Cryptocurrencies

[Sweet]

25 minutes ago, rkbabang said:

I know.  Nothing I said relies on me not knowing who said what to whom.

 

You seemed to suggest I look in the mirror, that’s why I said what I did.  I don’t believe I’ve made an arrogant statement.

[wachtwoord]

2 hours ago, ValueArb said:

But I was responding to the idea that Hal Finney couldn't have had that inspiration because he was just a run of the mill smart guy, and it could only have been solved by a "genius" like Nick Szabo.  No one knows what insights another can have, no IQ test can solve for ability to have special inspiration.

 

Have you actually read the (or some of the) other works and writings of Szabo? Did you see the fields (computer science, economics, psychology and sociology) and specific topics within them that were needed to be combined not to just solve the Byzantine Generals problem but also operationalize an implementation of it that actually works in practice because the incentives of many actors are aligned? So many variables that needed to be aligned just right. And Szabo's works exactly align with that while Finney's doesnt for much/most of it.

 

2 hours ago, ValueArb said:

As a software engineer I'm a big believer that big problems can be solved one piece at a time simply through the application of focus and hard work, and the more time you spend thinking and working on a domain set the more solutions become obvious.

 

Are you sure you are a software engineer and not a programmer? Cause that is an extremely shortsided way of seeing reality that only applies to implementational problems (so it would match the less conceptual lense). Conceptual, logical problems often require a completely different way of looking at things, or combining existing solutions in such a (as of yet) different way that it can take very long to solve them and believing it will just take x hours/days/years of dedicated work is definitely not how this works. I've seen many programmers make this mistake wrt Bitcoin btw (while believing to be an expert on the matter because of their background, a dangerous combination). 

 

Your Einstein example is actually great. Both in his breakthroughs (special and general relativity, concepts very good scientists has grappled with since civilization began) and his "failure" (unification of quantum mechanics with special and general relativity) that he spend the rest of his life on. You can't plan such things or provide time restraints on them even in orders of magnitude.

 

The Byzantine Generals problem was one of them and many more exist today.

[ValueArb]

4 minutes ago, wachtwoord said:

 

Have you actually read the (or some of the) other works and writings of Szabo? Did you see the fields (computer science, economics, psychology and sociology) and specific topics within them that were needed to be combined not to just solve the Byzantine Generals problem but also operationalize an implementation of it that actually works in practice because the incentives of many actors are aligned? So many variables that needed to be aligned just right. And Szabo's works exactly align with that while Finney's doesnt for much/most of it.

 

Maybe Finney read Szabo's writings?

 

4 minutes ago, wachtwoord said:

 

 

Are you sure you are a software engineer and not a programmer? Cause that is an extremely shortsided way of seeing reality that only applies to implementational problems (so it would match the less conceptual lense). Conceptual, logical problems often require a completely different way of looking at things, or combining existing solutions in such a (as of yet) different way that it can take very long to solve them and believing it will just take x hours/days/years of dedicated work is definitely not how this works. I've seen many programmers make this mistake wrt Bitcoin btw (while believing to be an expert on the matter because of their background, a dangerous combination). 

 

You can call me either. I started my career working on visual programming languages and tools that were eventually sold to Microsoft. Then wrote Mac operating system extensions, cross platform file translation systems for desktop applications, and ended up implementing a key feature of Photoshop 3.0.  Led teams that built award winning graphic design tools for creative professionals that required detailed project planning skills to ship and update six products yearly, on time, and with high quality. Founded an internet startup that became the early standard in measuring streaming audiences that required solving how to process huge amounts of data in real time.

 

When a problem doesn't have an already known solution it often takes hours/days/even years of dedicated work to explore the branches of the tree of potential solutions to find one, or the best one.

 

4 minutes ago, wachtwoord said:

 

Your Einstein example is actually great. Both in his breakthroughs (special and general relativity, concepts very good scientists has grappled with since civilization began) and his "failure" (unification of quantum mechanics with special and general relativity) that he spend the rest of his life on. You can't plan such things or provide time restraints on them even in orders of magnitude.

 

The Byzantine Generals problem was one of them and many more exist today.

 

Never said you can plan how long creative inspiration will take.

[wachtwoord]

25 minutes ago, ValueArb said:

 

Maybe Finney read Szabo's writings?

 

 

You can call me either. I started my career working on visual programming languages and tools that were eventually sold to Microsoft. Then wrote Mac operating system extensions, cross platform file translation systems for desktop applications, and ended up implementing a key feature of Photoshop 3.0.  Led teams that built award winning graphic design tools for creative professionals that required detailed project planning skills to ship and update six products yearly, on time, and with high quality. Founded an internet startup that became the early standard in measuring streaming audiences that required solving how to process huge amounts of data in real time.

 

When a problem doesn't have an already known solution it often takes hours/days/even years of dedicated work to explore the branches of the tree of potential solutions to find one, or the best one.

 

 

Never said you can plan how long creative inspiration will take.

 

I hear programming and entrepreneurial experience and skills but not software engineering. That requires a different more conceptual approach.

 

It explains why you think exploring the branches of the tree is (always) the solution. The tree you are going to have to explore might not even exist yet. That's where true (scientific) innovation lives.

[ValueArb]

1 hour ago, wachtwoord said:

 

I hear programming and entrepreneurial experience and skills but not software engineering. That requires a different more conceptual approach.

 

It explains why you think exploring the branches of the tree is (always) the solution. The tree you are going to have to explore might not even exist yet. That's where true (scientific) innovation lives.

 

If you don't think there is software engineering in writing a language interpreter using object oriented constructs before object oriented languages were widely available, writing high speed graphics algorithms, or designing large volume data processing and indexing systems, I guess we are just going past each other. 

 

And algorithms always exist even before they are discovered, if you don't think scientific innovation involves conducting organized research into the most likely solutions you are mystifying the entire process.

[wachtwoord]

22 hours ago, ValueArb said:

 

If you don't think there is software engineering in writing a language interpreter using object oriented constructs before object oriented languages were widely available, writing high speed graphics algorithms, or designing large volume data processing and indexing systems, I guess we are just going past each other. 

 

And algorithms always exist even before they are discovered, if you don't think scientific innovation involves conducting organized research into the most likely solutions you are mystifying the entire process.

 

No not in writing it no. In designing one you are applying software engineering concepts (indeed concepts which exist before defined and named by humans) when done well. THAT is where the difference lies.

[mattee2264]

So apparently a factor in the slump of BTC post ETF approval is that the FX estate is having to liquidate bitcoins creating a lot of selling pressure. Should be coming to an end soon (although sometimes these things can continue to develop a momentum of their own). 

[ValueArb]

1 hour ago, mattee2264 said:

So apparently a factor in the slump of BTC post ETF approval is that the FX estate is having to liquidate bitcoins creating a lot of selling pressure. Should be coming to an end soon (although sometimes these things can continue to develop a momentum of their own). 

 

I heard that another factor was that the ETFs make it easy to short BTC now? So I wonder if BTC in the future will be the tail of the ETF dog, being whipped up and down by inflows/inflows/shorting as ETFs grow to bigger proportions of the BTC universe.

[TwoCitiesCapital]

I think by far the bigger factor has been the 5-7 billion that has flowed OUT of GBTC and others 'selling the news' which discussed as a possibility. Hard for me to tally the exact outflows with the price movement, but it's somewhere in this ballpark. 

 

Net flows still appear to be positive across ETFs, but once better against the outflows of GBTC it seems quite a bit less impressive. 

 

Between the limited upfront flows, the sell the news, and the fact that we had a massive run-up into the ETF announcement, it's really not surprising that we're taking a breather and is still well within the volatility, if not less than, BTCs history of ups/downs. 

[jfan]

For those interested beyond just the money go up or down aspect of BTC, I came across a few neat videos on how the user experience is changing.

 

I'm used to purchasing BTC from regulated exchanges and online brokers as well as storing on Ledger hardware wallets. 

 

There are a number of open source desktop wallets that you can download and use. The one i particularly like is Sparrow wallet. It has a really nice user experience and easy to connect with your own node. Specter wallet is another good quality standard. Nunchuk and Blue wallet have both desktop and mobile options.

 

The hardware wallets are also evolving as well. Air gapped wallets with and without private key storage are now available and can interact with the above desktop wallets. Seedsigner is interesting as it can be built with parts totally < $70 and communicates with QR codes with your hot wallet devices. Coldcard uses microSD to airgap.  Keystone pro 3 is the fancy version for these functions and extends to altcoins.

 

Both these desktop and hardware wallets can create multi signature options to enhance security.

 

 

 

 

[Castanza]

 

Sparrow plus Coldcard 

 

[ValueArb]

Quote

Bitcoin Spot ETFs Are Starting to See Slowing Investor Interest

By Elijah Nicholson-Messmer

January 25, 2024 at 1:24 PM MST

 

Interest in the much anticipated spot Bitcoin ETFs appears to be cooling, with Wednesday marking the group’s lowest single-day of investor gross inflows since trading began on Jan. 11.

 

The nine new funds received about $270 million in inflows yesterday, according to a report from JPMorgan Chase & Co. Once outflows from Grayscale Investment’s spot Bitcoin ETF are taken into account, overall net net outflows were about $153 million on Wednesday, It’s the third consecutive day of net outflows for the 10 funds. Outflows have come exclusively from GBTC, which converted from a trust following the US Securities and Exchange Commission’s approval of the investment vehicle.

 

JPMorgan called the group’s flow performance “disappointing,” citing it as a reason behind their downgrading earlier this week of cryptocurrency exchange Coinbase Global Inc., according to the analyst report Thursday. 

 

Since the debut, the nine new ETFs have received $5.2 billion in inflows, offsetting the $4.4 billion in outflows from GBTC. But recent days have seen that balance shift. While daily net outflows from GBTC are decreasing, total inflows in the other nine ETFs are decreasing even faster. Total net inflows are $857 million.

 

[TwoCitiesCapital]

51 minutes ago, ValueArb said:

 

 

Good news for us long-term accumulators. Less frenzy to compete against with my DCA every 2-weeks. 

 

Really hoping we head back to 30k one more time. 

 

 

[TwoCitiesCapital]

FTX Expects to Repay Customers in Full, Bankruptcy Lawyer Says https://www.bloomberg.com/news/articles/2024-01-31/ftx-expects-to-repay-customers-in-full-bankruptcy-lawyer-says

 

I haven't yet read Michael Lewis's profile yet, but it's on my list next. I'm familiar  with his take that Sam probably isn't as bad as the media portrays him, but that illegal stuff was absolutely going on.

 

But if this is true, then perhaps he was right. If there are no losses to creditors/depositors, was any fraud really perpetrated? 

 

Maybe just really loose/sloppy controls for an organization of that size. 

Edited January 31, 2024 by TwoCitiesCapital

[spartansaver]

4 minutes ago, TwoCitiesCapital said:

FTX Expects to Repay Customers in Full, Bankruptcy Lawyer Says https://www.bloomberg.com/news/articles/2024-01-31/ftx-expects-to-repay-customers-in-full-bankruptcy-lawyer-says

 

I haven't yet read Michael Lewis's profile yet, but it's on my list next. I'm familiar  with his take that Sam probably isn't as bad as the media portrays him, but that illegal stuff was absolutely going on.

 

But if this is true, then perhaps he was right. If there are no losses to creditors/depositors, was any fraud really perpetrated? 

 

Maybe just really loose/sloppy controls for an organization of that size. 

I read it, very fun read. I haven't read the other bitcoin book out there from what I understand makes FTX looks very bad. The Lewis portrayal makes it looks like the dumbest fraud in history. Enormous value and incentives aligned to FTX and not much value to Alameda and they let Alameda blow up FTX. It just seemed dumb and unnecessary. 

[Sweet]

27 minutes ago, TwoCitiesCapital said:

was any fraud really perpetrated? 

FTX funds were siphoned into the hedge fund without the knowledge of the clients.  No way that’s legal. 

[TwoCitiesCapital]

8 minutes ago, Sweet said:

FTX funds were siphoned into the hedge fund without the knowledge of the clients.  No way that’s legal. 

 

I didn't say legal. My post actually used the word "illegal". And the money wasn't technically siphoned - it ALL started off in Alameda, even if the deposit  was intended for FTX, which is what the case against Silvergate Bank is about since they were processing those transfers. 

 

So was it fraud? Or just a case of money being in account it shouldn't have been in and then returned? 

 

To illustrate: 

I once deposited a return of my security deposit via mobile deposit. Over the next 2-3 days, it hadn't shown up in my balances which was typically  a same-day occurrence. So the next day so I re-deposited it thinking it was an error with the initial deposit. Another 2-3 days go by and then the deposit showed up twice in my account. I figured the bank would catch the error, but a 2-3 weeks later the duplicate funds were still in my account. I called the bank, told them of my mistake, and the funds were removed.

 

Did I commit fraud because there were funds in an account they shouldn't have been in for ~15-20 days. Or were there just loose controls that allowed a double deposit of a the same check twice that was eventually rectified with no criminal deposit fraud committed?

Edited January 31, 2024 by TwoCitiesCapital

[ValueArb]

42 minutes ago, TwoCitiesCapital said:

FTX Expects to Repay Customers in Full, Bankruptcy Lawyer Says https://www.bloomberg.com/news/articles/2024-01-31/ftx-expects-to-repay-customers-in-full-bankruptcy-lawyer-says

 

I haven't yet read Michael Lewis's profile yet, but it's on my list next. I'm familiar  with his take that Sam probably isn't as bad as the media portrays him, but that illegal stuff was absolutely going on.

 

But if this is true, then perhaps he was right. If there are no losses to creditors/depositors, was any fraud really perpetrated? 

 

Maybe just really loose/sloppy controls for an organization of that size. 

 

Lewis's book has been heavily debunked, he was clearly dazzled by SBF to the point where he was unable to ask tough questions or accept negative information about SBF.

 

And if you steal $100,000 from work to buy lottery tickets, and one of them pays off $100,000 so you can repay your boss in full, did you really steal? The answer is of course, yes. SBF took customer deposits he wasn't allowed to lend out, and lent them to his own hedge fund Alameda to cover their trading losses. He did this because while FTX had a lot of long term assets of potential value, the only assets (liabilities really) that had liquidity were customer funds.

 

In one case in 2023 he threw $500M into Anthropic AI startup, which at its latest proposed valuation ($18B) would be worth around $2.5B. But how can FTX shareholders monetize that stake? Anthropic is likely to be cool to the idea of helping FTX sell it because it will hurt the valuation of their current round (assuming it hasn't closed yet). So the lawyers more likely will have to hire a bank to find investors who missed out of the latest round who might pay $1.5B to $2B. Still a nice gain, but essentially he made a high risk investment and its so far paid off, using other peoples money.

 

Its no different than what Martin Shkreli did, where he lied and stole from investors, but before he lost all their money hit on one big investment win large enough to pay them back. He then tried to claim he did not defraud any clients since they all got their money back, but a judge saw through that to the tune of 7 years in prison.

Edited January 31, 2024 by ValueArb

[ValueArb]

2 minutes ago, TwoCitiesCapital said:

 

I didn't say legal. My post actually used the word "illegal". And the money wasn't technically siphoned - it ALL started off in Alameda, even if the deposit  was intended for FTX, which is what the case against Silvergate Bank is about since they were processing those transfers. 

 

So was it fraud? Or just a case of money being in account it shouldn't have been in and then returned? 

 

FTX had legal agreements with clients. Some deposits could be loaned out, most could not. FTX loaned out almost all of the deposits. 

 

2 minutes ago, TwoCitiesCapital said:

To illustrate: 

I once deposited a return of my security deposit via mobile deposit. Over the next 2-3 days, it hadn't shown up in my balances which was typically  a same-day occurrence. So the next day so I re-deposited it thinking it was an error with the initial deposit. Another 2-3 days go by and then the deposit showed up twice in my account. I figured the bank would catch the error, but a 2-3 weeks later the duplicate funds were still in my account. I called the bank, told them of my mistake, and the funds were removed.

 

Did I commit fraud because there were funds in an account they shouldn't have been in for ~15-20 days. Or were there just loose controls that allowed a double deposit of a the same check twice that was eventually rectified with no criminal deposit fraud committed?

 

If you had withdrawn the extra funds and spent them, yep, that's fraud. If you left them in the account until it the situation was fixed, no. 

[TwoCitiesCapital]

2 hours ago, ValueArb said:

 

Lewis's book has been heavily debunked, he was clearly dazzled by SBF to the point where he was unable to ask tough questions or accept negative information about SBF.

 

And if you steal $100,000 from work to buy lottery tickets, and one of them pays off $100,000 so you can repay your boss in full, did you really steal? The answer is of course, yes. SBF took customer deposits he wasn't allowed to lend out, and lent them to his own hedge fund Alameda to cover their trading losses. He did this because while FTX had a lot of long term assets of potential value, the only assets (liabilities really) that had liquidity were customer funds.

 

In one case in 2023 he threw $500M into Anthropic AI startup, which at its latest proposed valuation ($18B) would be worth around $2.5B. But how can FTX shareholders monetize that stake? Anthropic is likely to be cool to the idea of helping FTX sell it because it will hurt the valuation of their current round (assuming it hasn't closed yet). So the lawyers more likely will have to hire a bank to find investors who missed out of the latest round who might pay $1.5B to $2B. Still a nice gain, but essentially he made a high risk investment and its so far paid off, using other peoples money.

 

Its no different than what Martin Shkreli did, where he lied and stole from investors, but before he lost all their money hit on one big investment win large enough to pay them back. He then tried to claim he did not defraud any clients since they all got their money back, but a judge saw through that to the tune of 7 years in prison.

 

What investments of FTXs hit it big? My understanding from all the coverage was they supposedly lost hundreds of millions in Terra Luna. Hundreds more in failed investments in other crypto startups. They bailed out BlockFi and Voyager for hundreds of millions apiece - both of which went under after FTX did. 

 

I know some money was able to be clawed back from real estate, Robinhood stake, and executive comp, but what "bet" paid them back for the hundreds of millions in losses in Luna, BlockFi, Voyager, etc that were financed by customer funds? 

 

Am legitimately curious. Because I'm unaware of any coverage of monster successful trades they've made that covered the supposed losses. As it unravels, it seems like the money was always there and just not in the correct accounts and what was lost was the net equity of the firm - not deposits or money needed for creditors/liabilities. 

 

Which is still problematic, still a crime, and still a very real black-spot on their risk controls - but not quite the same as taking customer funds to Vegas. 

Edited January 31, 2024 by TwoCitiesCapital

[Sweet]

2 hours ago, TwoCitiesCapital said:

So was it fraud? Or just a case of money being in account it shouldn't have been in and then returned? 

I consider it fraud yes, because he deliberately deceived clients and moved it into a hedge fund which he wasn’t authorised to do.  He was supposed to be a custodian of deposits but he was fiddling the books to fund his hedge fund.

[wachtwoord]

5 hours ago, TwoCitiesCapital said:

FTX Expects to Repay Customers in Full, Bankruptcy Lawyer Says https://www.bloomberg.com/news/articles/2024-01-31/ftx-expects-to-repay-customers-in-full-bankruptcy-lawyer-says

 

I haven't yet read Michael Lewis's profile yet, but it's on my list next. I'm familiar  with his take that Sam probably isn't as bad as the media portrays him, but that illegal stuff was absolutely going on.

 

But if this is true, then perhaps he was right. If there are no losses to creditors/depositors, was any fraud really perpetrated? 

 

Maybe just really loose/sloppy controls for an organization of that size. 

 

Lol, be sure to read the fine print of what in full means: it's just in full for the dollarized claim value at petition date. Not that hard when the underlying remaining assets go up like crazy (priced in dollars) after that date.

 

Outside the world of lawyers everyone involved outside of the bankruptcy lawyers got majorly shafted. (But then again: who in their right mind would use such a scummy exchange?)

[TwoCitiesCapital]

17 minutes ago, wachtwoord said:

 

Lol, be sure to read the fine print of what in full means: it's just in full for the dollarized claim value at petition date. Not that hard when the underlying remaining assets go up like crazy (priced in dollars) after that date.

 

Outside the world of lawyers everyone involved outside of the bankruptcy lawyers got majorly shafted. (But then again: who in their right mind would use such a scummy exchange?)

 

Ah, interesting! Hadn't caught that. 

 

Is there a reason FTX bankruptcy is paying out dollar denominated claims as opposed to the underlying crypto? BlockFi paid back depositor claims in the respective crypto that was deposited. Celsius hasn't paid back yet, but it's supposed to be some denomination of BTC/ETH and equity in the surviving subsidiary - not some $ based claim as far as I've followed. 

 

Why is FTX doing $ claims and being treated differently than the other bankruptcies in the space? 

Edited January 31, 2024 by TwoCitiesCapital

[ValueArb]

19 hours ago, TwoCitiesCapital said:

 

What investments of FTXs hit it big? My understanding from all the coverage was they supposedly lost hundreds of millions in Terra Luna. Hundreds more in failed investments in other crypto startups. They bailed out BlockFi and Voyager for hundreds of millions apiece - both of which went under after FTX did. 

 

I know some money was able to be clawed back from real estate, Robinhood stake, and executive comp, but what "bet" paid them back for the hundreds of millions in losses in Luna, BlockFi, Voyager, etc that were financed by customer funds? 

 

Am legitimately curious. Because I'm unaware of any coverage of monster successful trades they've made that covered the supposed losses. As it unravels, it seems like the money was always there and just not in the correct accounts and what was lost was the net equity of the firm - not deposits or money needed for creditors/liabilities. 

 

Which is still problematic, still a crime, and still a very real black-spot on their risk controls - but not quite the same as taking customer funds to Vegas. 

 

Anthropic, which I already mentioned, is a huge win with at least a $2B paper profit. You already pointed out that he gambled on BlockFi, Voyager, Alameda, Robinhood etc with customer funds, so its exactly like taking customer funds to Vegas.

[ValueArb]

Here is a little more color on FTX recovery. TLDR: Its likely but not certain claimants will get paid back all their money. They have regained a lot of asset value from increasing crypto prices for BTC and Solano, there was a lot of real estate and other assets Sam stole from FTX and gave to himself, friends and family that has been recovered, and then the Anthropic gain.

 

Quote

At some point in early 2022, crypto exchange FTX Trading Ltd. apparently had an equity value of $32 billion, based on the price it got in a fundraising round. By November 2022, FTX founder Sam Bankman-Fried was shopping it around at an equity value of $0; he almost found a buyer at $0, but couldn’t quite make it work. FTX had assets (a bunch of crypto tokens, some venture stakes, a surprising amount of Bahamas real estate), and it had liabilities (it owed its customers a lot of crypto tokens), and it had some sort of going-concern franchise value (if it kept operating a crypto exchange, it could keep charging fees and making money). In early 2022, the assets seemed to be worth more than the liabilities, and the franchise value — FTX’s large steady profits, and the prospect of more in the future as it expanded — was high, leading to a $32 billion equity valuation. In late 2022, the assets turned out to be largely magic beans, the liabilities were high, and FTX’s time as a trusted profitable crypto exchange seemed to be over. The result is that no one was willing to pay $0 to take on FTX’s assets and liabilities and franchise: Any buyer would have to cash out FTX’s customers, and there weren’t enough assets to do that.

Or, I mean, that’s how it seemed. Sam Bankman-Fried, before he went to jail, consistently argued that that wasn’t true, that if he had had another 24 hours he could have found a buyer to acquire FTX for at least $0 and make all of the customers whole. That has always sounded extremely unlikely, given how carelessly FTX handled customer money and how hideous its balance sheet looked at the time of its implosion. But he kept saying it.

 

In 2024, on the other hand, Bloomberg’s Steven Church and Jonathan Randles report:

Customers and creditors of bankrupt crypto exchange FTX who can prove their losses will likely get back all of their money, the company told the judge overseeing the insolvency case.

Restructuring advisers will need to examine the millions of claims that have been filed against FTX to weed out those that are not legitimate, lawyer Andrew Dietderich said during a Wednesday court hearing in Wilmington, Delaware.

“I would like the court and stakeholders to understand this not as a guarantee, but as an objective,” Dietderich said. “There is still a great amount of work, and risk, between us and that result. But we believe the objective is within reach and we have a strategy to achieve it.”

In addition, the team overseeing the company has dropped an effort to restart or sell the FTX crypto exchange after concluding it would cost too much, Dietderich said. Advisers ran an exhaustive process to find investors willing to restart FTX.com, but nobody would put up the cash needed to revive the exchange, he said.

“The costs and risks of creating a viable exchange from what Mr. Bankman-Fried left in the dumpster were simply too high,” Dietderich said, referencing founder Sam Bankman-Fried, who shut down the crypto firm and handed control to insolvency experts in late 2022.

That last paragraph says that the franchise value is still $0. It turns out that, still, nobody wants to trade on the FTX exchange; its stream of trading fees is extinguished forever.

 

But the pile of magic beans and real estate that FTX had at the end of 2022 turned out to be worth more than its liabilities? The roughly $8 billion hole that FTX’s affiliated trading firm, Alameda Research, blew in its balance sheet got … filled up? The customer money all turned out to be there? FTX was worth less than $0 in November 2022, but has somehow become far more valuable in bankruptcy?

 

It’s weird. There are several explanations for what has changed between November 2022 and now. For one thing, crypto prices collapsed alongside FTX, and by the time Bankman-Fried was looking for buyers, the value of its crypto holdings was low. Now crypto prices are up, which helps on the asset side. It should hurt more on the liabilities side — if FTX owes customers Bitcoin, that debt is worth more now than it was in 2022 — except that that’s not how the bankruptcy accounting works. FTX’s bankruptcy planprovides for “the valuation of claims in U.S. dollars as of the Petition Date” (Nov. 11, 2022) and payment in cash. If FTX owed you one Bitcoin before it collapsed, now it owes you roughly $17,000 (the value of a Bitcoin on Nov. 11, 2022). If FTX had one Bitcoin before it collapsed, now it has about $43,000 (the value of a Bitcoin today). If FTX had enough Bitcoins to pay off half of its customers' claims in 2022, now it has enough to pay off all of them.

 

I’m not sure that’s the main mechanism. By the time of its collapse FTX didn’t really have much Bitcoin; its crypto holdings were largely “Samcoins” associated with Bankman-Fried that have not recovered nearly as much value. But a big chunk of FTX’s holdings were in Solana, which has rallied a lot. And FTX’s bankruptcy estate apparently dumped $1 billion of the Grayscale Bitcoin exchange-traded fund this month, profiting from the rise in Bitcoin prices since 2022. So rising crypto prices have definitely helped.

 

For another thing, FTX has, like, posthumously pivoted to AI? In April 2022, Bankman-Fried invested $500 million of FTX/Alameda’s money into Anthropic, a somewhat obscure artificial intelligence startup. That was kind of a reckless thing to do with customer demand deposits, putting them into an illiquid speculative equity investment in futuristic technology. It did work out, however: AI is huge now, Anthropic is a big player, and FTX’s stake is probably worth billions of dollars. Bankman-Fried's whole schtick, for most of his career, was about taking terrifying risks that somehow worked out. “Let’s take our customers’ money and secretly put it into venture investments in an AI startup” is a terrifying risk, an insane thing to do, and yet it worked out! Not for Bankman-Fried, though; he’s in jail.

 

Also there’s the real estate? Generally speaking, FTX seems to have siphoned off a ton of money into fancy apartments for its executives, big vanity investments in their friends’ companies, inflated endorsement deals with celebrities, and other reckless spending. When Bankman-Fried was shopping FTX to buyers in 2022, he didn’t count this stuff as FTX assets, because it mostly wasn’t: The money had been paid out to realtors and friends and celebrities. But the bankruptcy team generally argues that this stuff does belong to FTX, that it ended up in the hands of FTX’s executives and friends and family illegitimately, and they are trying to get it back. They might succeed with some of it. If your model of FTX is “Sam Bankman-Fried stole a lot of customer money and used it to buy luxury apartments,” that’s actually pretty good news for customers, because you can seize the apartments and sell them and give the money back to the customers. Whereas “Sam Bankman-Fried lost customer money gambling on crypto” would mean it’s probably gone.

 

Also there is just a due diligence layer here that probably matters for valuation. The bankruptcy executives who currently control FTX are humorless types who care a lot about careful accounting and who report regularly to a court. When they say things like “we found $300 million of assets under a couch cushion,” people are inclined to believe it. When they want to sell stuff, they run a slow and heavily lawyered sales process that lets multiple buyers kick the tires, and the buyers can have some confidence in what they are buying.

 

When Sam Bankman-Fried tried to sell FTX for $0, he had a slapdash and terrifying spreadsheet that emphasized the “Hidden, poorly internally labeled ‘fiat@’ account” with a balance of negative $8 billion. If you are a potential buyer, and you get that spreadsheet along with a text message like “hey FYI I need your final binding bid in two hours or it’s off to jail with me,” you might not be inclined to make an aggressive bid? You might think “hmm negative $8 billion is a suspiciously round number, what if there are other hidden liabilities here that I don’t know about and can’t find out about in two hours?” You might just pass. It’s possible that FTX really was worth at least $0 the whole time, that even at its lowest point it had enough stuff lying around to pay back all its customers. It’s just that Sam Bankman-Fried was in no position to make anyone believe that