Speaker 1: Hello, and welcome to another episode of the Mark Mos Show,
Speaker 1: where we talk about the decentralized revolution, how the world
Speaker 1: is changing right before our very eyes. Of course, as
Speaker 1: we look at it through the lens of politics, finance,
Speaker 1: and technology, and the technology being of course bitcoin and
Speaker 1: the decentralized technology. There is a lot going on in
Speaker 1: the world every week. It's making my job easy. There's
Speaker 1: always so much to talk to, and this week, specifically
Speaker 1: in the finance space, more specifically in the crypto space,
Speaker 1: we have I guess, for lack of a better word,
Speaker 1: it is blowing up. I'm joined in the studio with
Speaker 1: Joe Consorti, a friend and somebody who helps me with
Speaker 1: my research. By the way, shout out to Joe. Follow
Speaker 1: him on Twitter at Joe Consorti. Um, he does great work.
Speaker 1: And uh, Joe, welcome to the show. Welcome back. Yeah,
Speaker 1: most definitely signed a chat man. Uh, it's always good
Speaker 1: to chat. You know. You help me out so much
Speaker 1: with a lot of the research that I'm doing on
Speaker 1: my YouTube channel, which, by the way, just this morning
Speaker 1: we broke the four hundred thousand subscriber mark, so pretty
Speaker 1: excited about that. If you're not following me on YouTube.
Speaker 1: You should just check it out. Mark Moss on YouTube.
Speaker 1: Joe helps me out loud out over there. But Joe
Speaker 1: uh Man, big news this week. Um, the frame this
Speaker 1: up just a little bit. UM. I covered it quite
Speaker 1: a bit. UM. The crypto industry UM and bitcoin took
Speaker 1: a massive hit. Um when Tara Luna blew up and
Speaker 1: Tara Luna blew up, and then we saw, um, you
Speaker 1: know the trickle down effect from that, the domino effect,
Speaker 1: if you will, And then you know, Celsius went down,
Speaker 1: and three arrows capital went down, and you know who
Speaker 1: knows what else went down. F t X came to
Speaker 1: be the savior. They came to be the Federal Reserve,
Speaker 1: if you will, to backstop all of these institutions. I
Speaker 1: pulled a couple of things here. Um. In May SPF
Speaker 1: he said, or May said that the leader as he
Speaker 1: was built at the exchange. I said that some of
Speaker 1: these exchanges are already secretly insolvent. He said some of
Speaker 1: them were too far gone. Uh. Then he went to
Speaker 1: say the month after, in July, that they have up
Speaker 1: to two billion dollars for further bailouts if they need it.
Speaker 1: And then uh, in October, just a couple of weeks
Speaker 1: October twenty six, he said that no more bailouts. He
Speaker 1: clarified the company will no longer pursue baillout type acquisitions
Speaker 1: and they were actually looking to raise money at a
Speaker 1: thirty two billion dollar valuation just a couple of weeks ago.
Speaker 1: Um my, my my, how quickly things change, right, Yeah, yeah,
Speaker 1: that's right. I mean, I think Celsius really did act
Speaker 1: as that de facto or not Celsie's rather with fp
Speaker 1: X acted like that de facto lender of last resort,
Speaker 1: similar to the Federal Reserve and in our own financial institutions.
Speaker 1: But really, and I was speaking with Dylan Leclair about this,
Speaker 1: it seems like a lot of it was, you know,
Speaker 1: a peacock flaring out his feathers before you know it
Speaker 1: get gets pounced on by a predator. Um. Really, it
Speaker 1: seems like in hindsight, that quote that you said a
Speaker 1: lot of these exchanges are secretly insolving, you know, it
Speaker 1: reads more now like an ominous warning about f t
Speaker 1: X than you know it did obviously was addressing under
Speaker 1: exchanges at the time. And it seems like in you know,
Speaker 1: in a in a poetic irony sort of way, in
Speaker 1: a twist of fate, UH, f t X and net
Speaker 1: orver extended themselves and they found themselves in a precarious
Speaker 1: capital position. UM in finance pounceling. You know, I want
Speaker 1: to talk about this and then we'll talk about it
Speaker 1: from a wider standpoint back into kind of what we're
Speaker 1: seeing in the traditional financial space as well with with
Speaker 1: countries doing this. We won't dig into it, but really
Speaker 1: this kind of got put onto my radar with the
Speaker 1: famous Black Wednesday when George Soros famously broke the peg
Speaker 1: of the Bank of England and going into the terror Luna.
Speaker 1: I would say that all pegs are meant to be broken,
Speaker 1: uh traders. As long as traders are gonna trade, they're
Speaker 1: gonna do what they're gonna do. They're always going to
Speaker 1: try to break these pegs. But I'm curious, um, you know,
Speaker 1: with the SPF thing, that the f t X thing,
Speaker 1: I should say Sam bankman Fried for those listening, he's
Speaker 1: the CEO, the founder of of f t X. UM
Speaker 1: you said that maybe he was secretly warning about himself
Speaker 1: being insolvent. Maybe he over extended himself to kind of
Speaker 1: what you just said about trying to protect all these
Speaker 1: other exchanges. But do you think that's really what it was?
Speaker 1: Or was it that he was using something fake and
Speaker 1: made up and as long as the public thought it
Speaker 1: had value, he was able to use it. But it
Speaker 1: was when the public decided it no longer had value
Speaker 1: than he just wasn't able to use it. So it
Speaker 1: wasn't so much about being overextended as it was too
Speaker 1: he was living on borrow time, living in an imagine world,
Speaker 1: and when that imagining world ended, his game ended. That's
Speaker 1: precisely right on both f t X and alumy his
Speaker 1: balance sheet. A lot of what they were borrowing against,
Speaker 1: a lot of the assets that they held that they
Speaker 1: were they were borrowing against was f t T now exactly,
Speaker 1: So you're so, you're so, you're deep in the weeds
Speaker 1: on this, Joe. You've been talking about this extensively. Let's
Speaker 1: back it up a little bit for those just tuning in,
Speaker 1: and let's kind of frame this up a little bit.
Speaker 1: So f t X and ALIMI what is that? What? What
Speaker 1: What what's the relationship there? Yes, so, f t X
Speaker 1: is the second largest cryptocurrency exchange in the world globally,
Speaker 1: and Alameter Research was co founded by these same CEO. Right, So,
Speaker 1: basically same owner, same CEO of both firms. Alameter Research
Speaker 1: is a prop trading desk, so they engage in crypto trading,
Speaker 1: and f t X is an exchange. So even though
Speaker 1: they aren't the same company, they're essentially tied it the hip. Right,
Speaker 1: So for for my entire analysis, I've essentially considered them
Speaker 1: one of the same because of how closely intertwined they
Speaker 1: have been, and their activity over the last few days
Speaker 1: just just serves to prove that right. So m f
Speaker 1: t X is the crypto exchange, the crypto casino. You
Speaker 1: can go on there. You can buy all your different
Speaker 1: different crypto tokens that you want, your salonas, your ethereums, whatever,
Speaker 1: exchange your bitcoin for whatever you want. And then Alameda
Speaker 1: was a sister company that he created, um too then
Speaker 1: invest into these types of crypto projects. Um so if
Speaker 1: I framed it up right, and uh fun fact I
Speaker 1: used to write a cryptocurrency research newsletter, I don't anymore
Speaker 1: my I hate to dock him, but my ex business
Speaker 1: partner who I decided to work with anymore. Um and
Speaker 1: we knew Sam Bankman freed from back in the day
Speaker 1: before he went on to do all this stuff. And
Speaker 1: he reached out to him and said, hey, you know,
Speaker 1: um what what what new crypto projects do you think
Speaker 1: we need in for Salona And SPS said, hey, if
Speaker 1: we had this type of a project, I'm not going
Speaker 1: to ouch the whole thing. Um, then that would be
Speaker 1: something that probably beneficial from the market. And he said, great,
Speaker 1: if I build it, will you list it? And he said, well,
Speaker 1: if you can get Alameda to back it, then I will.
Speaker 1: He's like, well, can you set up a meeting with Alameda? Sure,
Speaker 1: no problem, Uh, set up a meeting with Alameda. They said, sure,
Speaker 1: if you build it, will buy it. I think less
Speaker 1: than like six months from start to finish, he had
Speaker 1: like hired a couple of people off upwork, launched the token,
Speaker 1: cashed out a big chunk of money from Alameda. They
Speaker 1: took a huge chunk of tokens from them, right, That's
Speaker 1: what they do, which is relevant because now let's talk
Speaker 1: about what's on their book, and one of which is
Speaker 1: a whole bunch of tokens that are probably worth nothing. Um. So,
Speaker 1: now that we've kind of framed up these two entities, um, like,
Speaker 1: so dig into how they were using this and kind
Speaker 1: of how we found the emperor has no clothes, I
Speaker 1: guess of course. So essentially the way that Alameda was
Speaker 1: borrowing was through what's called a flywheel scheme. Now essentially
Speaker 1: what a flywheel scheme is UM. F t X was
Speaker 1: responsible for creating this essentially worthless token, this internally printed
Speaker 1: out of nowhere token UM. But it was described value right.
Speaker 1: You know, f t X sold it on the open
Speaker 1: market on its exchange, and then users would buy it,
Speaker 1: and then through having this f T f t T token,
Speaker 1: they'd be able to go off on the exchange and
Speaker 1: buy things at a discount. They'd be you know, instead
Speaker 1: of having a larger transaction fees. Basically owning this token
Speaker 1: would allow them to have smaller transaction fees. Good. So
Speaker 1: essentially f t X created a market out of nowhere
Speaker 1: UM for for a feature, they created a security out
Speaker 1: of it, and then as a result of liquidity being
Speaker 1: pumped into this security, they were able to borrow against
Speaker 1: that security. Right, and then you can borrow against your security. UM.
Speaker 1: You go ahead and mark those on your books. You say, wow,
Speaker 1: take a look, we take a look at this. We've grown. UM,
Speaker 1: you issue more of that security, and it's essentially you're
Speaker 1: creating uh, something out of nothing and then backing it
Speaker 1: with yourself, backing with your cash flowing business um and
Speaker 1: and encouraging customers purchased this for a normal feature that
Speaker 1: you can include on your site anyways. And essentially it's
Speaker 1: creating this value out of nothing, which is allowing f
Speaker 1: t X and its sister company, Alameda to load a
Speaker 1: lot of this onto its balance sheet and then borrow
Speaker 1: against it. Right, so it's essentially borrowing against this vapor
Speaker 1: were token um and that's what we've seen him come
Speaker 1: home to roost um. You know. Well, we'll talk about
Speaker 1: what occurred with finance, but essentially the moment that the
Speaker 1: veil started to slip and the balance sheet leaked and
Speaker 1: people started publicly realizing that essentially the entire you know,
Speaker 1: the net equity of this firm is essentially backed by nothing,
Speaker 1: that's when this liquid it he began to un Yeah. Yeah,
Speaker 1: and this is uh, this is a micro look at
Speaker 1: how the overall financial system works. So I want to
Speaker 1: break all that down. If you're just tuning in, you're
Speaker 1: listening to the Markmas Show, We're sitting down with Joe Consorti.
Speaker 1: We're talking about the willow up in the crypto space
Speaker 1: with f t X Finance. What happened. We're breaking down
Speaker 1: the play by play, but like I said, I really
Speaker 1: want to kind of get into what this means for
Speaker 1: the greater financial system, the risk that we have. We
Speaker 1: got a whole lot to cover when we come. Come back.
Speaker 1: Don't go away, We're gonna be right back. All right,
Speaker 1: welcome back. If you're just tuning in, you're listening to
Speaker 1: the Mark Moss Show. Of course, we're talking about the
Speaker 1: decentralized revolution. We're talking about bitcoin, and we're talking about
Speaker 1: the cryptocurrency space right now that is absolutely blowing up
Speaker 1: this week with big news of the maybe the first
Speaker 1: and second largest crypto exchanges battling out. I'm in the
Speaker 1: studio with Joe Consortium Joe. Before the break, we were
Speaker 1: talking kind of we kind of framed it up, and
Speaker 1: we framed up how really kind of ft X and
Speaker 1: Alimeter kind of sister companies doing different things. Um, but
Speaker 1: they're both backed by something they created out of nothing.
Speaker 1: Now you know, I guess I say, all value is subjective,
Speaker 1: so everything is kind of created out of nothing and
Speaker 1: then the market prescribes value to it. Like you said, Um,
Speaker 1: I remember when I was a kid, there was like
Speaker 1: these beanie babies and they they you know, or you
Speaker 1: go like to the tulip, the tulip mania rights. All
Speaker 1: of a sudden, everyone just thinks these tulips are super valuable.
Speaker 1: But then the value just disappears. And so they created
Speaker 1: these these f T T tokens out of thin air.
Speaker 1: And then to the point you made, right the value
Speaker 1: the market prescribed value to them. The problem is that
Speaker 1: they were just holding that and that was this big
Speaker 1: asset on their books. Now, you did say that they
Speaker 1: were um leveraging it, borrowing against it, etcetera. Um, But
Speaker 1: even as much as they borrowed it and leveraged against it,
Speaker 1: they didn't really still have any other real world assets
Speaker 1: that didn't seem like that's exactly right. So if you
Speaker 1: take a look at the other assets that they had
Speaker 1: on their books, uh, it's basically a hodgepodge of of
Speaker 1: nameless and very very liquid other cryptocurrencies. You know, I
Speaker 1: could rattle off the list all to live long day,
Speaker 1: but none of your listeners, you or I wouldn't know
Speaker 1: what they are. Essentially, what Alameda and FTX were engaging
Speaker 1: in was, uh, you know this rapid selling of all it. Well,
Speaker 1: you know, this ownership of all these relatively unknown coins
Speaker 1: with very very very small markets, they practically own the market.
Speaker 1: And so you know, they were caught in this situation
Speaker 1: where they're basically owning every worthless thing under the sun
Speaker 1: that you could possibly imagine, um, and then having to
Speaker 1: sell it onto the open market for dollars. And you know,
Speaker 1: they're the most recent, you know, victim of this global
Speaker 1: golbal dollar shortage that we're facing, and unfortunately they're they
Speaker 1: were caught holding the steaming pile of worthlessness. Yeah, I
Speaker 1: think I I tweeted on somebody I replied on I
Speaker 1: think it was Corey Clipston's uh tweet, and I just said,
Speaker 1: you know, it's back to this warm buffet thing, which
Speaker 1: is a rising tide lifts all boats. And he looked
Speaker 1: like this genius because he used massive amounts of leverage
Speaker 1: at a time when the tide was rising. It made
Speaker 1: him look like a genius because he took way more
Speaker 1: risk than everybody else through massive amounts of leverage as
Speaker 1: well as all kinds of financial engineering, if you will fraud,
Speaker 1: if we might even go out that far to say that, um.
Speaker 1: But then as The second part of the buffet says
Speaker 1: that when the tide goes out, you see you swimming naked.
Speaker 1: So he looked like a genius using all this financial engineering,
Speaker 1: leverage going up, but as soon as the tide pulls out,
Speaker 1: all of a sudden, he is swimming naked. Now it
Speaker 1: seems like it all really got started. Maybe and correct
Speaker 1: me if I'm wrong. But when I think coin base
Speaker 1: had broken article, basically they got I don't know, some
Speaker 1: sort of insider information showing what the assets actually were
Speaker 1: on their balance sheet. Absolutely. Yeah. So the entire impetus
Speaker 1: for this was coin desk actually leaking their balance sheet.
Speaker 1: And it was revealed that within this coin desk report
Speaker 1: that had fourteen billion dollars worth of assets, right, which
Speaker 1: is you know, of course that number in and of
Speaker 1: itself means virtually nothing, right, Alameda is a relatively small company, UM.
Speaker 1: But then it was revealed that at the already of
Speaker 1: their assets are actually the largest holding, not the majority,
Speaker 1: but the largest holding individual holding that they had was
Speaker 1: ft T Right, this is worthless token I was printed
Speaker 1: out of thin air, which is of course backed by
Speaker 1: f t x is reputation. UM did three three and
Speaker 1: a half billion of what was called unlocked f t T.
Speaker 1: They had two and a half billion of FTT collateral,
Speaker 1: which leads us to believe that it's called FTT collateral.
Speaker 1: They're probably borrowing against that at least at two point
Speaker 1: one six billion dollar portion, and then two two million
Speaker 1: of locked FTT. Now, the reason this was concerning is
Speaker 1: because the entire free float market capitalization of ft T
Speaker 1: is less than four billion dollars. At the time that
Speaker 1: this coindesk article was released, it was revealed that Alameda
Speaker 1: was holding more FTT on their books than was regularly
Speaker 1: in circulation. And so that's essentially the you know, the
Speaker 1: straw that broke the camel's back, if you will. And
Speaker 1: it really started to get these market participants scared of
Speaker 1: what they were holding and the solignty of the Alameda
Speaker 1: and f t X. Yeah, so the tide starts going
Speaker 1: out all of a sudden, you go, shoot, they're swimming naked.
Speaker 1: They don't have my money. And what happens is psychologically
Speaker 1: everybody know, most people haven't really taken the time to
Speaker 1: stop and think about this. But if I give my
Speaker 1: money to the bank or I give my money to
Speaker 1: an exchange, whether it's the trade charl shwab or f
Speaker 1: t X, there's a chance I maybe don't get my
Speaker 1: money back. And uh, I think a lot of people
Speaker 1: willingly participate in Ponsi schemes. A lot of times people
Speaker 1: say what do you mean cardanos a scam? Like look
Speaker 1: how much money I've made? Well, people make money in
Speaker 1: Ponzi schemes. Uh. The game is can I get in
Speaker 1: and ride it up and get out before everybody else
Speaker 1: tries to get out because we know that there's no money? Um,
Speaker 1: and I think you know, once people saw this number
Speaker 1: and went, oh, shoot, they don't have enough money, then
Speaker 1: the smart people start getting out, and then everybody starts
Speaker 1: rushing for the exits and it just really started to
Speaker 1: go down, so that that started happening. Um, I haven't
Speaker 1: I looked at the chart. I didn't actually try to
Speaker 1: coordinate the the plunge of ft T. It looked like
Speaker 1: it really kind of started over the weekend on Sunday.
Speaker 1: I guess right, Um where the coin Desk article? When
Speaker 1: did that come out? That was November two, So it
Speaker 1: looked like it kind of held on a couple of days.
Speaker 1: But who knows how much they were defending that peg
Speaker 1: so talk about that. So so then UH, that article
Speaker 1: comes out, it starts casting doubt. Then, um, I guess
Speaker 1: c Z, who's the founder of Finance, which I think
Speaker 1: is the largest cryptocurrency exchange, basically says, hey, we're holding
Speaker 1: a bunch of these tokens and we don't want them anymore.
Speaker 1: We're just gonna go ahead and sell them. Um. We
Speaker 1: for whatever reason, we see there a scam, we see
Speaker 1: there's no backing. We we want to be the first
Speaker 1: ones out of the exit. Is that what really kind
Speaker 1: of took it to them? That is what took it
Speaker 1: to them. If you take a look at the chart
Speaker 1: a few days afterwards. This is actually on the sixth,
Speaker 1: so four days after the coin Desk article released and
Speaker 1: the fear started moving through markets, c Z, obviously the
Speaker 1: owner of the largest UH cryptocurrency exchange, came out and said,
Speaker 1: we hold two point one billion dollars USC equivalent of
Speaker 1: f t T. We're gonna sell it all. We plan
Speaker 1: on selling it all on the market. Due to the
Speaker 1: limited liquidity in the market, We're gonna sell it over
Speaker 1: the next couple of weeks. And that sparked imminent panic. Essentially,
Speaker 1: you saw the price whipped down and then whip back up,
Speaker 1: and then strangely, for the next twenty four hours roughly, um,
Speaker 1: you know, until last evening when the strawbert of the
Speaker 1: camel's back. You saw essentially the price trying to move
Speaker 1: down and then getting defended at the twenty two dollar level.
Speaker 1: And why was this, Well, it seems like Alameda and
Speaker 1: f t X were engaging in currency defense, that they
Speaker 1: were essentially selling all of their assets in order to
Speaker 1: buy f t T and defend it. Now, why would
Speaker 1: you want to do something like that, Well, if you
Speaker 1: have a margin call level that's at or around twenty two,
Speaker 1: that's the kind of behavior that they were engaging in.
Speaker 1: We saw on chain both Alameda and f t X
Speaker 1: were really selling everything that they had in their books
Speaker 1: that had a liquid market and flipping it into f
Speaker 1: t t UM. And as we saw, there was just
Speaker 1: too much cell pressure to contend with on top of
Speaker 1: c Z, on top of the short sellers, UH and
Speaker 1: the spots sellers, um, you know, f t X in
Speaker 1: and of themselves didn't have enough liquidity in order to
Speaker 1: you know, maintain this twinty through all our peg. It
Speaker 1: eventually broke and UH and yeah, not a very pretty picture.
Speaker 1: It all really started with coin desk, and then c
Speaker 1: Z was the one who exactly like you said, he said,
Speaker 1: I'm out, Yeah, I want to. I want to. I
Speaker 1: want to walk through what this means for c Z
Speaker 1: because he had two billion dollars over two billion dollars
Speaker 1: of the token. The market cap was almost three billion
Speaker 1: at the time. Today the market cap is uh less
Speaker 1: about five hundred million or less. So we'll walk through that.
Speaker 1: If you're just tuning in, you're listening to the Mark
Speaker 1: Moss Show, I'm in studio with Joe Consorti, and we
Speaker 1: are trying to sort through the big mess, the big
Speaker 1: blow up in the cryptocurrency space of the largest crypto
Speaker 1: exchange f t X becoming in solvent, being taken over
Speaker 1: by its largest competitor, and uh, what's really no better
Speaker 1: way to describe it as a speculaive attack. We're gonna
Speaker 1: break that down and then we're gonna I want to
Speaker 1: pivot into the greater financial system and show you how
Speaker 1: countries are basically doing the same thing, and you don't
Speaker 1: want to get caught off guard. A lot more to cover.
Speaker 1: We come back, don't go away, We're back all right,
Speaker 1: welcome back. If you just tune it in, you're listening
Speaker 1: to the Mark Moss Show. We are talking about right
Speaker 1: now the blow up in the cryptocurrency market where f
Speaker 1: t X, the second largest cryptocurrency exchange, just got taken
Speaker 1: out by its biggest competitor, got taken over. I'm in
Speaker 1: the studio with Joe CONSORTI. Um, Joe. When we were
Speaker 1: just before we went to break, we were talking about
Speaker 1: how or you had said that c Z had put
Speaker 1: out this tweet. Let's talk about why he put that
Speaker 1: tweet out. But what he said in the tweet was,
Speaker 1: as you already said, right, we have over two billion
Speaker 1: dollars of this token and we want to get rid
Speaker 1: of it. We're gonna do it orderly. UM. So what
Speaker 1: happens is for people that don't know, when you're doing
Speaker 1: a big purchase or sell, a lot of times you
Speaker 1: want to do that over the counter, meaning that's off
Speaker 1: the market, because if you do a big buy or
Speaker 1: you do a big cell where people see it, it
Speaker 1: could move the price up or could move the price down,
Speaker 1: and either way, typically you don't want that. It's what's
Speaker 1: known as slippage. So, for example, if I want to
Speaker 1: buy a million dollars worth of a certain token that
Speaker 1: had thin liquidity. If about a million dollars a bitcoin,
Speaker 1: it probably wouldn't matter so much. But you buy a
Speaker 1: million dollars off a token that has thin liquidity, the
Speaker 1: price will start going up, and so then that means
Speaker 1: I'm paying higher and higher and higher amounts. Likewise, if
Speaker 1: I have a million dollars I want to sell, I
Speaker 1: also want to do that off the books, because as
Speaker 1: I'm selling it, it pushes the price lower and lower
Speaker 1: and lower. And so typically you want to do that
Speaker 1: without telling people. Um, in this case, he specifically told
Speaker 1: everybody what is gonna do. He told him in advance,
Speaker 1: which is really the opposite of what you want to do.
Speaker 1: So talk to talk to us about why that happened, Joe.
Speaker 1: But then also if he had over two billion dollars
Speaker 1: and now it's at million, did he get attacked by
Speaker 1: I mean, did he kind of crush himself? Did he uh?
Speaker 1: Did he get this slippage on the way down? What's
Speaker 1: your speculation there? For sure? And I think the reason
Speaker 1: and for this was it was very cunning, it was
Speaker 1: very deliberate. Um. I tend to think that this wasn't. Uh,
Speaker 1: you know, if he was in the game, if he
Speaker 1: was selling his ft T in order to salvage it
Speaker 1: for its fair market value, he would have taken that
Speaker 1: over the counter deal to sell it all for twenty
Speaker 1: two dollars, as alime To Research CEO said. But CZ
Speaker 1: had absolutely no response to that. He had no response
Speaker 1: to that, and so through dumping all of this two
Speaker 1: point one billion dollars worth of f t T onto
Speaker 1: the open market, he wanted that slippage. So what does
Speaker 1: that tell us, Well, it tells us that he wasn't
Speaker 1: selling this FTT in order to make a profit and
Speaker 1: turn it into dollars because he didn't want it on
Speaker 1: his books anymore. What he did was he saw that
Speaker 1: f t X, its second largest competitor, the second largest
Speaker 1: exchange in the world, was in a very fickle capital
Speaker 1: situation where it was holding this token that the public
Speaker 1: was increasingly seeing his worthless, and essentially, you know, they
Speaker 1: pounced right. CZ saw it as the opportunity for a
Speaker 1: speculative attack to rather than engaging in the over the
Speaker 1: counter deal, which would have less damaging effect on Alameda's
Speaker 1: balance sheet, on ft on ft x's balance sheet, because
Speaker 1: we know that they hold a lot of this. He
Speaker 1: instead chose the path of maximum pain, right, So that's
Speaker 1: that's sort of why I tend to think that this
Speaker 1: is a deliberate move um. And you saw exactly what
Speaker 1: occurred as a result of that. You know, essentially, f
Speaker 1: t X was like this wounded gazelle, and it was
Speaker 1: it was running away from you know, the binance, right,
Speaker 1: And why on earth would finance let this opportunity slip away?
Speaker 1: It was selling under the open markets that it could
Speaker 1: make this token relatively worthless and push f t X
Speaker 1: and Alameda closer to margin calls. Yeah, but what about
Speaker 1: the slippage? So, I mean that's great, he he he
Speaker 1: attacked his opponent. He he won, um, but he could
Speaker 1: have cost himself a billion dollars. I mean, do we
Speaker 1: have any way to know through on chained data how
Speaker 1: that worked out for him? For sure? Yeah. There's several
Speaker 1: hot wallet monitors and throughout this entire process, CZ was
Speaker 1: actually actively tweeting that, uh, they have fine liquidity. Their
Speaker 1: liquidity is totally fine. When the market was solely focused
Speaker 1: on attacking f t T and shorts were piling in, uh,
Speaker 1: you know, the futurist contracts the short short side of
Speaker 1: futurist contracts. Twenty four or excuse me, twenty million new
Speaker 1: short futures contracts opened now moving the last two days along.
Speaker 1: So cz wasn't worried about his own liquidity. He actually
Speaker 1: tweeted during this not not his own liquidity, but if
Speaker 1: he had, if he had two billion dollars of that token,
Speaker 1: he wants his two billion dollars in cash. But maybe
Speaker 1: he was only able to get one billion out of
Speaker 1: the two billion or something like that exactly. And and
Speaker 1: he obviously was you know, he has the beneficiary and
Speaker 1: that slippage unfortunately. Um. But since that is the case,
Speaker 1: it seems like he valued devaluing f t XS assets
Speaker 1: to a point that he could scoop them up and
Speaker 1: he could be the liquidity injection. Now he owns his
Speaker 1: biggest competitor. He valued that more than he did that
Speaker 1: you know, one billion dollars that he lost his slippage. Yeah, so,
Speaker 1: I mean, we don't know what he lost the slippage
Speaker 1: unless you have some way you've calculated that. But theoretically,
Speaker 1: I mean, he could have lost half. So he's basically
Speaker 1: gave up a billion dollars to kill his competitor and
Speaker 1: absorb them essentially. I mean, that's what we're seeing. Obviously,
Speaker 1: this is a lot of second, third, and fourth order
Speaker 1: of thinking. Uh and and some people may call it conjecture.
Speaker 1: But if you take a look at the markets and
Speaker 1: you take a look at the aftermath of what all
Speaker 1: this uh, you know, of what everything of how all
Speaker 1: of this unfolded? Um, you know, f TX essentially had
Speaker 1: a bank rum at the biggest consumer confidence was dropping
Speaker 1: to such a point at the same time that it
Speaker 1: was buying basically the entire market of f T T.
Speaker 1: So you know, it couldn't last forever. They were in
Speaker 1: an incredibly fickle situation. Um, you put two and two together.
Speaker 1: Finance was the one that acquired them. You know, some
Speaker 1: see its conjecture, but it seems like it was deliberate
Speaker 1: based on what we've seen. What's interesting is, you know,
Speaker 1: I want to jump to more traditional financial stuff. I'm
Speaker 1: gonna stick on this just for a little bit more.
Speaker 1: But um, you know, we look at like China has
Speaker 1: massive holdings of US treasuries, right, and then you see this,
Speaker 1: you know, with the Russia Ukraine war situation, and it's
Speaker 1: China citing with Russia and if they want to de dollarize,
Speaker 1: and if Russia really or if China really wanted to
Speaker 1: stick it to the US, they could dump all the
Speaker 1: U S. Treasuries sort of like what CZ what Finance
Speaker 1: just did f t X, So they could dump all
Speaker 1: the U S. Treasuries. But then a lot of people
Speaker 1: would say, we why would they want to do that,
Speaker 1: because they would just they would just shoot themselves in
Speaker 1: the foot. They would just wipe out their own holdings
Speaker 1: that they have as well, um, which is a logical thought.
Speaker 1: But apparently Binance didn't care about that. UM. So it's interesting.
Speaker 1: Maybe China wouldn't care about that either, And that's a
Speaker 1: whole different hypothetical. I guess. Yeah, absolutely, you're seeing the
Speaker 1: exact same behavior, and I'm sure we'll get into it
Speaker 1: um from sovereigns around the world. I tweeted out a
Speaker 1: week or two ago. I actually in the middle of
Speaker 1: October suits a little bit ago. Now, I said my
Speaker 1: themes for Q four were fragility rising for agility across
Speaker 1: you know, global central banks. Uh so the Bank of England,
Speaker 1: the Bank of Japan, they've had to intervene in their
Speaker 1: own bonds and ex because of the immense self pressure
Speaker 1: we've seen UM an intervention, right, and so the ultimately
Speaker 1: these central banks come in and they backstop their own
Speaker 1: currencies in their own bonds. I didn't anticipate that we
Speaker 1: can see this in the crypto space, but here we are. Ultimately,
Speaker 1: you know, these sort of animal kingdom dynamics, they proliferate
Speaker 1: across markets, and at the end of the day, a
Speaker 1: lot of what we're seeing here UM with fd X
Speaker 1: essentially stop hunting UM all right, excuse me, with finance
Speaker 1: stop hunting ft X and then coming in for the kill.
Speaker 1: That's a lot of what we're seeing in global markets too. Yeah. Now, uh,
Speaker 1: I know a lot of people have been saying and
Speaker 1: they're afraid of of what happens after this UM does.
Speaker 1: Does this hurt the crypto industry even more? Does this
Speaker 1: cause regulators to come in and regulate things even more?
Speaker 1: You know? UM all kinds of questions like that. You know,
Speaker 1: from my opinion, of course, my always answer is no,
Speaker 1: we don't need more regulations. It's these types of things
Speaker 1: that will force people to become more disciplined and more resilient.
Speaker 1: To your point, you said your key theme was fragility
Speaker 1: and when we get into these easy monetary systems, you
Speaker 1: would put out a tweet thread kind of talking about that. Right,
Speaker 1: We're in this easy monetary system with zero bound rate
Speaker 1: and you know all this liquidity, and it causes all
Speaker 1: types of malinvestment and all types of bad investment and
Speaker 1: all types of risk. It's what we're seeing is more
Speaker 1: symptom of that type of a system. Now, what happens
Speaker 1: is when you start seeing like, oh, shoot, we're actually
Speaker 1: in this free market and these guys could hunt my
Speaker 1: stops and could take me out. I maybe shouldn't be
Speaker 1: as risky and maybe instead of being so fragile, I
Speaker 1: should make myself more resilient. And so you know, if
Speaker 1: the regulators would just leave this alone, I think the
Speaker 1: trend would be too. Like, how about we not get
Speaker 1: so over our skis. I mean you can look at
Speaker 1: you know, Swan for example, and they sell bitcoin by
Speaker 1: it's a bitcoin exchange. They're not participating in these types
Speaker 1: of risky things, right, so they're not putting themselves into
Speaker 1: that danger. And we could see these types of companies
Speaker 1: do that. So unfortunately we're seeing the people knocking at
Speaker 1: the door saying, oh, we need regulators. We need regulators,
Speaker 1: you know, come save us. Uh. In my opinion, that's
Speaker 1: the wrong way to go. But let's let's pivot now
Speaker 1: and talk about into the greater financial system because, as
Speaker 1: you already said, what we're seeing with the Bank of England,
Speaker 1: um the guilt markets still having problems over there. Obviously
Speaker 1: Bank of Japan is in a tough situation doing the
Speaker 1: exact same thing, selling treasuries, buying their currency to prop
Speaker 1: it back up, the same thing. So let's jump to that.
Speaker 1: If you're just tuning in, you're listening to the Mark
Speaker 1: Moss Show. We're talking about, of course, each and every week,
Speaker 1: the decentralized revolution. This week, specifically, we are talking about
Speaker 1: what's blowing up in the crypto market, and that is
Speaker 1: the ft X Exchange. I'm in the studio with Joe Consorti.
Speaker 1: He's a market analyst with the Bitcoin Layer. He also
Speaker 1: helps me out on the Mark Moss Show. We're gonna
Speaker 1: be back and more talking about that financial system in
Speaker 1: a minute. Don't go away, you don't want to miss it.
Speaker 1: We'll be right back, all right, Welcome back. You are
Speaker 1: tuned in to the Mark Mash Show, and I am
Speaker 1: in studio with Joe CONSORTI. We're talking about how the
Speaker 1: ft X exchange just got taken out, assassinated, hunted, hunt
Speaker 1: chase down, hunted, and taken over by binance. Maybe we
Speaker 1: still don't know if finance takes them over. They have
Speaker 1: a non buying neen l o I, so this could
Speaker 1: be even more for d chs to even just take
Speaker 1: them out. Even more so, we don't know if bans
Speaker 1: is gonna take them over, but they did. They did
Speaker 1: put them down for the kill. But if we pivot
Speaker 1: out a little bit, Joe, unless you want to add
Speaker 1: to that, but if we pivot out a little bit, um,
Speaker 1: explain how Japan is basically kind of doing the exact
Speaker 1: same thing. For sure. So Japan, since you know, the
Speaker 1: eighties and nineties, they've historically been one of the worst
Speaker 1: sovereigns when it comes to fiscal and monetary policy. They
Speaker 1: have struggled to get inflation. Their consistently deflationary environment. Really
Speaker 1: the yen and Japanese government bonds are the laughing stocks
Speaker 1: of the world. And what we've seen in Japan has
Speaker 1: been systematic yield curve control, which is essentially the Bank
Speaker 1: of Japan becoming the marginal buyer the buyer of last
Speaker 1: resort of Japanese government bonds in order to pin yields. Um.
Speaker 1: You know, because they've struggled with inflation to such a
Speaker 1: high degree. Their ideas, Okay, if we pin yield at
Speaker 1: a certain level, that will encourage credit creation, and how
Speaker 1: I'll get us some inflation. And unfortunately that hasn't worked
Speaker 1: for them for a very long time. But what it has,
Speaker 1: let's let's let's let's break that down a little bit
Speaker 1: for everybody listening. So um, the Bank of Japan, UM,
Speaker 1: they need money, so they need to borrow it, so
Speaker 1: they issue bonds. The problem is nobody wants to buy
Speaker 1: those bonds because they know that the Bank of Japan
Speaker 1: isn't really able to pay that back. So they have
Speaker 1: their Bank of Japan, the Central Bank of Japan, buys
Speaker 1: the debt of the government and funds them with money
Speaker 1: they're printing on their own right. The problem is is
Speaker 1: as they continue to print that money on their own,
Speaker 1: expand the monetary base. When you increase the money supply,
Speaker 1: those the existing money buys less and less goods, which
Speaker 1: creates inflation, so prices go up. So they're printing the
Speaker 1: money buying their own debt, but they have massive inflation
Speaker 1: that that basically sums it up, right, that's exactly right.
Speaker 1: They've engaged in this what's called debt monetization, so they
Speaker 1: buy their own government bonds UM. As a function of it,
Speaker 1: it floods the system of money UM and that we're seeing.
Speaker 1: We saw that exact let's same kind of inter rate
Speaker 1: invention with with f t X and buyance. They became
Speaker 1: the marginal buyer of last resort. And now Japan has
Speaker 1: done the exact same thing. They've sold records amounts of
Speaker 1: their foreign exchanged reserves, which is largely comprised of US
Speaker 1: treasuries UM, which is pushed domestic United States field higher
Speaker 1: and higher and higher. In Japan has become the largest
Speaker 1: marginal buyer. Right, So they are the ones when times
Speaker 1: are tough, when liquidity is you know, when liquidity is
Speaker 1: drying up, they're the individuals who buy their own Japanese
Speaker 1: government bonds. And actually there are several reports out now
Speaker 1: that are estimating Japan owns the entirety of the off
Speaker 1: the run UH ten year Japanese government bonds, so they
Speaker 1: own one hundred percent of that market. So it's no
Speaker 1: longer uh an interest rate that's set by people buying
Speaker 1: and selling these bonds. It's now owned entirely by Japan.
Speaker 1: That's something we almost saw with f t X. If
Speaker 1: that intervention had continued, chances are they owned the entire
Speaker 1: ft T market. But you know, eventually somebody swooped in
Speaker 1: and helped them out and had a liquidity the interrection.
Speaker 1: But globally with Japan they never have that issue. They
Speaker 1: can they can essentially print the difference. If they run
Speaker 1: out of liquidity to buy these bonds, they can create
Speaker 1: more of it. So whereas with finance, um it was
Speaker 1: it was a matter of put it was a clock
Speaker 1: that was running down. Because money can be created out
Speaker 1: of thin air from these central banks. It's an issue
Speaker 1: that you know will will persist, right, It's a it's
Speaker 1: a relationary issue. But um so, the problem though, is
Speaker 1: so Japan is creating all their own money to buy
Speaker 1: their own bonds because nobody else wants to buy them.
Speaker 1: If nobody buys them, the right the rates of the
Speaker 1: bonds goes higher, so they're buying them to keep that down.
Speaker 1: The problem is as they do that, as I already
Speaker 1: said that their currency is crashing. So then they're buying
Speaker 1: their own currency to keep it propped up. Just like
Speaker 1: sp f t X had to start buying their own
Speaker 1: token to keep it propping up. So so so many people
Speaker 1: are trying to sell it get rid of the token
Speaker 1: of the price was going down, so they were buying it,
Speaker 1: And so Japan is doing the same thing. They're selling
Speaker 1: whatever they can US treasuries to buy their own currency
Speaker 1: to keep it propped up, just like f t X
Speaker 1: did up. The thing is, though, to your point, is
Speaker 1: that f t X can't print their own money like
Speaker 1: um Japan. They can, But that's not that's not actually
Speaker 1: totally correct, maybe right, because they did they create the
Speaker 1: f t T token out of thin air. They did, well,
Speaker 1: they did, but they can't print. They can't print something
Speaker 1: like dollars or fiat something that's deep and liquid, right.
Speaker 1: But but what they but what they can do is
Speaker 1: they can create their f t T token and Japan
Speaker 1: can't create dollars, right, they can just print. They can
Speaker 1: create yen. Yeah. Yeah, so f t X can create
Speaker 1: as much f t T potentially create more f t
Speaker 1: T tokens, but who wants them. Japan can create more yen,
Speaker 1: but who wants those? That's right now, Japan is in
Speaker 1: a situation where they exactly like you said, they're now
Speaker 1: not just buying their treasuries, they're also buying the yen
Speaker 1: um and as you know, they pain yeels on the
Speaker 1: treasure on on these treasury securities from the Japanese Japanese
Speaker 1: government bonds. Then the release valve is the end. So
Speaker 1: as people see that low interest rates in Japan are
Speaker 1: extremely low, they're they're high in every other country, I'm
Speaker 1: going to sell the end. So now Japan has been
Speaker 1: forced into a situation where they're creating all of this
Speaker 1: yen and essentially that gets passed off to the citizens. Now,
Speaker 1: the key differences f T f t X. They can
Speaker 1: create more ft T token, but there isn't necessarily a
Speaker 1: demand for that. There's not it's not like there is
Speaker 1: an economy that is operating off of f t T.
Speaker 1: There is an economy that is operating off of the end.
Speaker 1: So there's only so far that f T T that
Speaker 1: f t X can create their own token to solve
Speaker 1: their troubles. Whereas because the entire country of Japan, anybody
Speaker 1: who holds Japanese government bonds or yen, they can absorb
Speaker 1: all that newly printed money, So the Bank of Japan
Speaker 1: has much more leeway to create money and buy its
Speaker 1: bonds and buy its currency than binance to. But the
Speaker 1: but the same, the same constraints I believe are still there.
Speaker 1: It's it's a bigger constraint, a bigger net, but the
Speaker 1: same constraint is there because back to kind of we
Speaker 1: talked about this, ft T token only had value because
Speaker 1: the market prescribed value to it. So same with again
Speaker 1: to your point, yes, there's more people using it, the
Speaker 1: markets bigger, more people have assigned value to it. But
Speaker 1: if it continues to lose value, just like f t
Speaker 1: T token did, more and more people want to get
Speaker 1: rid of the end and go to something else, like
Speaker 1: a dollar. Just like people want to get rid of
Speaker 1: f t T token and by go back to dollars
Speaker 1: or bitcoin or whatever it is. People also will want
Speaker 1: to get out of the again and go to the
Speaker 1: dollar or bitcoin or something like that, so they have
Speaker 1: more room. The market's bigger, it's been around longer, it's
Speaker 1: more trusted. But at the same at the end of
Speaker 1: the day, just like FTT crashing, people want to jump ship.
Speaker 1: If yen continues to crash against real assets, people who
Speaker 1: want to jump ship as well because they can't create
Speaker 1: the dollar. That's exactly right. So what we saw with
Speaker 1: f t T and the essential complete loss and confidence
Speaker 1: and collapse of the currency, that's what we're seeing. But
Speaker 1: because the market is larger to a slower degree in
Speaker 1: kind through is like Japan. Right, So essentially the situation
Speaker 1: that we just viewed in the last forty eight hours
Speaker 1: is a small, sort of ant farm version of what
Speaker 1: we've been witnessing and will continue to witnessing in countries
Speaker 1: like Japan. Yeah, now if we take this bigger and
Speaker 1: then let's go bigger, we only have a couple monts
Speaker 1: left if we go bigger. So Japan is having the problem.
Speaker 1: So ft T is a perfect, as you said, a
Speaker 1: version of what Japan is doing, what Bank of England's doing,
Speaker 1: what all these countries are doing, because they can create more,
Speaker 1: create more of their own currency, but not more dollars.
Speaker 1: But at the end of the day, the US is
Speaker 1: also doing the same thing with the dollar, because again,
Speaker 1: we don't want dollars, We want goods and services, we
Speaker 1: want energy, we want food, and so the US can
Speaker 1: keep printing more dollars, but they can't create more energy
Speaker 1: or food, which is at what we ultimately want. And
Speaker 1: so if the US does the same thing, it's a
Speaker 1: bigger than Japan. But if they do the same thing,
Speaker 1: then ultimately, and the dollar continues to fall because they're
Speaker 1: gonna be printing so much currency, people will just sell
Speaker 1: the dollar to go into oil, energy, natural gas, bitcoin,
Speaker 1: something like that. It's the same same thing, just bigger, right,
Speaker 1: that's exactly right. Ultimately, people will seek to hold reality,
Speaker 1: they will seek to hold actual energy. What we're seeing
Speaker 1: in Europe right now is a good example of this,
Speaker 1: and this this extends the United States too. They're facing
Speaker 1: an energy crisis. They have a money printer. They can't
Speaker 1: print energy. They can print euros, devalues the euros and
Speaker 1: buy energy for a for a certain period of time.
Speaker 1: But if that is your only solution, right, Ultimately, the
Speaker 1: people who hold that currency, and the people who hold
Speaker 1: the United States Dollar and other fiat currencies, they'll be
Speaker 1: looking for a representation of reality. They're gonna they're they're
Speaker 1: gonna go to the next best thing that they think
Speaker 1: has value, what holds value? I gotta cut you off there,
Speaker 1: because we are out of time. If you're just tuning in,
Speaker 1: you're listening to the Mark Moss Show. UM in the
Speaker 1: studio with Joe Consorti. If you like what he has
Speaker 1: to say and you want to have him finish it,
Speaker 1: follow on Twitter at Joe Consorti. We'll have it in
Speaker 1: the show notes down below. UM, we're talking about the
Speaker 1: decentralized revolution. We're talking about how the f t T
Speaker 1: token and the FTX exchange is being taken down by finance,
Speaker 1: and how it's a small picture of what the world's
Speaker 1: going through. That's what I got. Thanks for listening today.
Speaker 1: Until next time.