto has had really its own mini-2008.

Izabella Kaminska11:30

Genesis are who exactly?

David Gerard11:30

Genesis is a crypto investment firm, run by Digital Currency Group (DCG). They mainly had accredited and institutional clients, so fine y’know.

risky, but with returns yay.

Izabella Kaminska11:31

Nothing to do with the Genesis project, phew.

David Gerard11:31

3AC was also a crypto hedge fund thing, who nearly went broke in 2020 but the 2021 bubble saved them (as it did so many shaky firms).

So 3AC went broke and took out everyone (including FTX’s Alameda).

DCG are a big holding firm with a ton of crypto interests. They own CoinDesk for example.

The main guy is Barry Silbert, a bitcoin old-timer, who’s survived multiple crypto bubbles

DCG also owns the Grayscale Bitcoin Trust, a pseudo-ETF for bitcoin (one-way, can’t be cashed out) -t hat’s GBTC

Izabella Kaminska11:34

Ok, so this is basically all of Barry Silbert’s mutually reinforcing investment empire, complete with research/propaganda shop?

And how does Gemini fit into this debacle?

David Gerard11:34

CoinDesk does some great journalism! But it also has a track record of never seeing a crypto project it didn’t like and not being very good with conflicts of interest.

They took out FTX, so

Izabella Kaminska11:35

(so like standard bank research). Did I mention we’re looking for a sponsor?

David Gerard11:35

So! Gemini is a crypto exchange, a reputedly relatively well-behaved one, run by the Winklevoss twins. They took the money they won off Facebook, and spent it on a US Marshall bitcoin auction and started an exchange.

Their whole pitch is “we’re the serious regulated exchange for your serious money”.

But Gemini got greedy.

Izabella Kaminska11:36

These guys? Greedy?

No way.

But they sing so well.

David Gerard11:36

Look at these guys, they look like rich kids out of central casting. You’d think they had names like “Cameron” or perhaps “Tyler”.

So! Gemini and Genesis.

Gemini thought “well a ton of money is in shadow banking, let’s get in on that.” They did a deal with Genesis to create a product called Gemini Earn, basically giving retail access to Genesis.

[at this point your Howey Test alarm bells should be going off]

So Gemini Earn customers signed a TOS that they were sending their cryptos to Genesis.

Now this was all fine until … Terra-Luna crashed, took 3AC with it, and that blew a $2.9b hole in Genesis’ accounts.

That was in July

Izabella Kaminska11:39


David Gerard11:39

It looks increasingly like Genesis was bankrupt but they didn’t admit it!

Instead, DCG assumed a pile of its subsidiary’s debt and wrote a $1.1b promissory note at 1% interest payable over 10 years.

Genesis then accounted this as an asset.

To recap: DCG wrote an IOU from its left pocket to its right pocket.

Izabella Kaminska11:40

Isn’t that a related party transaction?

David Gerard11:40

YOU MIGHT THINK THAT but Barry Silbert said it was arm’s length.

I guess he has very short arms

Izabella Kaminska11:41

And how come DCG had the liquidity to do that? Were they diversified enough not to suffer from their own exposures?

David Gerard11:41

~$100m in cryptos every year for 10 years, he could afford that.

Izabella Kaminska11:41

I see. So this was like his personal wealth vehicle?

David Gerard11:42

So! Genesis was broke really, but they had a note from their mum that they accounted as $1.1bn.

This was fine until November, when FTX went down. That was like $175m? (IIRC might have been more, but on that order) but evidently it was the last straw for Genesis, liquidity for customers and Genesis froze withdrawals. Including for Gemini Earn.

Enter a very angry Cameron Winklevoss, whose ordinary retail customers were very upset.

Izabella Kaminska11:43

So suddenly Gemini Earn customers could not withdraw? When did they shutter the redemptions exactly?

David Gerard11:44

November the something. Soon after FTX went down.

Izabella Kaminska11:44

And now what?

Crypto should really be some sort of mini-drama in the style of Dallas or Dynasty.

David Gerard11:44

Jersey Shore

Izabella Kaminska11:44

You mean Off Shore 🙂

So the twins gave Barry some sort of deadline?

David Gerard11:44

By January, the Winklevosses were sick of this and weren’t getting anywhere with DCG.

Izabella Kaminska11:45

@john Cryptonation Street/El salvorado/Tetherdale NEEDS to happen ?

David Gerard11:45

So they sent a couple of open letters. The real action was that as of Jan 8, Gemini cancelled the deal. Gemini Earn was dead, Genesis now had to return all the money. By 11 Jan Genesis was technically in default.

Beeeecause end of day NY time yesterday … the SEC brought charges against both Genesis and Gemini!

They held that Gemini Earn was the unregistered security it very obviously always was.

Izabella Kaminska11:48

Whoa. And I think I saw the twins saying that this was outrageous because they always consulted the regulators about the product?

Izabella Kaminska11:48

Barry Silbert also shared some reflections about all this the other day:

David Gerard11:49

Yeah, Tyler said it was outrageous because they’d been talking to the SEC. I expect the SEC was saying things like “register or else”.

Anyway. the Howey Test is very broad, and basically all this stuff is securities in the US.

So the SEC is gonna win this one.

Izabella Kaminska11:49

Also, post FTX, the regulators have to be seen doing things.

David Gerard11:49

Oh big time

So it came out that the “Blockchain Eight”, eight congresspeople (four from each party) had written to the SEC telling it to back off crypto!

When this finally came out was after the FTX crash, so this explains a lot of frustrated annoyance from Gensler in 2022 and now they can let loose.

I mean, the one real technical innovation of blockchain is that you can start a new penny stock scam at the press of a button.

There are like 7000 equity stocks in the US, and somewhere over a million blockchain tokens.

Imagine you’re a regulator, you suddenly have 100x the entities to deal with at the same budget?

That’s the SEC’s problem. they don’t actually have a giant Monty Python foot to bring down on these guys. They have to do it one handcrafted artisanal order at a time.

Izabella Kaminska11:52

Yeah I believe this is called a DDoS attack?

David Gerard11:52


Those numbers (7000/1m) are from Alexis Goldstein at the CFPB, but I trust her numbers.

Izabella Kaminska11:53

Start so many ponzis, the regulatory system can’t keep up. Like in Albania post the collapse of the soviet union, when eventually every politician had his own ponzi.

David Gerard11:53


Izabella Kaminska11:53

So how come the GBTC stock price is up now?

David Gerard11:54

I have no idea, it’s been up and down like a yoyo.

Izabella Kaminska11:54

Because we know that for years it benefited from a weird arbitrage based around its premium. Then it went into discount. And now the discount is apparently narrowing again, which makes no sense to me.

David Gerard11:54

Oh here’s Amy’s post on the GBTC premium, now a discount https://amycastor.com/2022/04/19/welcome-to-grayscales-hotel-california/

Izabella Kaminska11:54

And speaking of BTC, there’s a recovery going on there too:

David Gerard11:54

GBTC has been in the toilet for a while. DCG could liquidate the fund and give the bitcoins back, but they take a 2% of AUM fee annually. Free money.

Izabella Kaminska11:54

Bitcoin is back to the $19,000 level.

David Gerard11:55

Bitcoin often pumps for no apparent reason, and often it’s a day before bad news.

where’s that graph …

Izabella Kaminska11:55

Having spoken to some GBTC owners (aka junseth), he’s convinced the BTC must be there because otherwise Barry is going to jail.

David Gerard11:55


That’s coinbase BTC/USD.

Note faked pump at 00:00 UTC and at 01:00 UTC on the dot, none more organic.

In fact here’s that organic material

100% organic

@Robert: BTC price is whatever the big boys need it to be. Amy and I think the forces are: 1. goes too low, loans get liquidated. 2. goes too high, bagholders might try to cash out.

Izabella Kaminska11:58

So we have a couple of minutes left, does anyone have any specific questions for David whilst we have him?

David Gerard11:58

The other story we didn’t get to is the US dollar banks for crypto are all getting cold feet and/or regulatory attention.

But that’s 30min in itself. Silvergate Bank is probably insolvent (Frances Coppola says you can see it just from their SEC filings).

Izabella Kaminska11:59

Silvergate is an actual licensed bank right?

David Gerard11:59

Meanwhile, Signature Bank is about to get a ton of regulatory heat over its Signet crypto interchange network, which FTX and Binance love(d)

and Metropolitan Commercial Bank has dumped its crypto customers entirely.

The Fed, FDIC and OCC told banks to stay the hell out of crypto, after Silvergate got a $4.3b liquidity injection from the Federal Home Loan Bank.

Izabella Kaminska12:01

They got an injection? no way. Mad.

David Gerard12:01


The American Banker article is great, and hammers home what a dodgy bit of funding this was https://www.americanbanker.com/news/silvergate-bank-loaded-up-on-4-3-billion-in-fhlb-advances

Izabella Kaminska12:01

Aside from Silvergate, where do you think the next great crypto debacle will stem from? Where should we be looking?

David Gerard12:01

Everyone’s waiting for Binance to go down. I wouldn’t put a date on it.



Because RETAIL HAS GONE HOME and nobody really believes these unsaleable sh-tcoins can be converted into dollars at any scale.

Izabella Kaminska12:02

It’s hard to sell joke money when real money has an attractive interest rate.

David Gerard12:02

Despite all the accounts having dollar signs next to the numbers.

@John yes, clubcard points are worth an actual p

Izabella Kaminska12:03

Yeah, david, at least clubcard points are redeemable for actual bananas.

Brilliant. Well you heard it all here. David thank you very much for joining us.

David Gerard12:04

And in conclusion, crypto will keep being digital comedy gold.

If you want to hear more from me I’m at https://davidgerard.co.uk/blockchain/ and Amy is at https://amycastor.com/. 

I’m also on mastodon at https://circumstances.run/@davidgerard
Izabella Kaminska12:04

Thanks again everyone. We will be back on Monday with Anjuli for a regular session at 11am. Have a great weekend. And hopefully we will be doing more of these sessions.

In the meantime, Anjuli has created a little survey so that we can improve on the service and make it all that much better. There will be a big announcement on Feb 1, so we are gearing up for that.

Take care everyone, bye!

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