Yikes. ''Cryptuh'' Traders Trusts One Man and Poof! $10 Billion was lost Overnight
Oh, No... Not again!?
Sam Bankman-Fried: I don’t know where $10 billion dollars went
The Pentagon: We don’t know where $2.2 trillion dollars went
The IRS: You just sent $601.37 don’t forget to report it.
Across cultures and geography (and even across time), a few things bind all humans…
One is: Our minds are unable to grasp very large numbers.
Sure, we’ll manage with numbers in the thousands or millions. Even in the tens or hundreds of millions. But beyond 8 zeros – that kind of massive scale goes largely unappreciated or understood.
For example, one thousand seconds is just over 16 minutes. One million seconds is 12 days.
But one billion seconds is nearly 32 years.
Billions become much more real when not measured in time, but in money. Money earned.
And certainly, money lost…
Recently, we watched in horror as the crypto exchange FTX blew up, taking customers’ money – in some cases, their life’s savings – down with it. According to the latest estimate, at least $10 billion of customers’ crypto holdings vanished. Instantly.
Just think – all those customers’ efforts to work hard, spend less than they earned and invest those savings. And all their time – all those weeks, months and years to amass capital.
Poof.
Up in smoke. Capital that’s probably lost forever. And time that’s definitely gone for good.
It is a very expensive lesson that many newcomers to the scene failed to grasp.
Why was Bitcoin created in the first place?
Bitcoin's blockchain is the most secure global finance. But associated centralized exchanges are very insecure.
Trusted third parties are security holes. Whether the strangers in question are or are portrayed as "good guys" or "bad guys" does not make much difference, they are still security risks.
If they appear benevolent, does not mean they truly are. Without any transparency, you can never be certain. It is only a matter of time before trust is betrayed again due to centralizing forces & human behavior.
When you buy e.g. 1 BTC and withdraw it off an exchange to your own hardware wallet, you are buying Bitcoin and selling your dollar.
At FTX, many institutions THOUGHT they bought & owned Bitcoin.
But it was actually just a ledger entry.
FTX was supposed to have $1.4bn of BTC from users but their balance sheet shows that they have none.
SBF took his customers money that were supposed to be for BTC and bet on other worthless tokens that were created out of thin air.
Therefore all that demand for BTC got redirected into his personal bag of handpicked tokens.
BTC bought —> BTC lent to Alameda —> Alameda sells BTC, in exchange for alts
Net effect: People who bought BTC on FTX actually had their money used to bid up altcoins. Which is a big reason why Bitcoin didn't reach its 6-figure target this year.
Using paper napkin math;
330k BTC mined / year this halving era
FTX has around $1.4B in BTC on books, meaning 80k BTC
Assuming incurred this year, means FTX effectively "increased" BTC supply issuance by at least 25% this year.
Other centralized exchanges with yield products likely did same. Which is no wonder why BTC couldn't reach $100K.
The small market cap of tokens allows the potential for much higher returns which makes it attractive to charlatans who seek to take advantage of inexperienced or unsuspecting investors to corner the market by pumping and dumping on them.
They labeled the use of Bitcoin as wasteful; a security & decentralized trade-off as a detracting factor to the function as a payment system, and kept highlighting their green ESG tokens which were faster and more energy efficient as the future.
Even experienced smart money investors and sovereign wealth funds got played.
8 Months ago I wrote to our readers warning them:
https://thinkmaverick.com/trust-no-one-netflix-documentary-crypto/
Human beings crave control.
In the past, even the internet started out as decentralized, today what we know as the internet passes through but a handful of gatekeepers like Google, Facebook or TikTok.
These are central corporation that have incentives that are not aligned with you, the user.
There are highly centralizing forces at play that makes decentralization almost impossible to attain.
Humans prefer their comfort zones, ''if it's easy to use, sign me up, or take my money!''
Satoshi's genius was creating a protocol, designed to be resistant to change by these centralizing forces.
Or what we call a state of immutability.
Why? https://coinzodiac.com/monopoly-middle-class-dying/
This is counter-intuitive to the understanding of technology which is constant big upgrades of efficiency and gimmicks like the iPhone.
This is the Internet of money.
As a bedrock and foundation of truth and transparency.
No one can cheat, hack and tamper with it. Not even Satoshi himself.
Dishonest men hate honest money.
What happened with FTX is nothing new, it has already happened to banks in Lebanon 3 years ago!
The largest bank in France froze its customers' money market accounts today. This thing [the Global Financial crisis contagion] is hitting Europe. Greece and Iceland are finished. Spain is teetering.”
- The Big Short
And it has been happening for decades....
A single event can set off a chain reaction, what’s called “contagion” in finance.
It can come out of nowhere. One minute everything’s fine.
The next – everything’s engulfed in flames. Dominoes fall. Confidence collapses. Losses mount. No one knows what’s coming next. Institutions fail, and then more institutions halfway across the world might follow along. Confidence further shatters.
And so the cycle continues…
Twenty-four years ago, hedge fund Long-Term Capital Management (LTCM) sparked a financial panic and nearly a contagion.
Despite their esteemed staff, including Nobel Prize-winning economists, their leveraged trades were hours away from bringing down the entire global financial system.
Then, 14 years ago, the collapse of Bear Stearns and Lehman Brothers – once heralded institutions – did set off a financial contagion. When the smoke finally cleared from the Global Financial Crisis (GFC), the world’s economy had lost more than $2 TRILLION of value.
A seemingly vaunted staff, with all the right political connections. A heralded institution that can do no wrong.
Does any of this sound familiar?
It should. Because this wonderkid Sam Bankman-Fried (SBF) and his crypto exchange FTX were THE hot commodities in the crypto world. Welcomed to the White House. Endorsed by celebrities galore. Partnered with major sports venues.
But then Scam Bankrupt-Fraud’s star fell. Quickly.
So, we have to ask: Was FTXs collapse the beginning of the crypto contagion?
Maybe.
Maybe not. It’s too early to tell.
Here’s what we do know: SBF and FTX engaged in a practice called “hypothecation” or “re-hypothecation.” This is when banks, brokers or other financial institutions “borrow” from their customers’ deposits and pledge them as collateral in other deals — over and over again — to boost their profits.
We’re using “borrow” here as a loose term. Because to put it plainly, you can just call it stealing.
Assuming everything else goes okay when financial institutions hypothecate, problems seldom arise. But when the financial system hits a speed bump, or when a competing crypto exchange peeks under the hood of a competitor, it can get ugly for the original investor — aka YOU — who put up the money.
Bottom line, you might not own what you think you own.
We are lucky to have a solution that is designed to let us take custody of our money before CBDCs take over.
FTX customers could have avoided these losses. And the steps to do so are not complex.
You, too, can follow simple, actionable solutions to safeguard your crypto holdings. This way, when the next bank collapses, you won’t be a victim.
It makes sense to pay attention to HOW you hold your crypto.
If 100% of your crypto is on a centralized exchange, you need to act. And you need to do so now. “Not your keys, not your coins” — that’s the right mantra to keep in mind.
Clearly, laws won’t stop some of these exchange operators, like SBF and his merry gang.
They’ll do whatever they want behind the closed doors of their bean bag-equipped penthouse apartments. Your only recourse is a lawsuit. Good luck hiring an affordable attorney and chasing down your money.
And don’t forget about the threat of hackers…
Crypto exchanges are a hacker’s treasure trove. True, at some crypto exchanges, your cash deposits might be protected under the Federal Deposit Insurance Corporation (FDIC) or your country’s equivalent institution.
But when a crypto exchange hack hits the newswire, at best, the time to get your funds will be delayed. And at worst, your exit ramp may be blocked as the exchange experiences a lengthy liquidity crunch.
Don’t get us wrong: Crypto exchanges have their place — for leaving a SMALL amount on deposit to trade. But NOT for storing and securing your long-term crypto wealth.
For those long-term holdings, you first need to take personal responsibility. Realize that YOU, not some shady exchange operator, should be in control of the majority of your crypto.
But you also need the right information. Exactly how do you better secure your crypto wealth?
We’ve got you covered there.
Yesterday, we published our latest How to Protect Your Crypto Identity and Secure Your Bitcoin.
You can read a section on “hot wallets” (aka hot storage) that are connected to the internet, including an example of a secure BTC mobile wallet we like.
We also unlocked a section on a “cold storage” BTC wallet that can further boost your security, information on how to generate a paper wallet and more.
The essentials to take back control so you can live a freer, more prosperous life.
In closing and on that note of living a more prosperous life, there’s absolutely no downside to better protecting your crypto holdings.
We encourage you to do so now… well before the next FTX collapses and losses mount.
Protect your hard-earned wealth — and sleep a lot better at night — by checking out our article here now: https://thinkmaverick.com/best-bitcoin-wallets/
To your freedom and prosperity,
ThinkMaverick.com