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It’s been a crappy week and half. It sucks seeing people I respect losing money in the FTX collapse. But it isn’t just wealthy people who lost big. There are millions of people who are impacted by one of the largest crypto exchanges in the world going bust. Most of them aren’t well known people like Tom Brady. They’re normal people who thought they were buying things from a company and from people they could trust.
I feel like that word has been inescapable over the last 2-3 years. So many betrayals of trust. Right now, in a clear example of opportunism, we’re seeing the pitchforks from the old media guard. Guys like CNBC’s Jim Cramer and Scott Wapner are both looking for some sort of mea culpa from Anthony Pompliano for being bullish Bitcoin when it was almost $70,000 in November of last year.
As if Bitcoin is the reason why FTX or BlockFi collapsed and not because Sam Bankman-Fried, Caroline Ellison, Gary Wang (if he exists), and Dan Friedberg were running an apparent criminal enterprise. Nonsense. I don’t speak for Anthony Pompliano and he’s more than capable of defending himself, but maybe put a sock in it, “Jimmy Chill.” Jim Cramer’s history leading sheep to slaughter is well documented:
Cramer said Coinbase (COIN) stock was going to $475 last April after it IPO’d. It closed at $430 that day. Now it’s $49
Cramer also said to put 5% of your portfolio into crypto 2 months before the top
Look, I’ve said before that I find the ad-based model problematic - especially when it comes to finance and investments. It is way too easy to talk up your book without much transparency or accidently endorse a product that will fail. There may come a time when we see more responsibility with that power but likely only if audiences actually start paying for the content they consume.
I try very hard to make sure I’m always transparent with what I have, what I’m doing, and why I do it. Still, I’m absolutely unwilling to throw shade at Pomp because BlockFi went under. That is not his fault. I liked Celsius once upon a time - I later started telling people to get their money out. I certainly won’t claim to have never made mistakes but if anybody is pure enough to start asking others for apologies, it sure as heck isn’t the OG finance grift, carnival barking clowns from CNBC.
The next question is where does blame go? FTX lost all of the customer funds it had under custody. Blame them for being crooks, that’s fine. But if you lost money with FTX, I really am sincerely sorry for you; but you can’t blame Nathaniel Whittemore for that. You can’t blame Larry David or Steph Curry. Blame FTX and blame yourself.
You f***ed up, you trusted us. - Otter, Animal House
There’s that word again. Trust.
What continues to make these centralized exchange meltdowns so excruciating is this is completely avoidable. There was very little reason to keep funds with FTX if you weren’t actively trading. Crypto isn’t “traditional finance.” You don’t need a custodian to hold your coins. Use exchanges as an on-ramp? Sure, they’re great for that. But if public blockchain ever achieves what it is capable of it won’t be because middlemen regained trust. It will be because individuals trusted themselves at a critical mass.
Since FTX unraveled, I’ve generally seen two knee-jerk reactions from the peanut galleries of the internet:
Crypto must be regulated
Crypto is a scam
Okay, fine. If you think all crypto is a scam because FTX blew up than public equities are a scam because Lehman Brothers and Bear Stearns blew up. If you think all crypto voices are scammers because Sam is a scammer than all the public voices pumping stocks are scammers because Bernie Madoff and Trevor Milton were fraudsters. Point landed? Hope so. Enough already.
Great! How? How would you regulate it, anon? What would you specifically advocate for from a crypto-specific regulatory standpoint that would prevent a private company from committing fraud? I’m legitimately asking. Reminder, up until just a few weeks ago, Sam Bankman-Fried was trying to eliminate DeFi competition; the very thing that alleviates the transparency problem presented by centralized exchanges like FTX - Sam was trying to destroy that through the regulatory apparatus. And we think its better to trust people like him and the regulators who he tried to work so closely with? Nonsense.
It is my hope that I’ve helped those of you who read this who aren’t crypto native understand that crypto didn’t create FTX. Sam Bankman-Fried did, apparently. And it appears SBF has either been in way over his head at best or some sort of bizarre fraudster political operative sent here to destroy DeFi at worst. Maybe something in the middle. I have no idea. But some of the stuff that is making the rounds now is pretty weird. I don’t want to spend too much time on Sam because I have SBF fatigue and I’m sick of looking at his face and I didn’t even have an account with FTX. All I can say is I do think his personal connections and FTX’s reported meetings with the SEC raise eyebrows. I also think the SEC can do a much better job and there are guys with credentials who agree.
Scott Wapner and Kevin O’Leary say institutional demand isn’t coming unless there are regulations to clean up the space. Good riddance then, ‘tutes. This was never supposed to be about you anyway. At some point in the 2017 run, Bitcoin and other cryptocurrencies changed from people assets to VC assets. It would not be the worst thing in the world if these are people assets again. But I’ll call your bluff, CNBC talking heads. Quit talking crypto. I dare you.
For a long time I’ve felt the biggest challenge facing the industry isn’t onboarding big funds or getting approval from some unelected bureaucrats. No, the challenge has been making it simple enough for the masses. There are many who will never enter this space because they can’t grasp why it’s necessary. That’s fine.
But if you do understand the logic behind decentralized networks and your crypto is sitting on a centralized exchange like Coinbase, Binance, or Gemini, challenge yourself to learn to custody this stuff yourself. 99Bitcoins is a great, totally free resource.
We allow ourselves to have so much control over very dangerous things in our lives. The key is learning how to use these things properly so we don’t hurt each other. Just think of the ways you can accidentally harm yourself in your kitchen alone; gas lines, knives, a microwave.
We trust ourselves to operate motor vehicles at high speeds at night but we can’t trust ourselves to store 12 words on a piece of paper? I refuse to believe the majority of the populace lacks the competence to custody crypto without an intermediary. We should expect more of ourselves. FTX customers didn’t lose their savings because Bitcoin or because some other crypto network failed; they lost their savings because they trusted a third party when they didn’t need to. If you’re capable of keeping physical cash in a safe place and know how to use a smartphone, you can handle self-storing Bitcoin.
I am beyond tired of seeing people do crypto wrong and lose their shirts only to have knuckleheads like Scott Wapner act righteous and ask the wrong questions - as if his network wasn’t taking ad money from Grayscale during the entire 2021 bull run. Buying Bitcoin through an exchange and then keeping it on the exchange is like buying a gun for home security and storing it at your friend’s house.
It’s time to get serious. If you see the problems with central bank printing and financial weaponization, you probably understand why we need something better than the fiat debasement scheme. Gold and Silver are great but they are largely limited to physical exchange in an economy that is global. Gold-backed digital money systems like Kinesis are walled gardens, limited to accredited investors, and are still reliant on trust in third party custodians.
Bitcoin fixes this.
Bitcoin has privacy problems.
Zcash fixes this.
And you can get both. You can get metal. You don’t have to be in a tribe. No matter what you do though, trust yourself or there is no point in any of this.
Disclosure: I’m not an investment advisor. I merely share what I do and why I do it. You shouldn’t take anything I say as investment advice and always do your own research when making investment decisions. Cryptocurrencies, tokens, STONKs, and digital trinkets could all go to zero. I have no job and I live in my wife’s basement. I’m the last person on the face of the earth who you should listen to for financial advice or life advice.