If all of the actual cash, the real liquid assets were withdrawn leaving only illiquid, relatively valueless crypto tokens, and those tokens are sold down over the coming months then the percentage losses as a percentage of the max or total value they managed will be very high indeed. Sorry for the run-on sentence.
https://fortune.com/2022/11/10/sam-bankman-fried-ftx-joe-bid...
Who knows what's in store for SBF, but it's important to look at the facts here and acknowledge that this operation was heavily invested in the success of the Democratic party.
Salame donated $26.4M to individual GOP politicians and another $2-3M to GOP political organization.
SBF donated $39.8M to Democratic politicians and organizations.
Not all that different.
The $1B pledge was realistically never going to happen, just as his offer to loan Musk $3B to buy Twitter was never going to happen. Even in the best of times he never would have been able to extract that kind of real money from his operation within a short time.
Most of that wealth was manufactured in the crypto bubble, not actual money people worked for and put into crypto, just early stage ponzi investors that kept rolling their investment. The wealth, while apparently substantial, was never actually there, I think most understand that the mirage would have collapsed anyway if most investors would have attempted to exit earlier.
Basically, any early holder of Bitcoin today, while losing 70% or so of the peak value, is still a bazzillion basis points in the black, because they can get real dollars for what is essentially an early and rudimentary shitcoin with arcane limits, slow transaction times and extreme volatility, which is only used in the real world for speculation, money laundry and trading other shitcoins. Pretty ironic that's the "gold standard" of the crypto world, followed by an entire brown spectrum of shittier and scammier tokens.
Sure, Tether should have a 1:1 backing to real dollars or dollar denominated assets - but it's like the ponzi-world's worst kept secret that they don't, as we'll soon find out.
That would be my first guess.
Its real money.
https://twitter.com/Travis_Kling/status/1592198107734876160?...
https://www.coindesk.com/business/2022/11/14/ikigai-asset-ma...
That's the very definition of fake wealth, hot money seeking 50% returns in the hot risky mess that is the crypto market. The recursively leveraged self-licking icecream is melting down.
LTCM shouldn't be in that list because that wasn't fraud. That hedge fund had a flawed math model of volatility of their holdings when a cascade of events got triggered by Russia defaulting on their bonds. LTCM losses were magnified by their over leveraged positions.
A bunch of PhD traders lost their wealth and got their reputations tarnished but it wasn't criminal activity.
The PhD guys from LTCM, not so much. Just arrogant.
Robert C. Merton got the nobel prize, but it seems 3 years later (ironic)
LTCM imploded in 1998.
I don't think their intention was to rob / hide / betray / hoodwink.
> A bunch of PhD traders lost their wealth
That is, the only reason the losses were limited to them was because of special intervention. Otherwise, it would have caused losses for many others.
The kind of situation they were worrying about and rushed to prevent in 2008, IOW.
You are correct, in a trivial sense, that maybe the entire market should have just not trusted everyone else, except perhaps under extreme constraints, which would have amounted to almost no financial intermediation and thus almost no financial industry whatsoever. But even the most hardcore "you should have vetted your counterparty" finger-waggers aren't willing to go that far.
Can you provide the exact wording? At least when it comes traditional finance, if there's margin involved (FTX most definitely has margin), your deposits/holdings are fair game for your broker to use as they please.
https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_ma...
>Some margin accounts allow the brokerage firm to lend out securities in the account to a third-party, at any time without notice or compensation to the account holder, if the investor has any outstanding margin loan in the account
https://www.axios.com/2022/11/12/ftx-terms-service-trading-c...
This is what I initially suspected. But we can see FTX's balance sheet [1]. There is no loan to Alameda. "FTX shot its customer money into some still-unexplained reaches of the astral plane" is the best explanation we have for billions of missing dollars [2].
[1] https://www.ft.com/content/0c2a55b6-d34c-4685-8a8d-3c9628f1f...
[2] https://www.bloomberg.com/opinion/articles/2022-11-14/ftx-s-...
>negative $8bn entry described as “hidden, poorly internally labled ‘fiat@’ account”
probably had something to do with the loan as that seems to be roughly the amount and the description literally makes no sense.
I think the running bet is there is no full accounting.
The problem with this is that the customer funds are also not present on their balance sheet. Levine opined about this yesterday; Like 3 of the biggest assets are coins ftx didn't pay for - so where did the money go?
That's why the Alameda explanation is likely, in one way or another. Money had to go somewhere.
> Meanwhile, at a meeting with Alameda employees on Wednesday, Ms. Ellison explained what had caused the collapse, according to a person familiar with the matter. Her voice shaking, she apologized, saying she had let the group down. Over recent months, she said, Alameda had taken out loans and used the money to make venture capital investments, among other expenditures.
> Around the time the crypto market crashed this spring, Ms. Ellison explained, lenders moved to recall those loans, the person familiar with the meeting said. But the funds that Alameda had spent were no longer easily available, so the company used FTX customer funds to make the payments. Besides her and Mr. Bankman-Fried, she said, two other people knew about the arrangement: Mr. Singh and Mr. Wang.
[0] https://www.nytimes.com/2022/11/14/technology/ftx-sam-bankma...
No, they're different situations.
The current details trickling out of FTX scandal is that CEO Samuel Bankman-Fried secretly used customer funds to prop up Alameda which is unethical and criminal. This is fraud.
LTCM guys lost billions honestly and transparently via flawed math models based on overconfident assumptions of price spread behavior. That wasn't criminal fraud. There was no illegal transfer of investor funds.
At correct time: https://youtu.be/2ozjiX1E7ZA?t=25
There's a real "accountability overhang" not just in crypto but so many other things. Justice is slow and getting slower.
Not in this case.
A momentary glance from a distance at the balance sheet by a semi competent bank supervisor would have noticed the fraud.
The question: do you hold your users' assets in segregated account is easily asked and easily answered with no.
that's leverage.
I'll also add, if you want to really dig into FTX details, simply read Matt Levine's newsletters.
The 16B could've never been liquidated as 16B in cash because the liquidity for many of these assets is too low. Selling even just a small fraction would have crashed the market for many of these assets. It's impossible to know what the liquid worth of these assets was, but it was probably 5-10x less than what's on paper.
I am not a crypto expert, but from the bit I do know, it seems as if it's fairly difficult to correlate fiat with crypto.
Perhaps "only" $5bn was real and much of that was from institutional investors. Not yet clear how many retail rubes have been caught up in this.
Just to confuse matters, it appears that both the exchange was hacked and an insider was draining funds just before it shut down. But before that, there was a lot of "money" that went out the door in legitimate trading losses.
> there was a lot of "money" that went out the door in legitimate trading losses.
Let's not give them easy pass on this. I could be wrong so correct me on this:
Easy setup is to have a bunch of people setup 'shitcoins' and shell companies, scam people to put actual money into the scheme to pump the price, and then pay inflated prices for your fellow scam artists' shitcoins, so they clean out, but the chumps who bought your coin are holding the bag.
Or maybe we're so jaded that mere corruption fails to get the juices flowing anymore.
I wouldn't be surprised if the number of actual dollars was less than $100 million.
If I buy 50 RandoCoins for $1 today, tomorrow it shows that it's now valued at $2, and then the next day RandoCoin is hacked and all the coins are stolen, I didn't really lose $100, I only lost $50.
So he's wondering if the value of loss is being expressed as the money used the purchase the coins or the perceived value of the coins.
BTC for instance has a 24hr TV of $37B, making it one of the most exchanged assets in the world.
To give a hypothetical example: Alameda, as a customer, deposits magic beans with a mark to market value of a billion dollars. Then Alameda trades the magic beans for a billion dollars of BTC-perp (FTX paper bitcoin), with FTX acting as the counterparty (which I believe they typically were for trades of the perpetuals). Now FTX's balance sheet reflects $1 billion in Bitcoin liability (plus being long $1 billion worth of magic beans)-- but in this example no bitcoin had been deposited at all-- just magic beans.
When sizing up the losses, all liability ultimately resulting from magic beans ought to be backed out. This is exit complicated because some of the magic-bean derived paper assets have presumably been withdrawn using customer deposits, and those funds are actually lost even if the depositors that brought them in never traded (and simply deposited in FTX because of the ponzi-scheme grade yields they were paying depositors).
Unclear if we have accurate info from Sam but the situation is more like 9b in liabilities with 70% of that in liquid and illiquid assets. People getting back that much is highly optimistic but the 16b doesn’t seem accurate at all. FTX already paid users out $5b btw
They have $9B in liabilities, and realistically they have about $1B in realisable assets. On the balance sheet Sam has included about $7B worth of Serum and FTT, both of which vastly exceed their circulating market cap and are also effectively worthless as the businesses they represent have lost all credibility and/or are insolvent (Serum is a decentralised exchange created by FTX)
I don't know if it's SBF previous political connections that are making most media outlets hesitant to delve into the details, but the scale of the failure is going to be unavoidable as more details emerge.
Too many institutional investors got burned and they will no doubt be eager to prove fault lest they themselves be blamed for poor judgement.
The Ryan Salame part of it may be making both parties not want to look into it too much.
Either way, the inclusion of "astronomically overvalued cryptocurrency" as a descriptor definitely makes it seem more like a slight towards crypto than an honest question of the valuation. Put simply, a lot of people lost a lot of money.
Unsure if FTX creditors will be able to do the same.
But mostly, Madoff himself didn’t really spend much money. Just did nothing with it. The few pieces of fancy real estate he lived in were actually profitable because he didn’t build some gawdy illiquid palace.
But there was a lot of time-value loss that isn’t accounted for. Even 14 years later there are still distributions. Even getting $1 back on your 1995 $1 is still a big loss.
Did the judge say that? I would think the logic was that they were effectively getting stolen money as gifts. Like when a scammer gives their victims' money to their own family. Doesn't matter if they were in the dark or even spent it already.
As I understand it, if stolen/scam money is used to buy something it's not the seller's responsibility because money is legal tender. On the other hand, if a stolen item is sold, the issue of knowing where it came from does becomes important.
But maybe you’re right and it’s just recoveries of their commissions etc.
I think the media treats anything to do with crypto as much more buyer beware than eg Enron
FTX has been the lead story on the front page of the Wall Street Journal for days now.
The massive links to the Democractic party probably have something to do with this.
This is a key point.
They lost $16B in customer deposits.
LTCM lost $4.6B in investor funds.
Enron lost $11B in shareholder capital.
Interestingly, while Madoff is widely quoted as having lost $65B, that was almost all fabricated paper wealth, actual losses were around $18B and $14.4B of that was recovered and returned.
All of these situations are obviously somewhat different, but if what we're starting to hear is correct, FTX may be one of, if not the, biggest financial frauds/scandals in history. The media doesn't seem to be treating it as such.