Unpacking S(c)am Bankman-Fried - Part 2

Abraham George Crypto Musings

With the FTX fallout, the crypto doubters’ and haters’ voices have become louder. There are many but some that have made their voices heard are Charlie Munger, partner of Berkshire Hathaway, Neel Kashkari, President of the Minneapolis Fed, Nassim Nicholas Taleb, author of ‘Black Swan’, Nouriel Roubini, the Iranian-born American Economist from Stern Business School at New York University. They are all big names in their own field of work but are mainly crypto haters. One thing I find common with them all is when they talk about cryptos they are focused on Bitcoin. They haven’t studied anything beyond Bitcoin and I can understand their frustration when others are paying so much attention to Bitcoin.

While Bitcoin is a great technology, I see bigger utility and wider acceptance in many other altcoins. Bitcoin will remain a private and rebel coin and probably a store of value to some. The biggest credit goes to Bitcoin for the introduction of blockchain technology.

The fourth industrial revolution will be built on blockchain. I have written extensively on this in my past writings and if you have not already read it please look up my four-part series on “Gutenberg to Blockchain”. Distributed ledger technology is here to stay and all major corporations and banks will gradually become part of it. When we talk about cryptos we are focused on digital tokenization of all assets, inter- operability, on-demand liquidity, NFTs, retail cross-border transactions at high speed at a fraction of current costs, and many more. These are all realities now but will soon have global adaptability.

The incumbents are always opposed to anything that will disrupt their main source of income and will show every resistance to any new technologies legally and illegally. First, they will dismiss it, then they will fight it and finally, they will embrace it.

The playbook has been the same throughout history. Just take the case of the last major disruption that we experienced through the Internet. Very few people could foresee the real benefits of it and how it will revolutionize our lives in every way. The big resistance to the internet came from the telecom companies and they fought tooth and nail to keep their high-profit margins in long-distance calls. Finally, they caved in and gradually changed their business models to include many other sources of income particularly data. Many telecom companies closed shops and others joined hands together to create an oligopoly. Now the internet has freed us all from the monopolies of telecom companies and one can virtually make audio or video calls to most parts of the world for free.

So what is this fourth industrial revolution going to do for us? In many ways, it is going to free us from the banks with their hidden charges and malpractices. The main function of the fourth industrial revolution is to take out the middle man or make frictionless transactions without a trust issue. If the internet democratized information for us many of the cryptos will democratize value for us.

Currently, banks are the middleman and they cover us for the trust element. In the new stage of innovation banks are the biggest losers and they are putting up the biggest resistance to stop the introduction of these new technologies. They do it through their lobbying with lawmakers and the leverage they have with the regulators. Currently, banks provide safety for your money. But under the new system, you can create your own bank. Banks mostly make money by borrowing short and lending long. Under the new system that will be a dying business. The banks that will adapt to these new technologies will survive as the old model will surely disappear.

People like Jamie Dimon who is normally a spokesperson for the whole banking industry are very paranoid. Every time he gets a chance he will undermine the crypto industry. This is what he had to say to CNBC yesterday, “Crypto tokens are like pet rocks, and people are hyping this stuff up.” On the other side, he is busy introducing his JPM Coin, creating custody accounts for cryptos, and getting into partnerships with many crypto ventures. He really knows what is ahead of him. They want to slow things down for them to catch up. A case in point is the case against Ripple. Goldman Sachs who are also crypto bashers has created a new fund to buy many crypto projects for pennies to the dollar due to the fall out of FTX.

So was the failure of FTX and the fallout of SBF a staged act. We do not know for sure but if we put all the pieces together and how the media, the lawmakers, and the regulators are handling this so far, we have to suspect there is a bigger purpose behind all this. On account of this, there could be many bigger projects that can fail as they all carry unknown leverages and collaterals that are not liquid and not easily assessable for their value. Projects like Tether, Genesis, and Grayscale are all under pressure. The biggest asset manager in the world Larry Fink of BlackRock thinks that tokenization is the future.

So if there is a further fallout in the cryptos how much of these good projects will be scooped by these wall street giants for pennies on the dollar? There is more to the SBF fiasco.

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Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and multi-billion dollar portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office, and a hedge fund.