In 2010, Michael Lewis published his book «The Big Short: Inside the Doomsday Machine». In it, like a detective story, the author put together a whole picture of the global financial crisis of 2007-2009 from separate episodes and turned the story into an exciting novel with bright characters who see the mortgage bubble inflating, place bets against it and ultimately win.
As is well known, in 2015 a film adaptation of this work was released by Plan B with a stellar cast. Michael Lewis believed that the appearance of a film based on such a difficult book is an opportunity to convey to a wider audience the important lessons that everyone should learn from the current crisis.
It is not enough to explain complex concepts to the reader, the reader must want to understand them. If the concepts are very complex, it should be vital for the reader to understand them. - Michael Lewis
Why did I suddenly remember the events of almost 15 years ago? In fact, that my signals in space were heard! It became known that the rights to the previously published book based on the collapse of FTX by Michael Lewis may become Apple Corporation. It is also expected that a full film will be made based on it. I can already guess which company will attach to the shooting. Yes Brad? 😏 Samu gets into the seven-figure sum.
But that's not all. Amazon commissioned production company AGBO to create a mini-series on the same subject. According to sources, the story will be based on "insider reports" by journalists who are considering the events around the FTX exchange and its founder Sam Bankman-Fried. Amazon that the eight-episode series will be released in the spring of 2023.
In the meantime, FTX itself plans to sell off its assets or restructure - this was stated by John Ray, which I observe in detail in the last article.
Knowing the past achievements of the new CEO, it is not surprising that his services are, to put it mildly, not cheap. John Ray is said to be receiving $1,300 an hour for excess expenses.
▫️Top managers receive from $800 to $950,
▫️heads of departments — from $600 to $775,
▫️senior managers — from $450 to $575,
▫️junior employees - from $350 to $425.
For all categories, the rate is also hourly. Excellent spending figures for a "bankrupt" company 😅
So one of the companies interested in acquiring FTX assets is Ripple. Brad Garlinghouse stated that he is primarily interested in the divisions focused on serving business customers.
But there are those who, in addition to the team of John Ray, already manage the assets of Curly Sam's crypto exchange. Last weekend, a hacker who stole more than 250,000 ETH on FTX exchanged ⅕ of it for a “wrapped” overview from Ren Protocol and connected the assets to a cross-chain bridge for transfer on the network.
Ironically, Ren's protocol was previously acquired by Alameda Research (which you can also learn about yourself from the last article).
And Ren Protocol themselves announced earlier that the implementation project is fully seeking additional investment. The team is preparing to release the second version of the decentralized cross-chain protocol. At the same time, Ren's reserves are only enough until the end of the fourth quarter of this year.
By the way, do you remember the New York Times summit? SBF said that they would still take part in it, possibly on November 30th. The list of speakers still includes comedian Volodymyr Zelensky and comedian Janet Yellen. Comedian Metahuman Mark Zuckerberg, who is already rumored to be stepping down as Meta's premier in 2023, has been replaced by Lawrence Fink, BlackRock's chief executive.
By the way, the opinion that only 0.32% of the BlackRock investment fund is enough to buy all BTC reserves on exchanges sounds very interesting on this topic. And therefore, as soon as institutional funds enter the game, the game will mathematically end for the bears.
A small confirmation of the words is the Coinbase survey. According to its results, institutionals continue to enter the crypto, despite the cryptogeddon, and plan to deliver supplies in the coming days.
For example, according to the CEO of Pantera Capital, the fund recently bought BTC for $140 million. However, Pantera is a long-time crypto lover, and the massive institutional phenomena in the situation are history for the future, in the present reality a little more severe. According to many influential figures associated with the industry, the collapse of FTX did not become fatal for the cryptosphere and did not entail fatal upheavals. Still, it is worth noting some points that are striking.
Over the past 30 days, a record number of bitcoins have been withdrawn from crypto exchanges - about 180,000 coins. This is the largest outflow of bitcoins from exchanges in the history of cryptocurrencies.
Analysts from Santiment note a sharp increase in address activity in the BTC network when the price drops below $15,800 (yes, it happened this week and even lower) and believe that this may be a sign of capitulation. But at the same time, there is a significant accumulation of LTC by wallets with a balance of 1 thousand - 100 thousand LTC over the past 2 weeks! The coin has gained +30% over the past few days and is behaving much stronger than BTC.
By the way, another well-known crypto fanatic Michael Saylor previously admitted that Litecoin is also probably a digital commodity, like BTC, and not a security. And his namesake and colleague in the “faith in the crypt” Novogratz emphasized that, unlike other projects, “BTC is complete decentralization.”
“For example, if I die or if something happens to Michael Sailor, then for BTC it doesn’t matter at all. BTC is the exact opposite of FTT.”
The same opinion is shared by Santiment themselves, who still believe that BTC specifically is one of the main beneficiaries of the FTX collapse. The logic is that many consider BTC as a decentralized store of funds against the backdrop of a decline in confidence in centralized exchanges.
Meanwhile, Casa Blog reports that according to historical data, 14 centralized crypto exchanges are responsible for the loss of 1,195,000 BTC. And this is 6.3% of all BTC in circulation.
But in fact, these data may not be entirely reliable. Tk the other day, 10,000 bitcoins were unexpectedly transferred from the “sleeping” wallet of the BTC-e exchange that collapsed 5 years ago. It was previously believed that the keys to the wallet were lost, since the exchange closed in the summer of 2017.
But the end of 2022 will clearly be remembered for a sharp increase in the activity of cold wallets.
JPMorgan, which is seeing big shorts in BTC futures on the CME exchange and near-zero cash flows to BTC-focused public funds (including ETFs), has registered a trademark for its own crypto wallet this week!
Also, one of the largest and oldest banks in America has applied for the exchange of virtual currencies and the processing of cryptocurrency payments.
JPMorgan's interest in blockchain is understandable. In the spring, Citi predicted that the metaverse market could generate $13 trillion. And in September, JPMorgan published a study that the value of China's metaverse gaming market alone could exceed $100 billion.
The study also shows that market growth will come with challenges, including privacy and security concerns in the metaverse.
This issue has already been raised by organizations such as the World Economic Forum (WEF) and even Interpol, with the latter already beginning to introduce its services into the police-centric metaverse. And the Ministry of Internal Affairs of Russia proposed to adopt a law regulating the use of virtual reality systems, in connection with the possible risks of their destructive impact on humans.
The report identifies two key areas that will drive this growth, including rising consumer spending on virtual concerts and virtual events, made possible by growing advances in virtual reality (VR) and augmented reality (AR) technologies. The second key factor is the growing prevalence of online gaming, which, combined with the aforementioned technologies, provides a level of immersion that encourages investment in this area.
Interesting, by the way, is Meta's new Quest Pro headset, which aims to give users a tangible way to recreate the office experience wherever they are, whether it's working from home or in a hotel room. (Doesn't explode your head - it's already great, you will say, remembering one of the previous releases 😅)
In the meantime, according to the lead developer, the World Economic Forum (WEF) has invited Shiba Inu to collaborate to help shape a global metaverse policy.
But the guys do not miss out on tenacious paws and real life. In Australia, a Shiba Wings eatery is scheduled to open soon and will accept SHIB as payment.
As a reminder, Shiba Inu, in partnership with the Italian Welly’s, already has its own chain of fast food restaurants, and the Shiba Inu community should receive a 15% share in the fast food chain business!
Two airlines, American Air and Air Canada, have begun accepting SHIB through FCFpay.
And paying for taxis with crypto with Binance Pay is already happening in 2,000 cities in 150 countries around the world. (I talked about paying for gas stations in the last article).
Good news from Solana developers as well. Anatoly Yakovenko urged all validators to upgrade to the latest node version 1.13.5. The update should fix all Solana network outages caused by UDP protocol overload.
In turn, the Cardano developer plans to launch an anonymity-oriented “Midnight” blockchain with an anonymous DUST token.
And Celo, a blockchain payment platform that allows you to access DeFi from your mobile phone, has partnered with ConsenSys, the developers of the well-known ETH.
By the way, about the Ethereum. It became known that Amazon already controls 60% of active ETH nodes (for comparison, in August this year it was 52%). It turns out that in such scenarios, Amazon is nothing more than a "centralized web provider." And this, in turn, means that with a strong and urgent desire, Amazon can “cut down” Buterin’s creation.
Launches its crypto-wallet on iOS and recently got a second life company GameStop.
At the same time, Carl Icahn reported that "still mega-shorts in GameStop shares." He started shorting back in January 2021, when the stock was overclocked by Reddit.
And since May 2021, Icahn began to take an active interest in blockchain. Together with Ray Dalio, he believes that the reason for the desire to invest in cryptocurrencies is the depreciation of the US dollar (remember this statement).
Meanwhile, Bridgewater (the biggest hedge fund Dalio created) has built positions in health care company Johnson & Johnson, consumer goods makers PepsiCo, The Coca-Cola, Abbott (health/tech), Pinduoduo (agriculture).
The positions are very logical. According to a JPMorgan report, the SP500 gainers this week were consumer goods, healthcare and utilities. It's not surprising, especially during Thanksgiving week.
According to Morningstar, outflows from funds focused on commodity markets continue. The "metals & mining" sector is clearly not a priority for investors. But it is quite possible that the situation will change in the near future if the scenario of maintaining inflation at elevated levels for several years is realized. And the chances of this are very high.
At the same time, according to Reuters, a serious shortage of platinum may be recorded in the world in 2023 (I spoke about the interesting demand for which I spoke in one of my previous article).
Platinum is used in the production of catalytic converters for cars, jewelry and industrial products. Experts predict an increase in demand for this type of metal by 19% in 2023.
The undisputed leader of the year, predictably, was the energy sector.
This week it became known that Rosatom will assist in the construction of a nuclear power plant in Egypt, in the El-Dabaa region. It goes without saying that "Atomic cooperation" with Cairo, as well as with the countries of Asia and Africa in general, has enormous potential for Russia.
Now Asian and African countries and their markets are becoming the most promising in terms of the development of new technologies.
In total, there are several major players in the world today, among which Russia and China have become the leading ones, but the United States has long been unable to restore its positions, which were greatly shaken at the end of the last century.
This week it became known that on December 14, the head of the SEC may present his new plan for the structure of the financial market in the United States.
The project is described as the biggest change in the stock market in decades.
Back in February 2021, the WSB movement (the same people who pumped GameStop) called on regulators to reconsider a decades-old practice in the US stock market: order flow fees (a practice in which high-frequency trading firms pay brokerages for the right to execute clients' exchange orders).
For example, broker Robinhood sells all of its client order flows to high-frequency funds Citadel, Virtu, Two Sigma, Wolverine, and others.These funds see all orders and speculate on insiders, further increasing market fluctuations!
The plan introduces a kind of "auction" for processing retail orders, and if it is adopted, many large brokers will lose a huge share of the income they received from selling client order flows.
In the meantime, the same curious situation took place in the German government bond market, as in the US, which I spoke about in previous article. The yield on the 2-year Bundes (2.08%) exceeded that of the 10-year Bundes (2.02%). As in the US, this is a harbinger of an imminent recession in the economy.
As a result: a recession is planned in the economy, and the ECB is forced to continue to tighten monetary policy due to high inflation. This is fundamentally different from what we have seen in recent years. In fact, the regulator deliberately pushes the economy into recession. The lesser of two evils is chosen. Better a minor (as the regulator believes) recession than a complete loss of control over price increases.
Another question is just how far inflation will have time to fall before the ECB will again have to start lowering the rate in order to prevent a complete suffocation of the economy. It is very doubtful that inflation will fall to the target 2% by that time.
At the same time, BBG reports that PMI indicators indicate that the European economy is already in recession. And the more problems grow, the stronger we see contradictions in the actions and words of the heads of state.
For example, the Italian Prime Minister publicly exposed France's colonial policy in Burkina Faso. From the data presented, it follows that children work in the gold mines, and France prints colonial gold money for the country. In return, he demands 50% of all export earnings deposited in the French treasury.
And at the APEC summit, French President Macron himself said that “we need a single world order,” comparing the United States and China with “two big elephants in the jungle.”
By the way, about the fact that Europe has long been ruled, to put it mildly, not the most talented politicians, Michael Lewis also has a book. It's called “Boomerang”. I advise everyone to pay attention to it.
Long-suffering Credit Suisse sees pre-tax loss of $1.6bn in 4Q22. Bank outflow hits record $84bn! Wealthy clients move to a competitor in UBS.
UBS is known, among other things, for the fact that back in 2016, together with IBM, it presented a blockchain platform for international trade called Batavia. It was based on Hyperledger Fabric technology, and the idea of the project was to create a new industry standard for clearing and executing financial transactions using blockchain technology. In 2017, Bank of Montreal (BMO), CaixaBank, Commerzbank and Erste Group also joined the project.
In addition, UBS and 15 large American, European and Japanese companies (such as Barclays, Nasdaq, Banco Santander) founded the Fnality International organization and invested 50 million pounds in the development of a new cryptocurrency called the Utility Settlement Coin (USC).
In March of this year, Euroclear announced an investment in Fnality, a consortium of regulated payments over the blockchain. Euroclear operates central securities depositories (CSDs) in Europe including Belgium, Finland, France, Ireland, the Netherlands, Sweden and the UK.
Meanwhile, according to Politico, a real trade war could break out between the US and Europe!
Europe is unhappy with the US law to reduce inflation, which could lead to a trade war, says the American Politico
Europe's fears are related to the US $369 billion package of subsidies and tax breaks to support US green business. In Europe, they are sure that the law will encourage companies to transfer investments and production from the Old World and will encourage people to "buy everything American."
Germany, which I mentioned above, is “in a state of open panic” as several of its leading companies, in the face of rising energy prices, are already curtailing their production in order to invest in other countries.
Against the backdrop of a deep economic crisis, the United States can buy up the enterprises of the military-industrial complex (MIC) of Great Britain with a discount of up to 15%, according to Breaking Defense.
According to the publication, this will be especially facilitated by the fall of the pound sterling against the US dollar and weak support for the defense sector by the British authorities and banks.
At the same time, the deputy head of the Central Bank of England reports that Britain may need a CBDC after the events with FTX (I spoke in detail about the possible imminent launch of state script in Britain in the very first issue).
In turn, the Japanese investment bank Nomura warned that seven countries - Egypt, Romania, Sri Lanka, Turkey, the Czech Republic, Pakistan and Hungary - are currently at high risk of currency crises. And the Central Bank of Japan itself begins to test the launch of CBDC together with banks.
This week it became known that the government of El Salvador (which recognized Bitcoin as official means of payment) proposed a draft “law on the issuance of digital assets” in the country.
Alternative investment managers Apollo Global and investment firm Hamilton Lane are launching a joint tokenized asset management platform.
The group plans to create a joint fund and use technology known as Provenance, which serves as a single ledger for issuing and accounting for the movement of tokenized securities, as well as derivatives between investors.
“What we have in mind should become a systemic trend for the migration of funds to the blockchain. These are not crypto assets. But using the blockchain, we can get rid of intermediaries in the markets,” said the project participants.
In 2020, the VeChain platform joined the APAC Provenance consortium, which focuses on bringing blockchain and other technologies to the supply chain. At that time, Provenance had already received millions of dollars in funding for pilot projects to authenticate and track food, wine and other goods using blockchain in the Asia-Pacific region.
Remember, in a previous issue I mentioned that BIS is developing a "Project Mariana" that will explore the use of automated market makers (AMM) to automate foreign exchange markets and settlements, and potentially improve cross-border payments.
The speech there was that a new project with the central banks of Singapore, France and Switzerland is aimed at exploring the possibility of integrating some functions of decentralized finance (DeFi) with central bank digital currencies (CBDC).
And recently, BIS published a report on its mBridge pilot project exploring cross-border CBDC payments in collaboration with the central banks of Thailand, China, the United Arab Emirates and Hong Kong! And that's exactly what I want to talk about Hong Kong separately and thoroughly!
The Hong Kong Monetary Authority unveiled the completed prototype retail central bank digital currency (CBDC) Aurum on October 21. The system, developed jointly with the Innovation Center of the Bank for International Settlements (BIS), has a unique structure that reflects the intricacies of the current money issuance system in Hong Kong.
Aurum consists of a wholesale interbank system and a retail e-wallet. An electronic wallet is created in one of the three local authorized banks. The validator system prevents banks from over-issuing money and double redemption by users.
The creators of Aurum plan to issue two types of assets: a national digital currency and a CBDC-backed stablecoin circulating in the interbank system. BIS noted:
The creation of CBDC-backed stablecoins has never been done before, and therefore we felt that this could complement the growing body of research on private sector stablecoins. Indeed, what makes Aurum different from private sector stablecoins is that Aurum stablecoin balances are reconciled, as opposed to real-time balances of the issuing bank with the central bank.
Retail transactions are carried out using pseudonyms. Only the intermediary performing the Know Your Customer functions can see the identity of the users. Unspent transaction exit records are used to anonymously track digital currency ownership across multiple transactions as a safety measure in the event of a commercial bank failure.
Why am I dwelling on Hong Kong in such detail? Apparently, another "hot spot" will soon appear on the map of world financial markets.
BBG writes that maintaining HKD-USD peg is getting more and more expensive
The local regulator allows HKD to fluctuate in a narrow range of 7.75 - 7.85 per USD. At the upper border, the Central Bank sells an unlimited amount of US dollars in order to prevent the devaluation of HKD, and at the lower border, the opposite actions are taken accordingly.
Now USD/HKD is coming close to the upper border. This happens due to the growth of interest rates in US dollars, which opens up opportunities for making money on the carry trade. The exchange rate is stable, and if they pay more in dollars now, then it makes sense to sell HKD. Thus, it is only a matter of time before the pair rises to 7.85 and interventions from the central bank begin there.
We have already observed a similar situation throughout 2018. The pressure was very strong then, but the Central Bank of Hong Kong held out, and then in 2019 the Fed began to lower the rate, and in March 2020 it generally lowered it to zero. Accordingly, the carry trade in favor of the dollar has lost all meaning. Now conciliar attention to this situation is also added by a sharp deterioration in US relations with China. It is also worth mentioning that a few years ago, Beijing actually deprived Hong Kong of its independence, which made the United States very angry.
It is important to understand that the HKD to USD peg is one of the pillars of the global financial system and is similar to the gold standard. As in the case of the gold standard, the disadvantages of such mechanisms are always social and economic in nature.
No wonder that the head of the IMF spoke out sharply against decoupling the HKD from the dollar in 2018. But a lot has changed since then. And now the topic of leaving the US dollar is more relevant than ever. What if China decides to decouple the "Hong Kong"? This could be the very spark that just blows up financial markets around the world.
A November survey by BofA found that the biggest risks to the markets right now, according to most of the world's money managers, are:
- protracted inflation
- geopolitical dangers associated with Ukraine and (remarkably!) Taiwan
- severe Monetary policy for a long period
- deep recession in the global economy
Meanwhile, China continues to reduce its investment in US government bonds. Beijing has been reducing its share in US government bonds since 2014. At the same time, the trade turnover between Russia and China in 2022 will set a new record - it will exceed $180 billion.
Imports of gold in unprocessed or semi-processed forms from Russia to China doubled in physical terms in October 2022 compared to the same period last year, reaching 2.16 tons.
And over the past six months, in monetary terms, India's imports of Russian fertilizers jumped by 765% to $1.6 billion. In physical terms, the growth was 371% to a record 2.15 million tons. It is worth noting that the Central Bank of India will begin testing the "retail" CBDC in December 2022.
India and China are actively helping to create alternative payment systems and routes for transporting Russian goods. Russia, in turn, is studying the possibility of refusing to settle foreign trade contracts in USD. Alternatives include a basket of currencies, as well as "exotic" options with gold and oil.
According to The Wall Street Journal, the digital yuan threatens US financial dominance. "The expansion of China's influence could create a bipolar world that ends the dominance of the US dollar," the newspaper notes.
And on November 24, at the SberPress conference dedicated, among other things, to the development of AI, Vladimir Putin proposed creating a new system of international payments based on digital currency and blockchain technologies, independent of banks and third-party interference!
"On the basis of digital currency technologies and distributed registries, it is possible to create a new system of international payments, and much more convenient, but at the same time completely safe for participants and, importantly, independent of banks and third-party interference," Putin said. He expressed confidence that something like this would develop, because "no one likes the dictates of the monopolists and causes real damage to everyone, by the way, to the monopolists themselves."
But, as I said above, the creation of such a system of international payments, as well as the massive entry of institutional investors into BTC, are all stories of the future. However, nothing prevents us from preparing for them. Against the backdrop of all the events described above, I would like to end this issue with the following news.
“Central banks can use bitcoin to protect against economic restrictions from issuers of reserve currencies.” Matthew Ferranti, Ph.D. in economics from Harvard University, came to this conclusion in his study.
Over the past few years, he calculated, countries at higher risk of US sanctions have increased the share of gold in their reserves compared to countries whose probability of being subject to restrictions is lower.
In his theoretical model, Ferranti noted the potential of bitcoin as an alternative hedge if the central bank cannot acquire enough of the precious metal.
“Cryptocurrencies offer some protection from sanctions but introduce the risk of high volatility,” he added.
At the same time, Ferranti admitted that even without the threat of economic measures, it is reasonable for banks to hold bitcoin along with gold. According to the researcher, the risk of sanctions may ultimately stimulate the diversification of the Central Bank's reserves.
However, as Michael Lewis wrote in another of his books, Liar's Poker:
The best method for assessing information, which has been very useful to me, is: "The speakers usually do not know, but the knowledgeable do not speak" 😉