Revenge Of The Nerds

Another heavy week for the FTX story as things seem to get worse and worse.

Here's the TL;DR of where we left off last week:

• Binance and FTX were the two biggest crypto exchanges.
• The founder of Binance made a move to take down FTX.
• The move worked and FTX will likely shut down.
• FTX got exposed for doing some extra risky stuff with people's money.
• A lot of people lost a lot of money in a variety of ways.
• The founder of Binance is saying this wasn't the plan.
• The founder of FTX is saying he's sorry.
• The founder of FTX is also saying he thinks it was the plan.

The biggest updates since then are:

1. Sam Bankman-Fried is a sociopath.
2. FTX had very deep ties across crypto, media, and politics.

Also worth noting:

• FTX has declared Chapter 11 bankruptcy
• SBF was replaced as CEO (by the guy who handled Enron post crisis)
• SBF has continued to randomly tweet and play league of legends (poorly)

I'm not a doctor so don't take the sociopath (technically psychopath is probably the better term) diagnosis comment too seriously. What I'm hoping to communicate here though - and what has become clear over the course of the last week - is that SBF was playing a game where the singular goal was winning. In this context, "winning" seems to have been associated with net-worth by way of the fight to be the largest crypto exchange. Everything that he said and did served that goal. The effective altruist schtick, the driving a Corolla image, even being involved in crypto in general (which he had ironically talked about openly before) are all part of this game.

Yesterday, SBF went back and forth with a reporter over Twitter DMs and the conversation is chilling. It's not that SBF seems to be especially evil or anything as active as that, the striking part is the detachment. Maybe it's a front, but it seems to me that he honestly doesn't care. He rolled the dice and it went well for a while and then it didn't. If there's anything that SBF does believe it seems to be that "history is written by the victors" and it just didn't fall his way. He says he's sorry, but I lean towards that just being a thing he knows he's supposed to feel and say to curb people's anger. It's not that he's necessarily not sorry - it's that he's not... anything.

As a side note, this is a semi-recurring theme for the ultra-successful that has been studied at length. More poignantly, in the world SBF comes from - proprietary trading - it's typically seen as a positive to be emotionally detached from the risk you carry in order for decisions to be driven exclusively by logic. I'm not saying everyone's boss (Hi Ali!) and every trader is a psycho. I'm just saying this isn't the first time we're seeing something like this.

Moving onto the "very deep ties" theme: There's still a lot of information coming out, but the general takeaway is that this will have ripple effects throughout the industry as well as shine an ugly light on some of the backroom business that happens when someone becomes a multi-billionaire very quickly in an opaque industry. It's clear that SBF understood the importance of image, who to keep close, and who needs to get their cut for things to run smoothy. More specifically, there were considerable political donations made by FTX/SBF and the celebrity endorsements (now named in the lawsuit) were unmatched.

Within the crypto industry there are a variety of oncoming ripples ranging from implications across a huge number of assets to shaken consumer confidence. On one side, there is the very tangible issue of SBF/FTX stakes in a variety of companies being sold for pennies on the dollar as quickly as possible. Here's a full look at what the crumbling empire looks like (it's big). On the other, there are the emotional scars that will cast a shadow over the industry for a long time. The fact is that FTX was a well known brand in an industry that is regularly called out for being shady and it turned out to be very shady. Whether funds are returned to FTX users or not, it will take a long time for trust to be built back up. 

Can't get enough of all the FTX drama? Our very own Tom White keeps it going in the next section of this newsletter.

Lastly, I should point out that Stonks did market an opportunity to participate in an FTX secondary transaction on June 3rd of this year. This is something I should have disclosed in my writeup last week and I apologize for the lapse. It's not that we're legally required to point this out or anything like that (we didn't administer the investment vehicle or earn fees on the transaction), but rather that I don't want to act like we were above the crowd when it comes to this situation. We fell for the same hype as all the other big names being called out and followed signals from firms we respect.
It's easy to pontificate from a distance now that the curtain has been lifted and that's part of creating this type of content, but we do feel for the investors involved. They have been receiving updates on the status of their investments from the firm that led the vehicle as they become available. I cannot honestly say that there's much we would have done differently given the information we had at the time. Anyone who says otherwise or apologizes profusely is playing to their crowd. That being said, we have taken recent market activity very seriously and understand the need for deeper diligence when possible into the opportunities we share here. Thank you for following along so far and I hope you'll stick with us as we improve Stonks in the weeks, months, and years to come.