The Cryptocalypse Chronicles, Vol. 2: The Closening Of Exchanges

The opening of the 3rd seal marks the beginning of The Fear.

(UPDATE July 6th, 2022: this series will continue over at Substack.)

THE PROPHECY

The Oracle of Tulips gave me a vision of how the crypto world would end two weeks ago. I inscribed their prophecies into reddit so I could gather data on whether tulips are good at prognostication. Feel free to keep score at home.

THE PREAMBLE

I’ve written a couple of longer form things recently analyzing some interesting events in the cryptocalypse. I’ve been posting them on reddit because that’s where the readership (and leadership) is. However just looking at some stats here on my Medium account I realized that somehow a lot of people subscribed to my ramblings. Wow, thanks! You’re all beautiful and unique crystals! It occurred to me that perhaps some of those people signing up might like to stay informed about the financial version of a clown car demolition derby the land of magic internet money is turning into wihout having to check reddit and Twitter multiple times per day².

And now I have unfortunately just discovered that if I copy/paste it from reddit into Medium I’ll have to redo a whole of indenting, boldfacing, etc., etc. Which is… honestly not something I’m interested in spending time doing, given that I can just put a link here that you can click and read the same stuff with the formatting I already achieved. So: instead of gilding my oration¹ in the white marble expanse that is Medium’s article styling, I am just going to make this post a list of links to stuff i wrote and a couple of other fascinating developments in the accelerating cryptocalypse.

I apologize if you are one of those people who thinks that reddit feels kind of like a digital shantytown and/or that anything posted on reddit is highly suspect. If you are one of those people I’m sure the fact that these posts usually appear in a forum called r/Buttcoin will do little to assuage your cyber class anxiety. Instead, I ask you to consider the fact that the times we are living right now are so weird that respectable magazines like Forbes are being forced to write respectable sounding prose about a thing on the internet called r/Buttcoin. That is because r/Buttcoin, along with Twitter, is producing far better journalism than the New York Times or the Wall Street Journal on this subject. It’s also quite a bit funnier.

ACCUMULATED DATA, ANALYSES, AND OTHER EXPECTORATIONS OF NOTE

Things I wrote about are linked below. But there were other Important Things that happened. Maybe even more important than the things I chose to cover was the increasingly tenuous state of the larger crypto “banks”, all of whom have at some point claimed to have assets under management of over $10 billion at some point in this wave of greed bubbles.

1. BlockFi is in trouble (again). The market appears to have valued BlockFi’s formerly $5 billion business somewhere between $0 and another number that is even lower than $0.
2. Nexo appears to be handling seriously disturbing Twitter allegations about misuse of money from a children’s charity in much the same way as the mafia might approach a problem like this. First there was an attempt to silence the mudslinging mustelid’s allegations by buying the otter’s Twitter account for cash. Next there was the
3. Alex Mashinsky, the CEO of Celsius bank and a man who looks like a con man and talks like a con man because he is a con man, allegedly tried to flee the country.

That’s three out of the three biggest cryptocurrency “banks” staking a claim to be the subject of a movie called “How We Took Around $10 Billion From People Who Can’t Afford To Lose It And Set It On Fire,” a period drama involving a staring at candle charts on their phones. (The film starts a bit slow but I recommend toughing it out because the excitement really picks up once they switch to staring at candle charts on their computers.)

COVERAGE OF CATACLYSMIC EVENTS

Cryptadamus, however, didn’t write about the issues with the large cryptocurrency “banks.” Instead I focused my attention on what The Oracle of Tulips had prophesied about the implosions of small cryptocurrency “exchanges”. These “exchanges” suddenly started imploding all around us starting sometime around June 20th, strangling their customers’ financial futures with requests for Just a Little More Time while they find a solution to The Big Problem With Your Money Not Being Here Anymore. Unfortunately here in the reality based community simple arithmetic makes clear that The Big Problem With Your Money Not Being Here Anymore is definitely not going to be solved soon. It won’t be solved by next weekend, or the weekend after that, because in all likelihood it will never be solved. You and your money have probably been parted.

1. CoinFLEX Implodes, Activates “Mad Sus Behavior” Superpower: CoinFLEX is a possibly small but possibly enormous exchange that halted all withdrawals on June 23rd, 2022 and has been acting shady ever since. $90M worth of crypto is M.I.A. Here’s a timeline, but more has happened since that was posted.
2. CoinFLEX Is Either A Bad Joke Or A Massive Systemic Risk: CoinFLEX is either a small exchange acting as the main market maker for Bitcoin Cash (which is not Bitcoin, though it is related) OR it’s an enormous financial services desk that serves as the market where members of the cryptocurrency exchange cartel can buy and sell staggering quantities of complicated derivatives products to each other. The first scenario, CoinFLEX owning the market for a small and mostly ignored coin that lost its war with master branch Bitcoin many years ago, is not so interesting outside of the possibility that CoinFLEX may have lost track of $90 million dollars worth of their customers’ Bitcoins Cash. The second scenario, however, could mean CoinFLEX’s closure is a disaster for the large exchanges and other major players as the lack of a derivatives market will make it much harder to hedge risk. I wrote a detailed analysis of why the numbers we can dig up about CoinFLEX make me think the second scenario is a very real possibility. (UPDATE: A few hours after this was published Mark Lamb, the CEO of CoinFLEX and the character in this drama whose interview persona takes me back to that time I spent a few days watching nothing but interviews with sociopaths on YouTube more swiftly than any of the other characters, went on BloombergTV and more or less said that the answer is that CoinFLEX is a massive systemic risk.)
3. The Closening: Small and mid-sized cryptocurrency exchanges have started telling their customers that they (the exchanges) may not be able to return anyone’s money. Since my last post on Medium a truly remarkable number of cryptocurrency financial institutions have done things like limit customer withdrawals, halt customer withdrawals, limit customer withdrawals and then limit them even more, limit customer withdrawals and then halt them —the possibilities are pretty much endless, but as long as they stick the landing positions of a full halt to giving any customers any of their own money back, they can get a perfect score. Given that the Oracle of Tulips had revealed to me that the exchanges turning back depositors requests for their money would eventually give birth to The Fear and ultimately prove to be the pivotal event, I was following these very closely.

First there was AEX Global, purportedly serving the Chinese market from a London Office AEX admitted they had confronted a “$1 billion bank run” (their words, prefaced with a humble “to be honest”). Later they announced they would fix the problem with a “plan on issuing indefinite financial products” that amounted to selling $200 million worth of pieces of paper that have practically no utility if AEX survives the crisis and absolutely no utility if they don’t. Genius.

Then a small Hong Kong based exchange called Hoo asked for understanding from its customers for not having their money any more.

Then came the two largest exchanges in India, at least one of which appears to be rapidly disappearing from cyberspace altogether. But I wasn’t seeing these exchanges’ customers freaking out on the social media I was monitoring, so it wasn’t clear if The Fear really had awoken.

Then came the announcement by Voyager Digital. Voyager informed the world that they had loaned three quarters of a billion dollars to the jokers at Three Arrows Capital (“3AC” in the language of the HODLers; here is our previous coverage of dumb crypto bros losing really dumb amounts of money), who promptly flushed all that money down the nearest yield bearing stablecoin shaped toilet. Voyager Digital, a company whose assets minus liabilities a few weeks ago might not have even had as many digits as the amount of bad debt they will now have to write off, had almost no chance of staying solvent. As a result Voyager announced that they would be limiting withdrawals to $25,000 per day per customer. This was rapidly followed by the announcement of a bailout loan Voyager managed to secure from Sam Bankman-Fried. Bankman-Fried mysteriously chose to dress up as Jerome Powell for the occasion which weirded everybody out (including Sam Bankman-Fried) and was possibly responsible for the announcement a short time later that Voyager would be limiting those withdrawals again, this time to $10,000 per day per customer. Finally today there was an announcement that Voyager were already rapidly running out of the enormous pile of Sam Bankman-Fried’s loan money that had landed in their accounts less than a week earlier. Voyager’s current market position is probably best summed as “Help us. Someone. Anyone.”

Voyager serves the Canadian/American market and is is a publicly traded company on the Toronto Stock Exchange. In a world of unbanked offshore exchanges in sketchy tax havens shilling UltimateShitcoin2.0, Voyager was supposed to be “safe.” The news that money in Voyager wasn’t safe at all thus took many of Voyager’s customers by surprise.

Unlike all those other shuttered exchanges, Voyager’s users lived in North America, spoke English, and congregated on social media platforms I can easily observe. So I observed the first bank run in the American 21st century comfortably through my laptop’s screen. Then I wrote a short thing about what the rapture of the Voyager bank run might portend.

REGARDING OTHER CONSEQUENCES OF PISS-POOR FINANCIAL ENGINEERING

There was more carnage — a lot more carnage.So we did what analysts do when they are trying to understand carnage, current events, or really anything: we made a spreadsheet.

Rather than write witty lines about the idiotic trades and loans that our crypto bro malefactors managed to make into a far more effective set of cryptocurrency erasers than anything the SEC could ever hope to do, I will instead just show you some screenshots of this spreadsheet. Pictures may be worth a thousand words of evidence… but when the topic is financial armageddon, spreadsheets are worth a million words.

REKT EXCHANGES

Exchanges are internet sites where cryptocurrencies are both traded and worshipped. They are the places cryptocurrency “investors” put money into when they want to “invest”. Most of those people went into the deal expect to be able to stop “investing” and retrieve their capital at any time. Instead they are finding that there is no capital to be retrieved, which makes those who worship at other exchanges Worry, which in turn makes them go retrieve their capital… You see where this is going.

REKT AND SOON TO BE REKT BANKS, LENDERS, AND VENTURE FUNDS

In The Church of The F̶i̶n̶a̶n̶c̶i̶a̶l̶ ̶S̶u̶i̶c̶i̶d̶e̶ ̶B̶o̶m̶b̶e̶r̶s̶ HODLers these deities are called “The Cefi”, for they were born from the breast of a whore named Centralized Finance. Soon they will all be banished from the earth, trapped forever in the pages of economics textbooks of the future. Though they may howl and rage and gnash their teeth in rage at their confinement, they will never be able to walk the earth staking Ethereum and wrapping Bitcoins again.

REKT AND SOON TO BE REKT MEMBERS OF THE DEFI

DeFi is used by F̶i̶n̶a̶n̶c̶i̶a̶l̶ ̶S̶u̶i̶c̶i̶d̶e̶ ̶B̶o̶m̶b̶e̶r̶s̶ HODLers as a term of respect. That respect is earned by these demigods as they make progressively louder declamations of their commitment to staying decentralized even as active and centralized leadership is their own chance to avoid bankrupting themselves and all their customers.

¹ I’m well aware of the meaning of the word “oration”. You don’t need to message me about it.

² Once enough is not enough to stay current these days.