Talks with rival Binance about a rescue ended on Wednesday night and Mr Bankman-Fried is now seeking funds elsewhere. He told investors on a call he would be “incredibly, unbelievably grateful” if they could help, Bloomberg reported.
“Right now, we’re spending the week doing everything we can to raise liquidity,” he tweeted last night. “I can’t make any promises about that. But I’m going to try. And give anything I have to if that will make it work.”
Any cash flowing in from investors will simply go to pay off customers.
So there won’t be any cash flowing in, will there?
If he can show that he has long-term assets capable of backing up the short-term withdrawals, then yes he’ll get the funding. But if it turns out that his long-term assets are just a bunch of loans to a connected company, with no assets backing them, then it’s over; and he should be planning his escape to a country with no extradition treaty.
He’s diverting attention with sweet words about seeking solutions whilst he’s planning his new secret identify in a safe haven somewhere.
One thing I don’t get: how does an exchange actually go bust? Wild price swings between the moment your client trades and the moment (seconds later) when you execute the trade, perhaps?
Here’s how you do it next time:
Step 1: invite all the idiots to buy your self-mined token, FTT, on the exchange which you control, FTX. Hire celebrity footballers etc for the advertising campaign.
Step 2: spend the cash on hookers & blow
Step 3: when the punter comes to exchange their tokens for dollars, you say “sorry, the price (which I control entirely) has fallen, it’s only worth 1% of the original value”.
All perfectly legal; and the exchange remains solvent.
Having checked his early life section I’m sure he’ll be able to claim asylum in Israel.
An exchange can go bust if the exchange itself is matching the clients’ trades, using money from other clients’ accounts (no suggestion on my part that this is what has happened here – I have no idea).
See the collapse of the Sporting Options betting exchange in 2004 for an actual example of this practice:
“Sporting Options appeared to be matching bets worth up to 15% of those matched at Betfair. But it was alleged the turnover was being financed by the owners of Sporting Options using their own funds to create the liquidity.
By late 2004, it was alleged Sporting Options was in fact fraudulently financing its apparent liquidity by using funds from its own clients’ account. On 15 November 2004 administrators were called in. By 8 December the administrators had determined that the company owed £3.6 million to its clients, but held only minimal funds in the clients’ account.”
https://en.wikipedia.org/wiki/Sporting_Options
The crypto “exchanges” aren’t really exchanges. OGH linked to a piece earlier by the boy Pirrong that makes the point that they are really monolithic financial institutions that bring the functions of exchanges, brokers, asset managers, market makers, custodians, registrars, etc, etc, etc into a single firm. So all of the risks faced by those individual firms are concentrated into one.
So, can the London Stock Exchange go bust?
Yes, but not by this route – the LSE doesn’t hold client assets. The LSE makes money by charging fees, listing, membership, market data fees, trading fees, etc. So, if new issuance dries up, followed by secondary trading, firms delist and go elsewhere, revenue will fall below costs and Robert’s your mother’s brother.
I suppose that if enough listed firms suddenly went bust, say something larger than the TMT crash on NASDAQ, then the exchange goes under as well in fairly short order.
They’ve been lending out customer assets whilst appearing to promise the customer a return on said assets. In other words they’ve been taking credit risk on lending highly volatile tokens and picking up pennies in front of a steam roller. It appears they tripped.
SBF is a spoiled rich kid. (Apropos another thread) My grandfathers were farm labour and an upholsterer. My parents left school straight away and started in a warehouse and office as a punched card handler. No spoiled rich kid here. SBF should be in jail. If he ran a proper financial institution like his place he would be in trouble (now they changed the law post 2008).