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Cryptonite December 2022
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Cryptonite December 2022

Regulators wake up

Shyam Sunder
Jan 15
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Share this post
Cryptonite December 2022
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It’s time for Cryptonite - our monthly roundup of all things crypto - with Tejaswi Nadahalli.

You can follow Tejaswi on twitter @nadahalli and he blogs at tejaswin.com

Once the tide of easy money started turning, we are finding out who was swimming naked the whole time.

Twitter avatar for @CGasparino
Charles Gasparino @CGasparino
BREAKING: Prosecutors are telling lawyers connected to @SBF_FTX fraud investigation the case is so sprawling that it could exhaust resources of the southern district since it includes potential bribery, campaign contribution violations, market manipulation on top of theft & fraud
2:00 PM ∙ Jan 9, 2023
13,833Likes3,635Retweets

One of the problems is that lobbyists are paid much better than regulators.

Twitter avatar for @jp_koning
John Paul Koning @jp_koning
Disgusting. In Australia, FTX lobbied against a third-party custody requirement, saying it would "place customer funds at a higher level of risk," when in actuality third-party custody would have prevented 30,000 Australians from losing their savings. afr.com/companies/fina…
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2:43 PM ∙ Dec 16, 2022
39Likes6Retweets

And the media couldn’t say “no” to their advertising dollars.

Twitter avatar for @Grabien_Eric
Eric @ Grabien @Grabien_Eric
@RudyHavenstein @CNBC @SullyCNBC I made a full video of CNBC pumping SBF, so they don’t even have to do any work. Just put this on air and press play!
7:33 PM ∙ Dec 12, 2022
647Likes241Retweets

So, we had the Fed at 0% forcing savers to reach for yield, VCs who were willing participants in Ponzis, regulators who were asleep at the wheel and the media cheerleading these crooks.

And now, the blame game begins. Better late than never, I guess.

In a complaint filed on Thursday, the attorney-general’s office claimed Mashinsky acted as a “modern-day Robin Hood”, promising customers returns of up to 17 per cent via its Earn programme — which paid interest on cryptocurrency deposits — and urged users to stay invested even as the hole in the platform’s balance sheet grew larger. “Alex Mashinsky promised to lead investors to financial freedom but led them down a path of financial ruin,” New York attorney-general Letitia James said in a statement. “The law is clear that making false and unsubstantiated promises and misleading investors is illegal.”

Celsius founder Mashinsky sued for fraud by New York attorney-general (FT)

If “making false and unsubstantiated promises and misleading investors” is a crime, then pretty much all of the defi/NFT complex should be in jail.

Twitter avatar for @web3isgreat
web3 is going just great @web3isgreat
SEC charges Gemini and Genesis for allegedly offering unregistered securities January 12, 2023 web3isgoinggreat.com/?id=sec-charge…
SEC charges Gemini and Genesis for allegedly offering unregistered securities  The SEC filed charges against Genesis Global Capital and Gemini, two crypto firms that collaborated to create Gemini's embattled Earn lending program. According to the SEC, their lending program constitutes an offer and sale of securities and, as such, should have been registered. Other companies, such as (now bankrupt) Celsius, have in the past shut down similar products in the US due to concerns over regulatory action; it's not clear why Gemini thought their product would pass muster. On November 16, Gemini halted withdrawals from Earn after Genesis halted withdrawals after FTX collapsed. Since then, Gemini and Genesis have been engaged in a very public battle, with Gemini's founders accusing Genesis and its parent company of misconduct and demanding the return of the $900 million in Gemini customer funds.
11:28 PM ∙ Jan 12, 2023
214Likes33Retweets

Also, the fact that crypto “depositors” will not be first-in-line during a bankruptcy process was flagged years ago. Yet, people continued to pour money into these schemes.

Twitter avatar for @kadhim
kadhim (^ー^)ノ @kadhim
Significant moment in the Celsius bankruptcy as Judge Martin Glenn rules that $4.2bn of crypto deposited by customers to earn interest belongs to the estate, not the users: cases.stretto.com/public/x191/11…
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6:35 PM ∙ Jan 4, 2023
2,593Likes662Retweets

The collapse of so many crypto exchanges and platforms has allowed us to see up close for the first time the utter lawlessness that fuels crypto. Free from the burdensome yoke of regulation that the non-crypto world has to deal with, the likes of FTX have been free to do as they please, allegedly misappropriating billions of dollars of customers’ funds and committing fraud on a vast scale. (FT)

Twitter avatar for @web3isgreat
web3 is going just great @web3isgreat
Coinbase settles with New York regulators, set to pay $100 million January 4, 2023 web3isgoinggreat.com/?id=coinbase-s…
Coinbase settles with New York regulators, set to pay $100 million  Coinbase agreed to a $100 million settlement with the New York State Department of Financial Services over charges that the company violated anti-money laundering laws by performing insufficient background checks. Coinbase will pay a $50 million fine, and has committed to spending another $50 million to strengthen its KYC program. Early last year, Coinbase was ordered by regulators to hire an outside monitor to oversee compliance. Under the settlement agreement, Coinbase will be required to continue the monitoring for at least another year as it works to improve its compliance.
5:55 PM ∙ Jan 4, 2023
152Likes13Retweets

Unfortunately, we haven’t seen the last of this because people still believe.

Twitter avatar for @GCRClassic
GCR @GCRClassic
The psychology behind bubbles is powerful. People refuse to easily abandon the idea that inspired the bubble. They buy dips and give up only after their faith has been deflated repeatedly. 2023 is likely to see more echo bubbles, including in the most hyped themes of last decade
Twitter avatar for @GCRClassic
GCR @GCRClassic
Financial Times with some interesting 2023 predictions https://t.co/LEwDZEADZI
5:50 PM ∙ Jan 12, 2023
1,077Likes134Retweets

While crypto was the mother of all scams, the scamming during the ZIRP era was not limited to crypto.

This one scammed JP Morgan with a made-up excel sheet of customer details and got caught when an employee observed that the list contained exactly 1,048,576 rows, the maximum permitted by Microsoft Excel. (courtlistener)

Twitter avatar for @aniceburrito
mike 🔊🦪 @aniceburrito
Trendy student loan application startup bought by JP Morgan for $175 million created 4 million fake users when they really only had 300k users. Pretty good
forbes.comJP Morgan Says Startup Founder Used Millions Of Fake Customers To Dupe It Into An AcquisitionJP Morgan is suing the founder of a Mark Rowan-backed startup it acquired, claiming the fintech, Frank, had sold the financial giant on a “lie.”
11:26 PM ∙ Jan 11, 2023
835Likes58Retweets

At least, JP Morgan will recover for this. @shl went after retail.

Twitter avatar for @MattPaulsonSD
Matt Paulson @MattPaulsonSD
Gumroad is the ultimate example of startup B.S. 2012: Gumroad raises $8.1M in VC money. 2012-2019: Gumroad fails to achieve hockey stick growth. 2019: Investors take the write-off and sell Gumroad back to the founder for $1.00. (cont.)
11:14 PM ∙ Jan 13, 2023
446Likes48Retweets

Large swaths of “private” equity is mostly an elaborate ruse to hide volatility and help institutional capital beat completely made-up benchmarks so that the bureaucrats in charge can make bonus.

Bullfight Capital
Peter Pan and Neverland VC Returns
As we start 2023, the infamous phrase “software is eating the world” turns 12 and fast approaches its teenage years. After a glorious decade-plus run, I believe the typical angst, awkwardness and entitlement awaits many parts of the industry in its teenage phase. As the VC cloud ecosystem evolves from being a “do no wrong” innocent child into a mature a…
Read more
22 days ago · 34 likes · 4 comments · Bullfight Cap
Twitter avatar for @ShitMgmtSays
@shitmgmtsays@mstdn.social @ShitMgmtSays
Silicon Valley’s focus is all about potential—sales, TAM, ARR, so their singular need is to find someone who can sell. SBF, Musk, Holmes are nothing alike except that they mastered the art of bluster (or put another way: lying) and sales with no substance to back it
5:18 PM ∙ Dec 19, 2022
8Likes1Retweet

The gap between private and public valuations is wide enough to sail Evergreen through. We wrote about BREIT last week.

Twitter avatar for @JulianKlymochko
Julian Klymochko @JulianKlymochko
How do you think this plays out - lower line goes up or higher line goes down? It's a $68 billion question
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1:16 PM ∙ Jan 5, 2023
48Likes10Retweets
Twitter avatar for @philbak1
Phil Bak 🎩 @philbak1
If the private fund marketers truly believed that public equity markets over react they’d be launching mean reversion strategy hedge funds. They don’t bc they aren’t stupid enough to believe it. They just think you are.
2:06 PM ∙ Dec 30, 2022
74Likes9Retweets

SPACs were, thankfully, a fairly short-lived grift.

Twitter avatar for @corry_wang
Corry Wang @corry_wang
In retrospect, this was ridiculous: in 2021, Palantir invested over $700M in startups… on the condition they buy $700M in Palantir software. This singlehandedly drove a third of the company’s revenue growth!
wsj.comPalantir’s SPAC Bets Backfire, Hitting Company’s GrowthUnusual deals boosted growth but are now a risk to the software maker.
3:26 PM ∙ Dec 23, 2022
439Likes60Retweets

Elon remains the GOAT of cocking a snook at regulators. Milking the company dry while literally selling cars that kill people and trucks without airbags.

Twitter avatar for @BusinessInsider
Insider Business @BusinessInsider
Elon Musk's lawyers subpoena head of Saudi Arabia's $620 billion wealth fund for Tesla 'funding secured' tweets case
trib.alElon Musk’s lawyers subpoena head of Saudi Arabia’s $620 billion wealth fund for Tesla ‘funding secured’ tweets caseText messages disclosed in April showed Musk raging at Yasir Al-Rumayyan for not supporting his efforts to privatize Tesla.
12:16 PM ∙ Jan 4, 2023
199Likes90Retweets

Collectively the brass at Tesla appear to have unloaded 126 million Tesla shares for more than $41 billion. Over the history of the company Tesla raised $32 billion in equity and earned cumulative profits of $9 billion. Cumulative cash flow from operations totals $32 billion. Book value foots to $41 billion. Insiders have sold shares worth more than equity capital raised, cumulative profit (regardless of how measured), or book value, which adds equity capital raised plus cumulative profit. The company has never paid a dividend. Who's winning here? (thread)

Twitter avatar for @elonmusk
Elon Musk @elonmusk
SEC, three letter acronym, middle word is Elon’s
6:57 PM ∙ Jul 2, 2020
103,801Likes9,830Retweets

Markets this Week

More here: fixed income, currencies and commodities.

Links

When are you right, when are you wrong and when are you a genius?

Twitter avatar for @robertmartin88
Robert Martin @robertmartin88
“Expected returns being held constant, high Sharpe ratio strategies are, by definition, strategies that generate regular modest profits punctuated by occasional crashes” - Goetzmann et al
2:55 AM ∙ Jan 11, 2023
64Likes1Retweet
Twitter avatar for @MarkGutman9
Mark Gutman @MarkGutman9
Even when they are wrong, it is likely that the market will initially entertain your views and make you feel smart. That’s how the market reels you in before hammer comes down. It’s like the dealer that gives you the first highs for free.
12:22 PM ∙ Dec 29, 2022
Twitter avatar for @FedGuy12
Joseph Wang @FedGuy12
Bonus chart: Market is often wrong because it thinks the future looks like the past. Post GFC it was always thinking rates would immediately rise, and today it always thinks rates are immediately cut. It is very bad at recognizing regime changes, which we may be in.
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2:29 PM ∙ Dec 14, 2022
441Likes89Retweets

~

If you think index investing is taking hold in your market, then it makes sense to be the first to jump ship.

Twitter avatar for @StockViz
StockViz @StockViz
Paper of the day: Index Funds, Asset Prices and the Welfare of Investors papers.ssrn.com/sol3/papers.cf… #finance #research
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10:30 AM ∙ Jan 13, 2023

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If a company cannot generate free cashflow that accrues to equity, what good is its moat/growth/IP?

Twitter avatar for @ecommerceshares
Wasteland Capital @ecommerceshares
New activist investor case on $DIS dropped, and they basically point out that it’s run like sh*t. For shareholders that is. For everyone else (employees, management, Hollywood, bankers) it’s a massive money printer. Revenue up, cash flows and earnings collapse, divvy removed…
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10:42 AM ∙ Jan 12, 2023
837Likes100Retweets

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I don’t get it. It is incredibly difficult to setup free health-care infrastructure. The British then went about destroying theirs. Why?

Twitter avatar for @AgatheDemarais
Agathe Demarais @AgatheDemarais
🇬🇧 - Britain's health service is beyond collapse • Access to healthcare is deteriorating, with many people unable to get appointment with family doctor • NHS issues are part of explanation for steady rise in excess deaths across UK (and a drag on GDP growth)
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5:00 PM ∙ Jan 13, 2023
28Likes14Retweets

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While you are driving through potholed Bangalore roads, know that the Romans had it figured out centuries ago and weep.

Construction Physics
Roman vs Modern Concrete
There's a new paper out exploring some of the chemical mechanisms at work in Roman concrete. As per usual, it’s triggered a round of enthusiastic discussion of Roman concrete, and how its ability to last for millennia puts modern concrete (which often fails after a few decades) to shame…
Read more
17 days ago · 72 likes · 22 comments · Brian Potter

Meme of the Week

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