Cryptocurrencies

[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.

 

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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

 

[wachtwoord]

On 1/31/2024 at 10:42 PM, TwoCitiesCapital said:

 

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? 

 

Appearently US bankrupcy law (?!). Everything is valued in US Dollars at the petition date and that is what debtors get to claim and not a penny more.

 

Celcius is the same. They may pay out in part in Bitcoin and Ethereum (and equity in some crazy "mining corp" that also retains a bunch of equity in Ethereum to "stake", utter nonsense as debtors are forced into an investment ran by incompentents) but everything is valued by the the Dollorized value at petition rate. That's why the recovery rates look so good (the only ones winning are the law firms that got to handle the bankrupcy, but I reckon that's nearly always the case).

 

PS: the Celcius CEO is also such an obvious scammer you can smell from a mile away.

[TwoCitiesCapital]

48 minutes ago, wachtwoord said:

 

Appearently US bankrupcy law (?!). Everything is valued in US Dollars at the petition date and that is what debtors get to claim and not a penny more.

 

Celcius is the same. They may pay out in part in Bitcoin and Ethereum (and equity in some crazy "mining corp" that also retains a bunch of equity in Ethereum to "stake", utter nonsense as debtors are forced into an investment ran by incompentents) but everything is valued by the the Dollorized value at petition rate. That's why the recovery rates look so good (the only ones winning are the law firms that got to handle the bankrupcy, but I reckon that's nearly always the case).

 

PS: the Celcius CEO is also such an obvious scammer you can smell from a mile away.

 

Mayhaps. I'll know more when I get my payment due Celsius, but my cousin was in BlockFi and was made whole on his entire Ethereum stack - not the USD value on the date of their filing. So there definitely IS a difference somewhere. 

Edited February 2 by TwoCitiesCapital

[TwoCitiesCapital]

The most recent 'What Bitcoin Did' podcast with Preston Push was interesting IMO. 

 

Two accompanying slides stood out to me 

 

The first showing $ cleared on-chain versus payments cleared by Visa/MasterCard. This doesn't reflect Lightning Network Transactions which I think is the more apt comparison, but definitely goes to show that Bitcoin is a force to be reckoned with in terms of clearing value. 

 

 

The second showing price and time both in log-scale which is a new representation I haven't yet seen. Not sure I quite grasp the intention behind the log of time, but it's an interesting visualization of the tops/bottoms on the cycle, when it provides good value (like now), and the accompanying 'mooning' after the historical halvings. 

 

[TwoCitiesCapital]

Just got my Celsius distribution today. Had a hair over 0.5 BTC there and ~4k of stable coins. 

 

My distribution today was for 1.6 ETH. 85% loss in nominal terms compared to what the crypto would be worth today had I just held the BTC and stable coin in my wallet 

 

No idea what the value of the private mining co is ,or when I'll get my shares and it'll IPO, but that is supposed to be the bulk of the recovery. 

 

clawvacks from on going litigation could add a few more %, but it's looking ugly so far in comparison to my cousin was made whole in BlockFis bankruptcy 

[TwoCitiesCapital]

In other news, it has begun....

 

No shock that Fidelity is first to incorporate it for model-type portfolios 

 

Edited February 7 by TwoCitiesCapital

[james22]

38 minutes ago, TwoCitiesCapital said:

In other news, it has begun....

 

No shock that Fidelity is first to incorporate it for model-type portfolios 

 

 

Boom!

[james22]

On 1/17/2024 at 4:05 AM, james22 said:

When does Fidelity add a 1-2% FBTC allocation to their Target Date Retirement Funds?

 

Earlier than I'd thought.

[TwoCitiesCapital]

4 hours ago, TwoCitiesCapital said:

Just got my Celsius distribution today. Had a hair over 0.5 BTC there and ~4k of stable coins. 

 

My distribution today was for 1.6 ETH. 85% loss in nominal terms compared to what the crypto would be worth today had I just held the BTC and stable coin in my wallet 

 

No idea what the value of the private mining co is ,or when I'll get my shares and it'll IPO, but that is supposed to be the bulk of the recovery. 

 

clawvacks from on going litigation could add a few more %, but it's looking ugly so far in comparison to my cousin was made whole in BlockFis bankruptcy 

 

Just updating here: 

 

Received a second separate distribution of 0.1055 BTC. 

 

Not sure how they decided the make up of BTC and ETH for the recovery, but I wasn't expecting two separate payments. 

 

Better than what was implied by my original post but still a far cry from the crypto lost

[wachtwoord]

13 hours ago, TwoCitiesCapital said:

In other news, it has begun....

 

No shock that Fidelity is first to incorporate it for model-type portfolios 

 

 

Love it's in the portfolio they label conservative. It's branded as inherently risky in most people's heads way too much. But that risk (volatility based) is just one of the aspects of risk, while for some other aspects it's just about the least risky thing in the world.

 

Diversifying across "risk classes" is  yet another form of diversification (downwards protection) so the allocation seems very reasonable to this type of portfolio even to those agnostic on Bitcoin.

[james22]

14 hours ago, james22 said:

Earlier than I'd thought.

 

Not quite here yet, actually.

 

1% of $168M, not $4T.

 

Fidelity Canada. And this allocation has been around for years and Canada has had a BTC spot ETF for three years now.

 

https://www.reddit.com/r/Bitcoin/comments/1ala1yi/fidelity_allocating_1_to_spot_bitcoin_in_their/

 

Still, so fidelity has been able to hold people's btc safely for 3 years without issues? promising

 

[wachtwoord]

12 hours ago, james22 said:

 

Not quite here yet, actually.

 

1% of $168M, not $4T.

 

Fidelity Canada. And this allocation has been around for years and Canada has had a BTC spot ETF for three years now.

 

https://www.reddit.com/r/Bitcoin/comments/1ala1yi/fidelity_allocating_1_to_spot_bitcoin_in_their/

 

Still, so fidelity has been able to hold people's btc safely for 3 years without issues? promising

 

 

Thanks for actually reading

 

I guess I should have guessed it from the "Canadian equities" item. Seemed too fast too as you said in your earlier comment.

[TwoCitiesCapital]

14 hours ago, james22 said:

 

Not quite here yet, actually.

 

1% of $168M, not $4T.

 

Fidelity Canada. And this allocation has been around for years and Canada has had a BTC spot ETF for three years now.

 

https://www.reddit.com/r/Bitcoin/comments/1ala1yi/fidelity_allocating_1_to_spot_bitcoin_in_their/

 

Still, so fidelity has been able to hold people's btc safely for 3 years without issues? promising

 

 

Good call - hadn't realized it was already in the Canadian models either so I suppose still good news to me, but certainly less impactful. 

 

That being said, hard to say it won't be a road map for US models now that the ETF is approved. 

 

 

[james22]

BlackRock's portfolios might be getting more bitcoin in coming years.

 

Rick Rieder, BlackRock's chief investment officer of global fixed income and head of global allocation, said the world's largest asset manager currently has a very small exposure to bitcoin. But he said that could change along with public attitudes.

 

"Time will tell whether it's gonna be a big part of the asset allocation framework," Rieder said on WSJ's Take On the Week podcast. "I think over time, people become more and more comfortable with it."

 

BlackRock recently launched a spot bitcoin fund that holds more than $3 billion of the cryptocurrency.

Rieder oversees a wide range of portfolios that manage the money of government pensions and retirement funds.

 

More from Rieder:

 

- "If there is more and more receptivity, now we have more vehicles that people can utilize to get more comfortable with owning it and buying it and selling it and liquidating it."

 

- "As you get more and more people that adopt it as an asset, we think the upside potential is real, which has been recognized recently."

 

https://archive.ph/hQnt8#selection-4073.0-4139.136

[james22]

[james22]

https://www.cnbc.com/video/2024/02/14/bitwise-matt-hougan-dacfp-ric-edelman-growing-adoption-of-spot-bitcoin-etfs.html

[james22]

On 2/14/2024 at 7:04 PM, james22 said:

https://www.cnbc.com/video/2024/02/14/bitwise-matt-hougan-dacfp-ric-edelman-growing-adoption-of-spot-bitcoin-etfs.html

 

Thought there'd be more reaction to this?

 

RIAs manage $8T.

 

75% of them plan to allocate an average of 2.5% to the bitcoin ETFs.

 

That's $150B demand.

 

And doesn't include the wirehouses, regional broker-dealers, or institutions (Blackrock alone manages $9T).

 

 

 

 

 

 

[TwoCitiesCapital]

18 minutes ago, james22 said:

 

Thought there'd be more reaction to this?

 

RIAs manage $8T.

 

75% of them plan to allocate an average of 2.5% to the bitcoin ETFs.

 

That's $150B demand.

 

And doesn't include the wirehouses, regional broker-dealers, or institutions (Blackrock alone manages $9T).

 

 

 

 

 

 

 

I think its going to take years. How do you get $200+ billion into a market cap that is only $1 trillion? You either drive the price to the move massively by hitting every bid and then risk having no liquidity if you need to sell OR you slowly accumulate while waiting for that $1 trillion market cap to grow to $5-10 trillion. 

 

I think most of these allocations occur AFTER the next exponential step-wise move in BTC. Unfortunate for those guys - great for me to continue to accumulate. 

Edited February 16 by TwoCitiesCapital

[james22]

4 hours ago, TwoCitiesCapital said:

I think its going to take years.

 

Once investment advisors are cleared to recommend making bitcoin an allocation, there won't be a race to secure their clients that allocation?

[TwoCitiesCapital]

1 hour ago, james22 said:

 

Once investment advisors are cleared to recommend making bitcoin an allocation, there won't be a race to secure their clients that allocation?

 

I think plenty of them will be cautious to buy if it has just gone up 50-100%. Also, plenty of firms/advisors are still not 'for' it despite the approval of BTC. It's a pipe dream to expect the company I work for to allocate to it any time soon. 

 

And as far as those with advisors, people don't tend to be as greedy when allocating others' money then when trying to resist the pull of greed on their own so will be more cautious as the price rises I suspect. 

Edited February 16 by TwoCitiesCapital

[james22]

19 minutes ago, TwoCitiesCapital said:

I think plenty of them will be cautious to buy if it has just gone up 50-100%.

 

I'd think they can't risk sitting out if it goes up another (well-publicized) amount?

 

As long as the music is playing, you've got to get up and dance.

 

19 minutes ago, TwoCitiesCapital said:

Also, plenty of firms/advisors are still not 'for' it despite the approval of BTC.

 

75% is more than sufficient.

 

But they'll ultimately respond to what their customers want. One way or another.

 

[TwoCitiesCapital]

19 hours ago, james22 said:

 

I'd think they can't risk sitting out if it goes up another (well-publicized) amount?

 

As long as the music is playing, you've got to get up and dance.

 

 

75% is more than sufficient.

 

But they'll ultimately respond to what their customers want. One way or another.

 

 

I agree. I think it'll just take more time. 

 

The company I worked for was asked a question about BTC during an educational conference with our advisors 2 years or so ago. They laughed it off And basically said our clients were better off not owning it after the rapid drawdown we'd just seen. There was no intellectual honesty about it being the best performing asset over 3- and 5- year periods even after that drawdown. 

 

Now that's it's gone up 2-3x from those amounts, there's still no one really talking about, or recommending it. 

 

I'm sure over time more and more clients/FAs will push for us to allow it and have guidance on it - especially with the ETFs now available. But it's going to take time. We're not chomping at the bit to add it just because it's up 300% from the lowd and I imagine other firms are similar which is why you're seeing them block clients from owning it at this time. 

 

I think we get one more cycle starting this halving. BTC may go up to 200-300k as the FOMO will be more widespread, but still not driven by the institutional adoption. Then we'll come back down to 50-100k in one last shakeout and from there the adoption curve will really take off as 2-3 years will have passed. 

 

Market cap will be sufficiently high to start accepting widespread inflows from retail and corporates. That'll drive the market high enough to allow for the entrants of countries/sovereign wealth/central banks. 

 

. 

Edited February 17 by TwoCitiesCapital

[james22]

1 hour ago, TwoCitiesCapital said:

I think it'll just take more time. 

 

Fair enough (shouldn't expect RIAs to be chomping at the bit in 60 days or whenever they can recommend an allocation), but a couple quarters of underperformance should encourage adoption, yeah?

 

 

Edited February 17 by james22

[james22]

1 hour ago, TwoCitiesCapital said:

I think we get one more cycle starting this halving. BTC may go up to 200-300k as the FOMO will be more widespread, but still not driven by the institutional adoption. Then we'll come back down to 50-100k in one last shakeout and from there the adoption curve will really take off as 2-3 years will have passed. 

 

Market cap will be sufficiently high to start accepting widespread inflows from retail and corporates. That'll drive the market high enough to allow for the entrants of countries/sovereign wealth/central banks. 

 

Why would institutional adoption be so much slower than (surveyed) RIA adoption? 

 

Especially the institutions that brought the ETFs forward?

 

Fidelity won't market its Bitcoin ETF as an advantage over Vanguard?

[Dave86ch]

12 hours ago, TwoCitiesCapital said:

 

I agree. I think it'll just take more time. 

 

The company I worked for was asked a question about BTC during an educational conference with our advisors 2 years or so ago. They laughed it off And basically said our clients were better off not owning it after the rapid drawdown we'd just seen. There was no intellectual honesty about it being the best performing asset over 3- and 5- year periods even after that drawdown. 

 

Now that's it's gone up 2-3x from those amounts, there's still no one really talking about, or recommending it. 

 

I'm sure over time more and more clients/FAs will push for us to allow it and have guidance on it - especially with the ETFs now available. But it's going to take time. We're not chomping at the bit to add it just because it's up 300% from the lowd and I imagine other firms are similar which is why you're seeing them block clients from owning it at this time. 

 

I think we get one more cycle starting this halving. BTC may go up to 200-300k as the FOMO will be more widespread, but still not driven by the institutional adoption. Then we'll come back down to 50-100k in one last shakeout and from there the adoption curve will really take off as 2-3 years will have passed. 

 

Market cap will be sufficiently high to start accepting widespread inflows from retail and corporates. That'll drive the market high enough to allow for the entrants of countries/sovereign wealth/central banks. 

 

. 

“All truth passes through three stages.

First, it is ridiculed.

Second, it is violently opposed.

Third, it is accepted as being self-evident.”

 

Arthur Schopenhauer