Castles made of Sand Dollars: SBF and FTX and other Three Letter Agents

While the story of Bitcoin has seen its fair share of criminal activity, nefarious characters and bad haircuts, our anti-hero has managed to surpass them all. Sam Bankman-Fried is better known as the three-letter acronym SBF. He founded Alameda Research in September 2017, just four years after he graduated from an internship to a full-time job at Jane Street Capital, one of the largest market makers in the world. SBF is the son and founder of Mind The Gap, a left-leaning super PAC, Barbara Fried and Stanford professor Joseph Bankman. He is an expert on tax shelter laws as well as government regulation. SBF had already struck digital gold at the beginning of 2018, while taking advantage the arbitrage opportunity that presented itself between a higher demand in the Asian market for bitcoin, commonly known as the “kimchi Premium”. After amassing a substantial fortune from the high-volume bitcoin/dollar spread by the end of 2018, SBF moved to Hong Kong and founded the derivatives exchange FTX the following spring. SBF launched the Bitcoin network, which he rode from poverty to riches. It was partly in response to fiat money’s ugly head in the subprime mortgage and real estate crises that led to what is now called the Great Financial Crisis 2007-2009. “? “? From the ashes of the financial meltdown, a new competitor to the dollar emerged. It brought with it a new standard for financial fairness. This new standard includes predictable issuance and control by the people for the people. SBF and his paid-for media and political allies find ways to harm innocent people in any system. This story, like many other stories about fraudulent financial crimes, begins in the Bahamas and ends with a tsunami of asset liquidations, broken homes, and a tidal surge of assets. “If you think that the Bahamas has destroyed your global tax system, then you have a very terrible global tax system.” – Steven Dean, Summer 2020 [1] The Bahamas may seem innocent enough, but there is a long history in the United States of tax avoidance. This includes rum-running bootleggers from the prohibition era. The fourth-largest foreign holders in treasury securities were the Caribbean banking centres, which included the Cayman Islands and the Bahamas, as of August 2022. This was behind only Japan, China, and the U.K. FTX was founded shortly after the 2008 crash. It was taking full advantage of the free money era, which was sustained by low-to zero interest rates that were brought on by the Trump administration. These rate cuts were initiated by Jerome Powell, a Trump-nominated and Biden nominated Jerome Powell. They were further exacerbated both by their COVID responses. Unprecedented levels of dollar-denominated assets led to unprecedented inflation. Stock indexes, real estate, bitcoin, and a host of unregistered securities known collectively as altcoins all reached new heights. One month after the creation of FTX, Mark Zuckerberg, Facebook, announced Libra, a digital currency based upon a basket of international currencies. This was a new take on stablecoins. The stablecoin and CBDC races were launched. Coincidentally, the Central Bank of the Bahamas was the first institution to announce its own CBDC (the sanddollar) in October 2020. The sand dollar itself was pegged to the Bahamian dollar, which is itself pegged to the United States dollar, and thus with its government-sanctioned launch, the birth of the first central bank-issued stablecoin dollar came to be on the sandy beaches of SBF’s new home. “What will the reserve currency for the crypto economy be? It’s currently unambiguously the USD. It’s USD, interestingly, regardless of whether you’re looking at the American cryptocurrency economy. Sam Bankman-Fried November 5, 2021. While the U.S. government tried to hide its fear of systemic risks, the Chinese government understood that the Libra project was a backdoor dollarization for the G7 currencies that were rumored to have been included in its basket. This Metaverse-held version of the 1985 Plaza Accord would spread USD network users across the largest network on the internet. It would be accelerated by the high velocity of centralized digital payments and globalized through the borderless nature the Facebook user base. In response to this development, the digital yuan was quickly tested in April 2021. By the Winter Olympics 2022, it had been launched in Beijing for foreign visitors. Bitcoin was not to be outdone, even by these new-look, sameshit fiat cryptocurrency. In April 2021, President Nayib Bukele of El Salvador took to stage at Bitcoin 2021 to announce his legal tender aspirations for his small, but highly dollarized country. On March 9, 2022, President Joe Biden signed Executive Order #14067 “Ensuring Responsible Development Of Digital Assets”. This included aspirations to mitigate financial risks in digital assets markets. It also contained a clause that required the attorney general to submit a formal proposal for a government issued CBDC within 210 days. The clause stated that the attorney general must consult with the chairman of Federal Reserve and the secretary of the Treasury. By this time, the largest share of market activity was dollar-denominated trading pairs, which account for billions of liquidity. The same is true for the Ethereum network. It has seen its compliance-driven perversion through non-native assets taking over from its token Ether. Stablecoin and other dollar derivatives now hold the majority of the economic weight of its system. Both stablecoin giants Circle, issuer of USDC, and Tether came out in support of the merge, further ossifying their stake in the now-nearly-70%-OFAC-compliant blockchain. [2] At the time of writing, more than 15.5 million Ethereum were staked in the Ethereum 2.0 beacon chain. This is worth almost $18 billion dollars. [3] Bitcoin’s consensus weight is not affected by user stake. This decade-long development has not had any impact on the Bitcoin market. At least, that was until Do Kwon and Luna, his Ponzi-scheme Luna, wreaked havoc upon investors at the beginning of May 2022. “Crypto is obviously serious…you want it to be righteous in the regulatory space.” – President Bill Clinton, April 27, 2022 (Allegedly). [4]Contagion Spreads Do Kwon’s Terraform Labs, and the Luna Foundation Guard, both entities, had started a campaign to buy bitcoin as a reserve currency in the event their algorithmic stablecoin UST deviates from its $1 peg. The plan had reached the lofty goal to accumulate more than $10 billion in the most difficult digital commodity known to man, just a few days before it collapsed. The purchase was made with Three Arrows Capital or 3AC and was assisted by Genesis, a cryptocurrency broker. Joshua Lim, head for derivatives at Genesis, stated that Terra’s remarkable growth has reshaped crypto markets continuously over the past two years. “Genesis is thrilled to be a liquidity provider to Terra’s ecosystem, connecting it with a wider audience of institutional market participants. This purchase made Luna Foundation Guard among the top-10 bitcoin holders worldwide, with 80,394 BTC in its bitcoin reserves. It was worth more than $3.1 billion on May 5, 2022. [5] It may seem like a lifetime ago but what followed was very familiar. The peg was attacked, Binance’s CEO Changpeng Zhao (CZ) halted all trading on LUNA or UST pairs – with notable exceptions to BUSD – and Kwon fled to Asia from U.S. jurisdiction. [6] This is the beginning of many repeatable points: where did all this bitcoin go? An audit released in November 2022 revealed that more than 33,000 bitcoin were transferred from Binance to Binance on May 10, 2022. The assets were sold with other assets and the peg was not protected. [7] On the same day that Binance received nearly $1 billion in bitcoin orders, bitcoin’s USD value fell to $30,000 from $40,000 a week earlier. SBF bought a 7.6% stake at Robinhood on May 13. This was the trading platform that was under scrutiny after it stopped trading during the GameStop fiasco. Bloomberg reported that Robinhood’s revenues came from selling customer orders to firms like Two Sigma Securities and Citadel Securities. Citadel was fined $700,000. In July 2020, Citadel was accused of running trades that customers placed. In September, Robinhood was also questioned by the U.S. Securities and Exchange Commission for improperly informing clients about stock trades sold to high-frequency trading companies. Robinhood had previously agreed to $65 million to resolve repeated misstatements regarding their failure to disclose receipts from trading firms. [9] Janet Yellen, newly-nominated Treasury secretary, briefed Joe Biden in February 2021 on the conflict of interest. She had received speaker fees from Citadel LLC in the previous year and was required to obtain an ethics waiver. [10] SBF had filed a Schedule 13-D form with SEC detailing the purchase. It cost $648.3 Billion dollars and gave Biden 2.8% voting rights in their dual-class share structures. This was under Emergent Fidelity Technology, a name that is said to have been randomly generated. [11] “Coinbase Exchange will unify USDC and USDC orderbooks on July 13. In order to provide a seamless trading experience and deeper liquidity for USDC and USDC, USDC order book will be merged under USDorder books. Coinbase Exchange Twitter, June 29, 2022. [12]Circle had previously expanded their international offerings by establishing a subsidiary in Bermuda. This announcement was made on July 22, 2019. [13] Circle, the entity filed under the Digital Assets Business Act of 2018, (“DABA”), meant that Circle was the first major stablecoin issuance to be granted a Class F (“Full”) DABA License. This license covered their operation of custody and payment services, exchange, trading, and other financial services in the digital asset realm. Signet, Signature Bank, and Silvergate Capital were Circle’s banking partners. They had provided USD loans to Voyager, Block Fi and Three Arrows Capital. All had filed for bankruptcy by the time this article was written. Galaxy Digital and Genesis, two of their business affiliates, also suffered massive losses in the FTX crash. There are rumors of contagion effects. Coinbase, a publicly traded exchange trading under the ticker $COIN announced in its Q2 2022 shareholder letters that almost one-third of total revenue was derived by interest on USD-denominated assets, including a large USDC position. “Interest income was $33million, up 211% from Q1. This was due to our USDC activity and higher interest rates as interest is generated on fiat customer custodial accounts… at the end Q2, we had $6.2 trillion in total $USD resources. We also had $428 million worth of crypto assets. [14] At the time of publication, USDC interest for 12 months was at 4.7%. One-month yields were a mere 4%. The USDC yields had fallen to 0% by November 16, 2022 across all time periods. [15] “1) Binance converts USDC–> BUSD and we can see the change in supply. The Second Great Stablecoin War began. – @SBF October 23, 2022 [16] On September 4, 2022 Binance announced that it would convert all USDC, USDP, and TUSD, three major dollars stablecoins, into its own-issued BUSD. This conversion was effective in 25 days. [17] There were concerns about Binance’s solvency. The preceding few months saw the largest known outflows in bitcoin history. This was especially evident in July 2022. It converted all USDC, USDP and TUSD into its own-issued BUSD. This was effective in just 25 days. BNY Mellon, which is the world’s largest custodian bank and has more than $43 trillion in assets, announced the launch its digital asset custody program on October 11, 216-days after Biden’s executive orders with the 210-day clause. [18] The FedNow pilot also included Alexander Hamilton’s bank, which was involved in more than 20% of the world’s investable assets. [19] Despite these institutional developments a continued bearish market weighed heavily upon the now-plummeting Bitcoin price. Paradoxically, the Bitcoin network saw an increase in the amount of Bitcoin hash rate. These simultaneous movements saw Bitcoin’s hash rate plummet to an all time low, prompting a massive liquidation off the books of mining operators. Core Scientific, the largest Bitcoin mining operation at the time, filed for bankruptcy on October 26 with millions of dollars of debt liabilities and thousands of ASICs. Yet, they only had 24 bitcoin total when the circus arrived. [20] What happened to all that bitcoin? Binance experienced its largest single-day outflow on the same day, just two weeks before the FTX crash. It saw 71,579 bitcoins, which was more than $1.1 billion in dollar terms. [21] This resulted in net outflows of nearly 95,000 coins from Binance, the world’s biggest exchange since July. Where did all of this bitcoin go? The next day, October 27, 2022 saw SBF appear on The Big Whale to announce future plans for FTX in order to launch its own stablecoin. [22] More Sand than Dollars”CIA, Mossad, and the pedo elite run a sex trafficking entrapment and blackmail ring out from Puerto Rico and the caribbean islands. They will frame me using a laptop that my ex-gf, who was a spy, has planted. They will torture me to the death.” Nikolai Muchgian, October 28, 2022 [23] On October 24, 2022 the MakerDAO approved a proposal from the community to take $1.6 billion USDC in custody with Coinbase Prime. [24] Nikolai Muchigan (co-founder of MakerDAO, inventor of Rai, a DAI fork stablecoin) tweeted four days later that his life was in peril due to a Caribbean blackmail ring. This ring was allegedly backed by U.S. intelligence agencies and Israeli intelligence agents. On Halloween, 29-year-old coder Muchigan was found drowned in the ocean off Condado Beach, Puerto Rico. [25] CoinDesk reporter Ian Allison published findings on November 2, 2022. He found that more than a third of assets – $5.8 billion of $14.6 million – on Alameda Research’s balance sheet was intrinsically linked to FTX’s FTT exchange token. After three days of almost $6 billion in withdrawals, FTX was left without a single bitcoin. What happened to all of this bitcoin? In an interview with Fortune, Coinbase CEO Brian Armstrong stated that USDC would become the de facto central banking digital currency in the U.S. [26].” – Brian Armstrong, November 3rd, 2022. CZ announced that Binance would liquidate a portion of FTT it acquired from exiting FTX. The company had received approximately $2.1 billion in BUSD, FTT, and other currencies. Minutes later, Caroline Ellison (SBF’s partner, and CEO of Alameda Research) offered to buy the tokens at $22 each in an over-the counter fashion. [27] CZ and SBF had a telephone conversation on November 8 and seemed to have reached a tentative agreement for acquisition. However, they also reserving their right to withdraw from the deal at any point. Interestingly, the deal did not include both U.S.-based proprietary markets, Binance.us or FTX.us. SBF tweeted that “Things have come full circle and FTX.com’s first and last investors are the same: We have reached an agreement on a strategic transaction with Binance (pending DD etc).” [28] Later that night, FTX officially stopped all asset withdrawals. SBF was required to open FTX’s books and show his bottom line as part of the acquisition conditions. CZ backed out of this deal, seeing more sand than dollars. In the 48 hours that preceded this sudden cataclysm, a few important statements were made by the U.S. Securities and Exchange Commission. “Liquidating the FTT is post-exit risk management. Learn from LUNA. We have been there for each other before, but we will not pretend to be in love after divorce. We don’t support anyone. We won’t support those who lobby against industry players behind their backs. Onwards.” – CZ, November 6, 20,22 [29] The SEC declared LBRY (or Library Coin) an unregistered security offer on November 7, 2022. This set a terrible precedent in the wider cryptocurrency market. [30] The United States District Court for the District of New Hampshire issued a memorandum and an order stating that “The Securities and Exchange Commission” (SEC) claimed that LBRY, Inc. sold unregistered securities in violation of Section 5 of the Securities Act of 1933. This filing caused shockwaves in the pre-mined token market, including the exchanges that list these tokens and the entities behind them. The US’ midterm elections were held on November 8th, which saw the balance of the Senate and House, and possibly the regulatory path for the digital asset sector, at stake. FEC.gov searches for FTX and returns 456 individual campaign contributions by SBF, CEO Ryan Salame and others. [31] Salame contributed more than $14 million to GOP candidates while SBF’s “effective Altruism” contributed more than $20 million to DNC politicians. SBF was the second largest donor to the Biden campaign. However, his bankroll had surpassed his morals by the time that the final results from election night were in and he was nearly bankrupt. SBF lost 94% of his net wealth by November 9, the day following the election. This was reportedly from more than $15billion. Bloomberg Billionaire Index reports that he had the largest single-day loss. [32] SBF took to Twitter early in the morning on November 10 to explain what had happened and wrote “I’m sorry.” That’s the most important thing. I made a mistake and should have done better”, before stating that “THIS IS ALL ABOUT FX INTERNATIONAL, NOT THE NON-US EXCHANGE.” FTX USERS ARE FINE! [33]Chapter 11. The administration […] consistently stated that cryptocurrencies could harm everyday Americans if they are not properly regulated. The most recent news reinforces these concerns and shows why prudent regulation of cryptocurrency is necessary. – Karine Jean-Pierre, White House Press Secretary, November 10, 2022 [34] On the eleventh day in the eleventh month, FTX filed for Chapter 11 bankruptcy protection. SBF was elected CEO. Moreover, Chapter 11 voluntary proceedings were also initiated by 130 affiliated companies that are connected or associated to FTX. [35] The tide was out and almost everyone was caught swimming naked as a near-endless tsunami of dollar-denominated liquidations decimated SBF’s Caribbean empire. Although the Bahamas may have seen the first CBDCs of a dollar, the monsoon of regulation and contagion from the Second Great Stablecoin War’s Second Great Stablecoin War will continue. The dollar has fallen 10% from its September 35-year DXY highs. Now, it is looking for new ways to innovate and dollarize more markets around the world. Just four days after the tsunami hit the shores of the SBF, BNY Mellon and a dozen other banks announced that a 12-week pilot program for digital dollars was being launched by the Federal Reserve Bank of New York. [36] BlockFi, five months after it took a $250 million loan form FTX, announced plans to file for bankruptcy. Circle also announced that users would be able settle their payments using Apple Pay. [37,38] The Grayscale Bitcoin Trust now shows a significant 43% discount. Further community requests for proof are increasing around Genesis and Grayscale. Both of these trusts are owned by the Digital Currency Group and their custodian, Coinbase Custody. These requests have been denied as of this writing for security reasons. While SBF appeared to be riding the wave the booming digital asset revolution, attracting celebrity endorsements and political allies, it turned out that SBF was drowning with debt and capital misallocation amid loud, mainstream praise. SBF was scheduled to appear at a New York Times event on November 30. Accenture sponsored the event. [41] The interview between SBF & Andrew Ross Sorkin was streamed, although both parties were recording remotely. Alameda Research and FTX will join the ranks of those who did just that. They won’t be the first. As the weeks, months and years pass, it becomes clear that SBF was only a small fish in a large, dollarized pond. He quickly learned that there was always a bigger fish. “I might have more to say about a sparring partner at some point,” he said. Glass houses, you know. You won. [42] – Sam Bankman-Fried, November 10, 2022ENDNOTES:[1]https://www.forbes.com/sites/taxnotes/2021/06/24/in-the-1930s-the-bahamas-became-a-tax-problem-for-treasury/[2]https://fortune.com/2022/08/09/stablecoins-circle-tether-support-ethereum-merge-proof-of-stake[3]https://ethereumprice.org/eth-2-deposits/[4]https://www.msn.com/en-us/entertainment/entertainment-celebrity/inside-bahamas-crypto-festival-where-ftx-ceo-bankman-fried-welcomed-bill-clinton-and-katy-perry/[5]https://bitcoinmagazine.com/business/luna-foundation-now-holds-more-bitcoin-than-tesla[6]https://www.yahoo.com/entertainment/binance-remove-trading-pairs-ftx-114338983.html[7]https://lfg.org/audit/LFG-Audit-2022-11-14.pdf&sa=D&source=docs&ust=1668725884650403&usg=AOvVaw22nNl-O_mnhcT8MxsEtEiX[8]https://www.truthorfiction.com/does-citadel-own-robinhood/&sa=D&source=docs&ust=1668980992263700&usg=AOvVaw31decanIMGsjR2r2ceb0sP[9]https://www.sec.gov/news/press-release/2020-321[10]https://www.cnbc.com/2021/02/02/treasury-secretary-janet-yellen-to-call-regulator-meeting-on-gamestop-volatility-seeks-ethics-waiver.html[11] https://www.axios.com/2022/05/13/what-does-sam-bankman-fried-want-with-robinhood[12]https://twitter.com/CoinbaseExch/status/1542270332299579396?s=20&t=3qAy3oJqtmMnLdfwk-JTJA [13]https://www.circle.com/blog/circle-expands-international-offerings-with-new-bermuda-operations-and-digital-assets-business-license[14]https://s27.q4cdn.com/397450999/files/doc_financials/2022/q2/Q2-2022-Shareholder-Letter.pdf[15]https://www.circle.com/en/usdc-yield#start[16]https://twitter.com/SBF_FTX/status/1584077423280521216?s=20&t=UB_GcB9mjBRJtNS8sS4RJQ[17]https://www.binance.com/en/support/announcement/binance-to-auto-convert-usdc-usdp-tusd-to-busd-binance-usd-e62f703604a94538a1f1bc803b2d579f[18]https://www.prnewswire.co.uk/news-releases/bny-mellon-launches-new-digital-asset-custody-platform-301645324.html[19]https://www.frbservices.org/financial-services/fednow/community/news/012521-announcing-pilot-program-participants.html[20]https://www.forbes.com/sites/rosemariemiller/2022/10/27/core-scientific-unable-to-pay-bills-warns-of-bankruptcy/[21]https://bitcoinke.io/2022/11/largest-bitcoin-outflow-on-binance/[22]https://finance.yahoo.com/news/sbf-ftx-stablecoin-second-great-055956820.html[23]https://twitter.com/delete_shitcoin/status/1585918718088970241[24]https://www.coinbase.com/blog/coinbase-launches-usdc-institutional-rewards-program-with-makerdao[25]https://www.trustnodes.com/2022/10/31/etherean-nikolai-muchgian-dead-by-drowning[26]https://fortune.com/crypto/2022/11/03/coinbase-ceo-says-usdc-will-become-de-facto-cbdc/ [27]https://twitter.com/carolinecapital/status/1589287457975304193[28]https://www.binance.com/en/news/flash/7268278[29]https://twitter.com/cz_binance/status/1589374530413215744[30]https://odysee.com/@lbry:3f/secvslbrysummaryjudgementruling:a[31]https://www.fec.gov/data/receipts/individual-contributions/?contributor_employer=FTX[32]https://www.cnn.com/2022/11/09/business/sam-bankman-fried-wealth-ftx-ctrp/index.html[33]https://twitter.com/SBF_FTX/status/1590709166515310593[34]https://cointelegraph.com/news/white-house-says-prudent-regulation-of-cryptocurrencies-is-needed-hinting-at-situation-with-ftx[35]https://cryptopotato.com/ftx-and-alameda-file-for-bankruptcy-sbf-resigns-as-ceo/[36]https://markets.businessinsider.com/news/currencies/digital-dollar-wall-street-banks-new-york-fed-ftx-crash-2022-11?miRedirects=1&op=1[37]https://www.businessinsider.com/blockfi-ftx-bankruptcy-crypto-lender-emergency-loan-pausing-withdrawals-2022-11?op=1[38]https://www.circle.com/blog/apple-pay-is-now-available-on-circle[39]https://news.yahoo.com/grayscale-bitcoin-trust-hits-record-132435240.html[40]https://www.wsj.com/livecoverage/stock-market-news-today-11-18-2022/card/coinbase-vouches-for-grayscale-investments-products-yA5vzaPEIvaOr7Ffj2GE[41]https://www.nytco.com/press/the-new-york-times-to-host-annual-dealbook-summit-on-nov-30/[42]https://twitter.com/SBF_FTX/status/1590709197502812160

 

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