Crypto and Stocks performance YTD (17/12/2022):
- Bitcoin down 62%
- Ethereum down 66%
- Tesla down 60%
- Nvidia down 43%
- AMD down 55%
- MicroStrategy down 66%
The year is 2021, FTX is all over the news, deals for 100's of millions are being signed with celebrities, sports/esports teams and organizations, a super bowl ad.. everywhere you turn, you see Sam smiling at you. With FTX's valuation of $25 Billion, endorsed by celebrities like the American Football Legend Tom Brady, Shaquille O'Neal, The Miami Heat, Formula 1, MLB, E-sports Organization Team SoloMid, and many more big names, SBF (Sam Bankman-Fried, CEO of FTX) seemed like he was on cloud 9, as he was praised by many, and even got called the "next Warren Buffet". It turns out that all this success and fame just wasn't enough.
It's 2022, and FTX is now the #2 Crypto Exchange in the world. It expands its advertising efforts into YouTube personal finance channels like Graham Stephan, Andrei Jikh, Meet Kevin, and many more. These three alone currently share 8 million subscribers. They post a ton of videos, advertising FTX's 8% APY and ridiculous signing bonuses of up to $250, and don't raise any questions about these numbers.
Their followers blindly follow, parents allocate their savings, zoomers invest half of their salaries, and you tell your friends and family. It all seems good until you open Twitter and see this:
1) Hey all: I have a few announcements to make.
— SBF (@SBF_FTX) November 8, 2022
Things have come full circle, and https://t.co/DWPOotRHcX’s first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for https://t.co/DWPOotRHcX (pending DD etc.).
This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire https://t.co/BGtFlCmLXB and help cover the liquidity crunch. We will be conducting a full DD in the coming days.
— CZ ???? Binance (@cz_binance) November 8, 2022
You read the full threads and start wondering, what is this all about? Why is Binance buying FTX? You do a quick google search and find a report by CoinDesk, leaking FTX's financial balance sheet, which shows their total assets and how they are allocated. They have $5.8 billion in FTT token (FTX's native token), $1.2 billion in Solana token (SOL), and more in other crypto projects by SBF. And roughly only $2.2 billion were left in assets.They have $8 billion in total liabilities, of which $7.4 billion is "loans", and $249 million worth of FTT token owed.
The rumor of FTX being insolvent spreads quickly, and people start to worry, they panic sell and try to withdraw their funds as soon as possible. You sit there and think; CZ (Changpeng Zhao, Binance CEO) said Binance is going to buy them out, so everything should be fine, right?
Well, CZ did say that they signed a non-binding LOI to "protect users". Now, your average Joe, who listens to YouTubers for financial advice probably has no idea what a non-binding LOI is and most definitely didn't bother to look up what it meant, all Joe saw was a Tweet by the #1 Crypto Exchange CEO saying they are intending to "fully acquire" the #2 Crypto Exchange FTX, "to protect users" and thought nothing more of it.
Signing a non-binding LOI or "a non-binding letter of intent" meant that if Binance saw something they didn't like, they could pull out of that deal immediately. 'Non-binding', hence they are not obligated to follow up on the acquisition of FTX. Which is exactly what they did. Binance decided to pull out, and basically said that FTX is too deep into the gutter and they are not going to bother saving them:
As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of https://t.co/FQ3MIG381f.
— Binance (@binance) November 9, 2022
Apparently in the first 72 hours, FTX saw a volume of ~$6 billion in withdrawals according to Reuters. And as you expected, that basically drained all of the liquid (available) assets the company had at the time.
Now, who suffers the most in this case? Unfortunately, it's always the same group of people; the middle and lower class. They take the biggest hit and are not able to quickly recover. What took them years to accumulate, disappears just like that. The same group of people who are the least informed, don't have time or interest to research on their own and are most susceptible to consume bad advice from self-proclaimed investment 'experts'. The same YouTubers which all they do is a simple google search before they hit the 'record' button.
But who is to blame? How could anybody know what's been going on behind the walls? Nobody saw it coming. At the end, everybody was fooled. SBF said he didn't know what was happening. I'm not sure how much we can believe in his words, since his integrity is pretty much ruined now. This image that he sold to the world as 'just your average guy', that drives an old car, wears casual clothes, and doesn't get haircuts, by living a basic frugal lifestyle managed to fool too many people.
Even Kevin 'Mr. Wonderful' O'Leary, one of the 'Sharks' on the 'Shark Tank' show had his money in FTX frozen.
You can't really blame any YouTuber that has been promoting FTX or BlockFi. What you need to understand is that they all get paid. They know just as much as you do. The videos they make are with the sole purpose of making money. Everybody says 'I care about you guys', 'I care about my audience', because they know that is what you want to hear. The true intention of every Financial 'Expert' on YouTube is always to keep you engaged and make you click on that referral link in the description so they make as much money as possible from YOU.
Andrei Jikh shared that he "kept most of his crypto, in fact all of his crypto with BlockFi", as he showed in a video was over half a million dollars worth ($543,019 exactly) sitting in his BlockFi account. This sounds kinda odd, as he usually preaches in all of his videos that you should always move your crypto from an exchange to a cold wallet since that is the safest place you can store it. And all that money is probably money from sponsorships. You'd be surprised how much money finance YouTubers get paid per sponsorship.
BlockFi filed for chapter 11 bankruptcy on November, 28, of this year. This was due to them getting a $250 million credit from FTX after (in a similar fashion) having faced a liquidity crisis back in June, this year.
Today @BlockFi signed a term sheet with @FTX_Official to secure a $250M revolving credit facility providing us with access to capital that further bolsters our balance sheet and platform strength.
— Zac Prince (@BlockFiZac) June 21, 2022
What everyone can take away from all this is:
- Do your own research;
- Don't listen to self-proclaimed investment experts on YouTube or any other social media;
- Don't believe in what CEOs promise on their socials;
- Don't invest more than you can afford to lose;
- Don't sell your house to invest in crypto;
- Don't sell your wife to invest in crypto;
FTX aside, avoid businesses/exchanges/projects that:
— CZ ???? Binance (@cz_binance) November 11, 2022
- are not profitable (musical chairs)
- survive by selling their own tokens
- give high incentives for locking your tokens
- have a large total supply, but only a small circulation supply
- involves loans
Stay #SAFU ????
"On November 11, 2022 and November 14, 2022, FTX Trading Ltd. and 101 affiliated debtors (collectively, the "Debtors") each filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware." - KROLL
"Dec. 13, 2022 - SEC Charges Samuel Bankman-Fried with Defrauding Investors in Crypto Asset Trading Platform FTX. Defendant concealed his diversion of FTX customers’ funds to crypto trading firm Alameda Research while raising more than $1.8 billion from investors." - SEC
The whole story of these exchanges (that is mostly already told) is for a whole separate article, this one is specifically about the issue with self-proclaimed 'experts' on YouTube, that use their platforms to push out crap to people with potentially life-ruining results.
Thank you for reading, stay safe!
