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November 23, 2022|Commentary

Commentary from the Desk: November 23, 2022

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Crypto has been getting stress tested throughout the last few weeks. The table below isn’t pretty – but, given the industry’s second largest exchange recently went under, along with a multitude of structural inefficiencies being exposed, crypto prices are holding up well. At the very least, they are better than expected.

  • The Solana and Near ecosystems have been the most affected by the FTX implosion.
  • Aside from BNB, ETH and MATIC lead the pack. MATIC has held up particularly well given the Polygon team has been crushing it on the BD side recently.
  • An honorable mention to ATOM – the ATOM 2.0 proposal, which would have increased the ATOM inflation rate during the first year of its implementation, was denied via governance vote last week.

Most important developments of this week:

  • Health of Digital Currency Group (DCG) in question as subsidiary company, Genesis Global Capital, loses $175 million in FTX implosion.
    • According to Bloomberg, Genesis has $2.8 billion in outstanding loans, 30% of which were made to related parties including DCG.
    • The firm has hired investment bank Moelis & Company to explore their options, according to the NYT – Bankruptcy is the last resort, although it’s seemingly still in the picture.
    • Grayscale, the largest asset manager in the space also belonging to the DCG family, has come under question given recent events. The firm refused to share “Proof of Reserves” citing security concerns.
      • Coinbase Custody holds over 635k BTC (~$10 billion notional) on behalf of Grayscale.
      • GBTC currently trades at about a 42.73% discount to NAV
    • Barry Silbert, founder of DCG, wrote to investors yesterday saying, “Despite the difficult industry conditions, I am as excited as ever about the potential for cryptocurrencies and blockchain technology over the coming decades and DCG is determined to remain at the forefront.”

  • Bankruptcy process begins for the firm responsible for “the most abrupt and difficult collapse in the history of corporate America.”
    • As the days go by, developments regarding the FTX implosion seem never-ending.
    • FTX’s top creditors will remain anonymous for now.
    • FTX’s lawyer, John Bromley of Sullivan & Cromwell, says that FTX was “an organization that was run effectively as a personal fiefdom of Sam Bankman-Fried”, as the company spent over $300 million on homes and vacation properties for “key personnel”.
    • Lawyers say that FTX was poorly managed, and they still have little insight into FTX’s financial situation.
    • About $450 million was stolen from FTX by an unknown entity. The user has been swapping ETH into BTC via Ren, and the BTC is currently split between 12 Bitcoin addresses.

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