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FTX, “Effective Altruism” Proves All-False

November 23, 2022

“This is that inflation theme playing out and this is the middle class being under greater and greater pressure already having to adapt their behavior. The middle class is being broadly pressured via inflation into a new identity, and that is an identity that’s sometimes painful to conjure up in the mind, this picture of ‘we’re all now the people of Walmart.’” —David McAlvany.

Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany. 

I have a wonderful lady who’s a client. She’s purchased gold in the past, but she moved a different direction a couple of years ago. She started buying bitcoin, and she bought it well. I remember talking to her this time last year. It was right before Thanksgiving. She had four complete Bitcoins and you’d figure that 160,000 each, that was worth almost a quarter of a million dollars last year. I’ve been talking to her and she kept her head about her. She said, “I don’t know if this is real or not, but I’ve got a quarter of a million dollars worth of Bitcoin.” Well, I talked to her the other day, and not only had the bitcoin come down, if she still had the four, it would’ve come down to about $60,000 worth of value from a quarter of a million, but Dave, she had been hacked. She said, “Believe it or not, I don’t even have them anymore. I was hacked. They were taken.” So it’s a metaphor for what’s going on in the crypto universe, isn’t it?

David: I’d be hacked if I had been hacked.

Kevin: Very much so.

David: So many things in life are about where you start, and particularly with a Ponzi scheme. I highly suggest that if you’re going to be involved in a Ponzi scheme, that you be involved early and not late. Because if you’re involved early, you may be one of the few that gets out intact. I’m joking, of course. I’m not suggesting that anybody participate in the Ponzi scheme, or even that bitcoin is a Ponzi scheme. In fact, I know a very respectable gentleman who put a $100,000 into bitcoin. He did it at about a dollar to a dollar-twenty per Bitcoin. So he had a few more than those four that you were just mentioning.

Kevin: Yeah. Wow.

David: It did remarkably well. But in the end, we do find that there are complications with crypto. Financial Times put together a surprising piece called “The Crypt,” as in the crypto, but this is “The Crypt,” and this was November 16th. I highly recommend it. I think we’re all familiar with Sam Bankman-Fried and FTX’s crypto exchange at this point, but perhaps we did not know that this is actually number 15 this year on the list—

Kevin: Really? Wow.

David: —of crypto disruptions and implosions. For the sake of our conversation, when we think about a disruption, that’s either a partial or a complete gating of assets, in other words, you can’t withdraw when your assets are frozen. You may not get them back, or an implosion where you actually have a liquidation, some form of a bankruptcy filing. Number 15, you heard that right.

Kevin: Wow. Really? Well, I knew there had been others. Do you remember some of the names?

David: In no particular order, you’ve got BlockFi, Genesis, which, this is the Winklevoss twins, and actually, this is just as of today, they may be facing bankruptcy if they can’t raise a billion dollars. Yeah, a billion. That’s no big deal.

Kevin: Just a billion.

David: SALT Lending. There was FTX, which of course we mentioned, Hotbit, Hodlnaut. This one sounds like it’s a comic book: Invictus Capital. Vauld, Voyager, Babel Finance. Celsius goes back a little ways. Earlier in the year, we had the Terra and LUNA, that whole debacle,