1.8 C
Pretoria
Saturday, July 2, 2022
More
    ZAR - South African Rand
    EUR
    17.2054
    CAD
    12.7976
    NZD
    10.1092
    USD
    16.4983
    GBP
    19.9712
    AUD
    11.2436
    Pretoria
    clear sky
    1.8 ° C
    2.7 °
    1.4 °
    90 %
    0kmh
    0 %
    Sat
    18 °
    Sun
    19 °
    Mon
    20 °
    Tue
    21 °
    Wed
    21 °
    spot_img

    Sponsored

    Sponsored

    Latest Posts

    Crypto is not too big to fail

    “Turtles all the way down” is a handy phrase for describing how the human mind creatively fills in holes of logic. It allegedly springs from one person’s attempt to justify to the philosopher Bertrand Russell her belief that the world was floating on a giant turtle by imagining another turtle underneath it, and then another, to infinity.

    The image fits the world of cryptocurrencies, where a recent tumble in the price of bitcoin, ether and other tokens has unravelled a complex chain of stablecoins, lending platforms and trading firms that are blowing up simultaneously. What was once a virtuous circle of locked-up tokens yielding interest that would be reinvested ad infinitum is now a vicious one, as margin calls and liquidations take place at algorithmic speed. Every turtle seems to hide another. The next phase features bailouts, as the big players atop the ecosystem of crypto-speculation  billionaire-run exchanges — step in to try to stem panic and restore trust. Sam Bankman-Fried, co-founder of FTX Trading, has extended a US$250-million credit line to lending platform BlockFi. He’s made an additional $200-million of credit and a separate 15 000-bitcoin revolving facility available to Voyager Digital, a Toronto-based crypto broker that’s owed $660-million by troubled digital-asset hedge fund Three Arrows Capital. And Changpeng Zhao, the head of rival digital exchange Binance, spoke of a “responsibility” to help struggling crypto firms after effectively compensating victims of crypto game Axie Infinity’s hack earlier this year.

    Fans say this adds a credible backstop to a $1-trillion market. “Bankman-Fried is the new John Pierpoint Morgan,” says Anthony Scaramucci, citing the 1907 banking crisis that saw Morgan and his peers pledge their own money to stop a loss of faith in the financial system. Others have compared it to Warren Buffett’s support for Goldman Sachs Group in 2008. But strip away the hype, and it still looks like turtles all the way down. Crypto is not too big to fail. Bankman-Fried clearly has deep pockets, but his wealth is tied up almost entirely in crypto: Bloomberg data estimates $6.6-billion comes from his stake in Bahamas-based FTX, $2.1-billion from FTX’s separate US-based subsidiary, $1-billion from the trading firm Alameda and $420-million from his recently acquired stake in trading app Robinhood Markets.
    It makes sense that he would want to either pick bargains among the rubble, or make a public show of faith in the future; somewhere along the line, his own fortune is at stake. If FTX has also spent hundreds of millions of dollars on sports sponsorships, such as the FTX Arena in Miami, it’s a sign it relies on basic speculative demand to keep the crypto party going  just as its distressed peers do.

    ALSO READ  Turmoil at SpaceX

    Nothing like Wall Street
    Yet this doesn’t represent an outside seal of approval or introduce the kind of systemic firebreak that an actual intervention from JPMorgan Chase & Co or Berkshire Hathaway might. At the end of last year, BlockFi had about $10-billion in assets that pay interest; the $250-million advanced by Bankman-Fried represents a little over 2% of that number. Despite recent comments by BlockFi that this is a “big number” that “bolsters” its balance sheet, it sounds more like a firm adding debt because it needs cash. BlockFi says that after a “cash-flow positive” month in May, it suffered an “uptick” of pressure. And while FTX’s $1-billion/year in revenue carries huge weight in crypto-land, in terms of credit and counterparty risk, this exchange is nothing like a regulated Wall Street firm.

    FTX is headquartered in the Bahamas because, as the New York Times puts it, 80% of its revenue stems from a trading instrument that remains illegal in the US. Despite its turnover, it’s only ranked 22nd on data firm Kaiko’s grading of exchanges based on metrics including risk controls, security and data quality. And Bankman-Fried’s memorable explanation of yield farming in April sounded to Matt Levine like a “Ponzi business”. Is this really the new face of Wall Street? This isn’t to suggest that Bankman-Fried isn’t a canny investor; he’s clearly managed to design successful trading strategies and spot bets that pay off, such as his expletive-laden taunt on Twitter that he would buy Solana at $3/token (it’s gone up more than tenfold since).
    But comparing FTX to JPMorgan, or Warren Buffett, or even the US Federal Reserve whose creation was spurred by the 1907 market panic is wrong, and borderline irresponsible. There’s nothing on display here that would stop bitcoin falling further, and nothing that suggests FTX and others would be immune from the fallout. Martin Finnegan, a partner at law firm Punter Southall who has warned of the risks to institutional investors from offshore crypto trading platforms, says FTX’s actions look like a “sticking plaster”.
    Or, another addition to a long line of turtles.

    ALSO READ  What does it cost to be a student in 2022?

    © 2022, Mabanga Lucia. All rights reserved.

    spot_img
    Cape Town
    broken clouds
    15.1 ° C
    16.1 °
    14.4 °
    83 %
    8.8kmh
    75 %
    Sat
    16 °
    Sun
    14 °
    Mon
    15 °
    Tue
    15 °
    Wed
    17 °
    Durban
    clear sky
    12.8 ° C
    12.8 °
    5.5 °
    59 %
    3.1kmh
    0 %
    Sat
    21 °
    Sun
    24 °
    Mon
    22 °
    Tue
    23 °
    Wed
    20 °
    Johannesburg
    clear sky
    -0.1 ° C
    -0.1 °
    -0.7 °
    86 %
    0kmh
    0 %
    Sat
    15 °
    Sun
    16 °
    Mon
    16 °
    Tue
    18 °
    Wed
    16 °
    spot_imgspot_img

    Latest Posts

    spot_img
    Pretoria
    clear sky
    1.8 ° C
    2.7 °
    1.4 °
    90 %
    0kmh
    0 %
    Sat
    18 °
    Sun
    19 °
    Mon
    20 °
    Tue
    21 °
    Wed
    21 °

    Trending Now

    spot_imgspot_imgspot_img

    Dive in!

    Join our Lifestyle subscribers, and start your fitness journey with us today.

    Take a look at our Privacy Policy for more info.

    Media Platform

    So many ideas are shared daily across our platforms, our audience discover areas of interest and use the platforms in an educational capacity, to inform and inspire people to appreciate different perspectives and better understand the world around them on a range of topics.

    en English
    X
    error: Content is protected !!