November 16, 2022 • 49 mins
Ok, you can probably guess what’s going to be covered today. The crypto industry is reeling from the collapse of the FTX exchange and everyone has questions. What happened? Who is responsible? How could such a disaster have been possible? Where next for crypto? And many, many others besides.
So, in the first part of today’s episode, you’ll hear our initial assessment of what went down with FTX and get some crucial background info about the people and the entities involved. This is about much more than just an exchange going under - it’s about the continued fallout from Terra’s collapse earlier this year, systemic human failings, corruption, greed, incompetence and lies. It’s also about the failure of yet another centralised crypto company that seemed to have the world at its feet but, in retrospect, should never have had access to anyone’s money.
FTX may be dominating the crypto headlines, but elsewhere the world continues to turn, regardless of the existential crisis gripping the industry. A good example of this is the Federal Reserve and its continued efforts to battle inflation. The Fed’s latest interest rate hike of 75 basis points feels like a long time ago now and the focus has turned to what its next one might look like.
That’s why Jerome Powell’s most recent press conference that followed the FOMC meeting in early November was so consequential. His comments shed light on the Fed’s future plans and markets everywhere were paying close attention. So, in part two of today’s episode, you’ll hear what Jerome said, what it all means and why there’s still a lot of fire to walk through before we emerge into the light.
We hope you enjoy the show.
Producer for iHeartMedia: Noel Brown
Editor: Semir Mutapcic
Theme music composed by: Noel Brown
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Hello everyone, and welcome to the latest episode from the
midweek edition of the coin Bureau podcast. Every week, I
pick out two of my favorite videos from coin Bureau's
YouTube channel to present to you in podcast form. The
audio you're about to hear is from those videos I've
chosen this week, and I hope you enjoy listening. There
is really only one story dominating the crypto world at
(00:20):
the moment, and that is the collapse of the ft
X Exchange and its sister company, Alameda Research. It's no
understatement to say that crypto is facing the biggest crisis
in its history as a result of this disaster. F
t X was the second largest exchange in the world.
Its founder, Sam Bankman Freed, one of the most recognizable
(00:41):
and now most notorious people in the industry, and most
seriously of all, f t X held billions of dollars
in customer funds. Those funds are now stuck on the platform,
and those customers are, as things stand, unlikely to get
them back. This is a story which is developing all
the time, and it may be a while before we
(01:02):
know all the details. However, in the first part of
today's episode, you'll hear our initial reaction to the news
and get some vital background information on those involved and
how their actions were to shake crypto to its foundations.
Next up, you'll hear our analysis of the Federal reserves
most recent press conference, which, despite everything that's going on
(01:23):
with f t X at the moment, will have implications
for the crypto market in the long term. The feds
actions and intentions are affecting every asset market at the moment,
and it's continued efforts to battle inflation are going to
affect the lives of pretty much everyone on the planet.
While ft X may be taking up most people's mental
bandwidth at the moment, it's important not to take our
(01:45):
eyes off what's happening in the wider world. Thanks for
listening to today's episode, and there'll be more coming your
way soon. And if you want even more content from
coin Bureau, be sure to subscribe to our YouTube channel
and visit us on social media too. A few days ago,
(02:21):
f t X, one of the largest crypto exchanges, collapsed,
and Alameda Research, one of the largest market makers in
all of crypto, is believed to be in a similar position.
Due to its relationship to f t X. The crypto
markets have collapsed in kind due to the uncertainty around
just how much damage this could do to the entire industry,
(02:43):
and the resulting liquidations are taking many coins and tokens
to multi year lows. Today, I'm going to give you
a bit of history about these two peculiar crypto companies,
tell you what we know so far about their current
status is, and assess just how much this could affect
all of crypto. I'll start by saying that the situation
(03:05):
is changing fast, and some of the information in this
video may be out of date by the time it
hits the tube. That's why I'll be doing another in
depth update once the dust has settled. I reckon we've
only just scratched the surface of the truth about both companies.
I also want to say that I, like many others,
(03:26):
am utterly shocked by what has happened, and also do
have funds stuck on the exchange, albeit not bank breaking amounts,
as I keep the vast majority of my funds in
cold storage. I've always advocated for this, and this recent
blow up only illustrates how no centralized exchange can ever
be fully one trusted. Anyways, back to the video, as
(03:51):
many of you will know f t X and Alameda Research.
We're both founded by Sam Bankman Freed, or SPF as
he's known. SPF holds a bachelor's in physics from Mighty
and spent the first three and a half years of
his career working as a trader for Jane Street, one
of the world's largest market makers. In late seen, he
realized that there were lots of trading opportunities in cryptocurrency,
(04:13):
so he founded a crypto trading company called Alameda Research
with his friend Gary Wang, another m I T graduate
who was tired of working at Google and wanted something
new to do. If you watched our video about the
Richest People in Crypto, you'll know that Alamedas claim to
fame was a bitcoin trade between the United States and Japan.
BTC was ten percent cheaper in the US than Japan,
(04:36):
so Alameda would buy the BTC in the US and
sell it in Japan for an instant ten percent profit.
This became known as the Kimchi premium. Alameda started this
arbitrage trade with just two hundred dollars and soon scaled
it up to the point that they were executing ten
to fifteen million dollars of cross border BTC trades per day.
(04:57):
Note that it seems most of alameda initial investment capital
was borrowed in case that matters. On that note, you
should know that Sam chose the name Alameda Research specifically
because he was concerned about scrutiny from banks who were
skeptical of crypto. In his own words, quote, if we
named ourselves shiit coin day traders, the banks wouldn't have
(05:18):
worked with us. In case that didn't give it away,
Alameda didn't just trade BTC. In presentation, Sam revealed that
Alameda was quote trading every coin on every exchange and
making mad money. In interview, the interviewer revealed that Alameda
was making four to five per month during a bear market.
(05:41):
Alameda's massive profits made it possible to accumulate enough coins
and tokens to become one of the largest market makers
in crypto. Alameda was soon working with every major crypto
exchange to some extent, and in the case of finance,
it was assisting with large over the counter or O
t C trades. That that's why when Binance got word
(06:01):
that Sam and Gary were starting a new cryptocurrency exchange
that was focused on futures trading, it made sure it
was one of the first investors. The ft X exchange
was founded in April, with Sam as CEO, Gary s
c t O and Binance as one of its biggest backers.
This is where things get interesting because it's not entirely
clear what Sam's position is or was in Alameda, nor
(06:26):
how much influence he has or had over the company.
His LinkedIn biography notes that he stepped down as the
CEO of Alameda in April, but the Forbes thirty under
thirty one notes Sam as Alameda CEO. Not only that,
but the LinkedIn profiles for current ALAMA CEO Caroline Ellis
(06:47):
and the former co CEO, Sam Trabuco suggest they only
filled Sam CEO position in the summer of one. This
is just one of many peculiarities in the ft X
Alameda relationship. I'll come back to Caroline and Sam Trabuco later. Now,
when f t X first started, there wasn't much buzz
(07:07):
about the exchange. Sam even admitted in an interview that
they quote didn't know the first step to get users,
but knew there was an army of twenty million futures
traders on other exchanges who are having a bad time
and wanted a better place to trade. According to Sam,
the catalyst that kick started f t x's growth was
the private sale and subsequent listing of its f t
(07:29):
T token in the summer of twenty nine. This attracted
the eyes of investors and traders alike, and f t
x is close relationship with Alameda and Binance led many
to believe f t X would become a big deal.
In terms of token omics, f t T started off
as an EARC twenty token on the Ethereum blockchain with
a maximum supply of three hundred and fifty million. Today's
(07:52):
ft T exists as an spl token on the Salana
blockchain and as a bep too token on the b
n B chain, but almost all of its supply is
still on the Ethereum blockchain. Of f t t s
initial supply was sold to investors across three private sales.
According to Massari, the list of investors in f t
t s private sales included Alameda, Finance, coin Base, multi
(08:15):
coin Capital, and other cryptovcs. It looks like multi coin
is the only one that's been burned so far. According
to the FTT transparency page, more than half of f
t T s initial supply was allocated to the company
and team. All this f t T finished festing in
May this year. Funny that anyhow coin desks article from
(08:40):
earlier this month about the relationship between Alameda and f
t X suggests that the term company and team includes alameter.
More on that, in a moment, the remaining thirty or
so percent of ft t s initial supply went towards
various initiatives and incentives related to or on the f
t X exch change. This is to be expected given
(09:02):
that f t t s primary use cases are as
collateral for futures trading and to lower trading fees on
the ft X exchange. Keep that part in mind. As
with all exchange tokens, f t X uses a portion
of trading fees to buy back and burn the ft
T token. If you watched our video about exchange tokens,
you'll know that f t X has the most aggressive
(09:23):
buy back and burn schedule of them all, burning FTT
with trading fees every Monday. Obviously, buying f t T
raises its price, whereas burning it decreases its supply, which
further increases its price. If demand stays the same, the
result is that the value of exchange tokens goes up
over time, often regardless of actual crypto market conditions. So far,
(09:48):
over twenty one million FTT have been burned, and I
feel obligated to tell you that a massive amount of
ft T is scheduled to be burned this coming Monday.
That's simply because all the chaos on the ft X
exchange resulted in abnormally high trading volume. Assuming f t
X still follows through with its buy back and burn
(10:08):
we could see a short squeeze on FTT that's similar
to the short squeeze we saw on Celsius's cell token.
Now this is a warning to anyone still going short
and those who are thinking of going long, because there's
no guarantee a buy back will occur. It's also worth
pointing out that on chained statistics suggest there are at
(10:28):
least four hundred thousand holders of FTT, almost all of
whom are thoroughly in the red. This means any ft
T pump is likely to be received with a lot
of cell pressure from those trying to recover their losses.
You have been warned, folks, so please just don't go there.
That is financial advice. By the way, anyways, in ft
(10:50):
x is popularity started to explode. This was due in
part to the unprecedented amount of stimulus that tempted many
millennials into trading with one x level John's ship coins
and yet to be listed old coins on f t X.
F t x is popularity was also due in part
to Project Serum, a defied project by f t X.
(11:10):
Those of you around in will know that this is
when the famous defy summer occurred. This is basically when
all the defy protocols really blew up with one thousand
percent yields and all that other defied d gen stuff.
It's also when the crypto bullmarket really started to gather steam.
What's funny is that folks like Sam weren't famous at
(11:32):
all back then. Sam admitted in an interview with block
Works that he didn't really know anyone in crypto until
He also admitted on many occasions that he has a
bad habit of going big, sometimes too big, when a
money making strategy is working. This bad habit helped Sam
become one of the richest people in crypto, and his
(11:54):
massive wealth opened many doors in Washington, d C. And
around the world. If you're a gila on crypto Twitter,
you might remember all the jokes about how crypto was
really Sam's world and we were all just living in it.
This ties into all the stuff that's happened with f
t X and Alameda over the last week, and I'll
reiterate that this is an ever changing situation. It's also
(12:17):
not entirely clear exactly when f t X and Alameda
started to experience issues. Believe it or not, but Alameda
was apparently hours away from insolvency due to liquidations more
than two years ago when the markets crashed in response
to the pandemic. This was implied by Sam in that
block Works interview when discussing a Twitter thread by Sam
(12:39):
Trabuco about the crash. This is important to mention because
it suggests that Alameda has been engaging in risky trading
activities for quite some time. It's quite possible that f
t X was involved to some extent, given that Alameda
was of course the primary market maker for its own exchange. Now,
as far as I can tell, ft x's collapse began
(13:01):
with a coindesk article published on the second of November,
which revealed that a significant amount of Alameter researchers assets
were held in ft T. As of the thirty June
this year, more than a third of alameters fourteen billion
dollar balance sheet was held in FTT. In the days
that followed, lots of speculation started to spread on social
(13:22):
media about the nature of the relationship between Alameda and
f t X. Most of this speculation related to the
possibility that user funds on f t X were finding
their way to Alameter behind the scenes. This evolved into
concerns that f t X didn't have enough crypto on
hand to honor all user withdrawals. Given the recent collapse
(13:44):
of crypto platforms like Celsius, which had engaged in similar
shenanigans with customer funds behind the scenes, crypto holders slowly
started to withdraw from f t X out of caution.
The bank run on f t X accelerated when on
chain Sleuth's discovered that f t x is reserves of
stable coins and other cryptocurrencies were rapidly decreasing. It didn't
(14:06):
help that Alameda started withdrawing stable coins and other cryptocurrencies
from other exchanges to send to ft X. This effectively
confirmed that f t X was facing stress from user withdrawals,
something that Sam was denying on Twitter the entire time. Meanwhile,
Caroline took to Twitter to tacitly confirm that the Alameda
(14:29):
balance sheet reported by coin Desk was correct, but that
it was much larger than reported. When Binance got word
of what was going on at f t X, it
announced that it would be selling it's f t T now.
If you watched yesterday's video on coin Bureau clips, you'll
know that in one Sam brought back the f t
(14:49):
X shares Binance had purchased in for roughly one point
five billion dollars in b U s D and five
and eighty million in f t t For context, Binance
and f t X had a falling out sometime in
one This is believed to be because of former Binance
US CEO Brian Brooks, who was allegedly leaking sensitive information
(15:11):
about Binance to f t X. Brian was only the
CEO of Binance US for four months and attended multiple
ft X events after leaving. There was speculation that f
t X could have been involved in the league of
this information to the mainstream media such that they could
run hit pieces on Binance. The purpose of these hit
(15:31):
pieces was to point regulators in Binance's direction, so naturally
c Z wasn't to impress with ft X is shenanigans
and decided to de risk from Binances f t T stake.
The news that Binance would be selling such a massive
amount of ft T resulted in speculation that f t
X would dump or delist Binance's BnB coin in retaliation.
(15:55):
The conflict caused both tokens to plummet, and all the
uncertainty add to their volatility. It was at this point
that Caroline made the incredibly suspicious decision to publicly offer
to buy Binance's entire ft T stake at twenty two
dollars a pop over the counter. This supercharged further speculation
(16:16):
that a Lameter and f t X were using f
t T as collateral for crypto loans and feared getting liquidated. Now,
while I have yet to see any on chain evidence
of this, it's more than likely that f t T
was being used as collateral for a lot of futures
trading on f t X. Your recall that this was
one of the primary use cases for FTT, and it's
(16:39):
likely that f t X and Alameda weren't the only
whales using large amounts of it as collateral. Even though
f t T had a fully diluted market cap in
the billions, that token had low liquidity, meaning that it
didn't take much money to push its price up or down.
This means it's possible the fears that Binance was going
(16:59):
to sell t T were enough to crash its price
before Binance even sold a single token. I imagine that
this resulted in hundreds of millions of dollars of ft
T liquidations on f t X, which, due to the
tokens low liquidity, caused its price to fall further even faster.
I suspect that f t X and Alameda started selling
(17:21):
off the other cryptos they held to prevent f t
X from collapsing, causing other cryptos to crash. Around this time,
rumors started to circulate that f t X had started
pausing withdrawals. Now, many in the crypto community couldn't believe
that f t X or Alameda could possibly be facing
insolvency due to their supposedly immense war chests. F t
(17:45):
X alone had raised more than one point eight billion
dollars from investors across its lifespan, and then the unthinkable happened.
CZ and Sam announced that Binance was intending to buy
f t X to quote help cover the liquidity crunch.
This confirmed that f t X was in trouble, and
it led to speculation that f t X could be saved,
(18:08):
assuming it's intermingling with a Lameter wasn't nearly as bad
as believed. Unfortunately, it looks like ft x is financials
were seriously left up because Finance pulled out of the
deal earlier today after f t X revealed an eight
billion dollar hole. This effectively confirms that Alameter is also
in trouble, and if you need more evidence, check their website.
(18:31):
It's gone offline. This brings me to the big question,
and that's how much the f t X Alameter situation
could affect the crypto markets as a whole. Well, in
case you haven't noticed, the crypto market is in free
fall already, and I repeat that a part of all
the cell pressure is probably coming from Alameter Research. That's
because Alameter isn't just another crypto company. They're a market maker,
(18:55):
meaning a substantial percentage of all the crypto on every
exchange is owned by them. Last year, Alameda was making
ten percent of the crypto market, and that figure was
probably much larger until recently. If you want an even
scarier statistic, consider that Alameda is the largest recipient of
all the u s d T that's ever been printed
(19:18):
by tether. Of the one hundred and ten billion USDT
minted between one, Alameda received around fifty billion. Interviews with
Sam suggests that Alameda was using this USDT to bypass banks.
Make of that what you will. Now, it wasn't just exchanges.
Alameda was providing liquidity two. Alameda was also one of
(19:42):
the largest liquidity providers in Defy, especially on SLANA. That's
primarily because of f t X is aforementioned DeFi project
serum and the important role it played in slana's defy protocols.
Speaking of SLANA, both Alameda and f t X were
heavily invested in the project and many tokens in its ecosystem.
(20:04):
According to crunch Base, Alameda has made almost two hundred
investments in crypto projects and companies, and many sources suggest
f t X has invested in at least fifty crypto projects.
Now I'll be doing a video about the crypto projects
that will be most affected by f t X and
alamedas collapse next week. But if you can't wait, just
(20:24):
check coin market cap. Chances are that all the cryptos
that have dropped the most over the last week had
the highest exposure to f t X and Lameter. And
then there's crypto regulations. SAM. F t X, and Alameda
were well known names in Washington, d C. The worst
part is that they presented themselves as the krem de
(20:45):
la creme of crypto. The fact that all three of
them have fallen spectacularly from grace is going to leave
a massive stain on the entire crypto industry. The craziest
part is that f t x is implosion has many
disc gruntled individuals and institutions in the crypto community calling
for aggressive crypto regulations, specifically more transparency from cryptocurrency exchanges
(21:10):
about the custody and segregation of customer funds. This is
exactly what we predicted would happen in our video about
Michael Barr, the Vice chair of the Federal Reserve, who
is itching to use the laws he created in the
aftermath of the financial crisis to crack down on crypto.
It's not just Michael or the Fed either. Late last night,
(21:32):
the Department of Justice or d o J and the
Securities and Exchange Commission or SEC announced they were investigating
ft X. This is a timely announcement given that the
Commodities Futures Trading Commission or CFTC had earlier announced that
it too was watching the ft X situation. To clarify,
the crypto industry has been pushing for the CFTC to
(21:53):
become its primary regulator because its regulations are more reasonable
and easier for crypto companies and projects to follow. The
SEC swooping in is a sign that it wants to
make sure the CFTC stays in second place. Not good. Now,
If there's anything to be salvage from this truly god
awful situation is that Sam's own proposed crypto regulations will
(22:16):
probably never get off the ground. If you watched our
video about those, you'll know that he was essentially pushing
for crypto to become part of the existing financial system,
especially defy. What I'm left wondering is who is responsible.
As bad as Alameda and ft X were acting behind
the scenes, both were brought down by truly exceptional circumstances,
(22:38):
who exactly is responsible is something I'll speculate about the
next time I cover this ship show, so look out
for more updates. Now. Many people's minds are probably made
up on that score already, but perhaps there's more to
it than we know yet. For now, I'll leave you
with this sobering thought. The fallout we've seen so far
is truly just the beginning of something that's probably going
(23:01):
to take months or more to sort out. Until then,
we're very likely to see lower lows for most coins
and tokens, so brace yourselves, guys. The real crypto winter
is just getting started. Now. Instead of my usual like
and subscribe sign off, Spiel, I want to end with
a few personal thoughts. Firstly, my heart goes out to
(23:22):
all those people who have funds stuck on ft X.
However stressful, upsetting, and enraging this situation must be. Please
remember that your first duty of care is to yourself
and those you love. Please don't do anything rash. It's money,
and there are more important things in this life than money.
(23:43):
If you're in a bad place, then please do talk
to someone. It will help. Second, this disaster has caught
almost everyone by surprise, including all of us here at
Coin Bureau, My team and I are as disgusted by
what we're seeing as everyone else, and our primary ish
is that ft XS customers are made whole as quickly
(24:03):
as possible. Whether that will happen, I really can't say now.
Third Crypto will survive this. However, grim things are going
to get from here. It's going to be painful, and
not every project is going to make it. But remember
that this is sadly yet another instance of a centralized
(24:24):
crypto platform going under due to mismanagement, incompetence, and quite
possibly criminality. But blocks are still being produced on blockchains
and great projects are still being built. If you believe
in the technology, then you must believe that this will
eventually pass. But we must all push for change because
(24:49):
we can't let this sort of stuff keep happening time
and time again. Bitcoin was invented because Sutoshi saw how
broken our current financial system was and still is. But
the crypto industry as a whole has forgotten this and
has moved ever closer to what Satoshi wished to destroy.
(25:11):
Centralized entities misusing customer funds, opaque financial institutions doing shady
stuff with unfathomable amounts of other people's money, self interested
and incompetent rich dudes holding all the power with none
of the oversight. God damn it. None of this has
any place in crypto, and yet here we are. Now.
(25:33):
Only we can get our house in order, and that
process has to start today. Last week, the Federal Reserve
announced that it had raised interest rates by another point
seven five as expected. This caused plenty of volatility in
(25:55):
the markets, including of course crypto. However, it was the
subsequent press conference by FED Chairman JR. Own Pow that
really made the markets move. What he said suggests that
the worst is yet to come for all asset classes.
So today I'm going to give you a summary of
the fed's press conference, explain what Jerome said in simple terms,
(26:16):
and tell you why interest rates might stay much higher
than what investors are pricing in Okay, Since that press conference,
the crypto space has had slightly more pressing concerns to
address than your own power and a video about the
ft X disaster is linked to below, so do have
a watch after this if you can bear it. But
(26:38):
despite all that's been happening in that sphere, the actions
and outlook of the Federal Reserve will have a big
effect on the crypto market in the weeks and months ahead.
So let's start with a quick bit of context. The
Federal Reserve a k a. The FED is the central
bank of the United States. Every six weeks, its board
of seven governors has a meeting where they decide how
(26:59):
much it will be raising interest rates by and issue
a statement announcing their decision. After the meeting, FED Chairman
Jerome Powell holds a press conference to answer questions from
the media about the fed's meeting, its interest rate decision,
and its future plans. Note that the minutes of the
meeting are only released three weeks later. More about that
(27:21):
in a bit now. Given the impacts that interest rates
have on the markets and the economy, every word that's
uttered during the fed's meetings and its press conferences is
scrutinized by investors. What they're looking for is forward guidance,
hints about how and when the FED will change interest rates.
If you watched our video about the fed's previous press
(27:43):
conference back in September, you'll know that Jerome said that
the FED would no longer be providing the forward guidance
that markets want. Well, it's safe to say that the
FED governors didn't keep his promise, including Jerome himself. The
forward guidance continues and the markets have been responding as expected.
Any suggestion that interest rates will be coming down results
(28:06):
in a rally, and any suggestion that interest rates will
be going up results in a crash. Because the FED
is fundamentally raising interest rates to fight inflation, this means
that are higher than expected inflation reading for the Consumer
Price Index or CPI results in a crash. The same
is true for the personal consumption Expenditures Index or pc
(28:28):
which the FED watches very closely. And because the FED
is also tasked with ensuring unemployment remains low, a higher
than expected unemployment rate paradoxically results in a rally. This
is basically why the markets rallied in the days following
the fed's most recent meeting and press conference. Now, because
(28:49):
the FED is the world's largest central bank, it's heavy
interest rate increases have put pressure on all the other
central banks to do the same. That's because when the
FED raised as interest rates, it causes money to flow
out of foreign economies and into the U. S economy.
That's the simple explanation. The problem is that not all
(29:09):
central banks can keep up with the FED due to
the massive amounts of debt in both the public and
private sectors of their respective countries and regions. Unfortunately, a
failure to do so means that money flows out of
their economies into the U. S Dollar, causing their currencies
to weaken. Another problem, meanwhile, is that many developing countries
(29:30):
have large amounts of dollar denominated debts, which become more
expensive when the FED raises rates. I talked about this
in more detail in a video on dollar strength, which
will be in the description for you. Anyways, these fears
are what prompted the U N to call out the
FED and other big central banks to stop raising interest rates. Unfortunately,
(29:51):
it doesn't look like they listened. So with that bit
of context in mind, we can turn to Jerome's speech,
which begins, as it always does, with him waddling onto
the podium with a big, serious looking binder, probably with
photocopies of its last speech inside. In all seriousness, Jerome
essentially repeated what he said last time. The FED is
(30:11):
strongly committed to bringing inflation back down to its two
percent target, and it has the tools and resolved to
achieve this mandate without price stability. The economy doesn't work,
and the labor market will not be strong without price stability.
That second comment didn't make much sense, because the labor
market in the United States is still strong, at least
on paper. A supposedly strong labor market is why the
(30:35):
FED has continued to raise interest rates so aggressively. Its
officials feel they have the wiggle room to do so.
In any case, Jerome reiterated that the FED decided to
raise interest rates by another point seven five percent, and
it will continue to raise interest rates until the central
bank is confident that inflation is coming down. Jerome added
(30:55):
that the FED is actively reducing the size of its
balance sheet i selling the assets it holds for reference.
The FED holds trillions of dollars of US government debt.
When the FED sells this debt, then the interest rates
on that debt go up. This causes interest rates to
rise further, since interest rates on US government debt are
used as a reference for other types of similar duration
(31:17):
debt in the economy. The FED started reducing the size
of its balance sheet in June and has sold three
hundred billion dollars of US government debt since then. If
you watched our video about Jerome's testimony to U S politicians.
You'll know that he admitted five hundred billion dollars of
selling is equivalent to a rate hike of around point
five pc. So far, this effect is yet to be seen. Anyways.
(31:42):
Jerome went on to give a short summary of economic conditions.
The economy has slowed, the housing market is imploding, the
stock market is collapsing, but unemployment is at a fifty
year low. In other words, the economy is actually fine
because the questionable employment statistics say so. Meanwhile, the pc
E and core PCE are way above two percent, specifically
(32:05):
six point two and five point one percent respectively. Now,
although inflation expectations of the American population haven't gone up,
the FED can't be complacent. That's because history has shown
that inflation can come back if it's not crushed like
in the nineteen eighties. Now, for those who don't know,
inflation expectations are as important, if not more important, than
(32:29):
the actual inflation rate. That's because if he will expect
inflation to remain high, they will act in ways that
cause inflation to continue. This is the main reason why
the FED also watches the c p I. It's what
the people watch. It also begs the question of how
much the US government is fudging inflation related figures, But
(32:49):
let's not go there. All I will say is that
if inflation expectations get too high, then hyperinflation is the result.
Put differently, hyperinflation is a psychological and not an economic phenomenon.
The more you know now, Jerome continued his summary of
economic conditions by saying he is aware that it takes
time for the Fed's interest rate increases to have an
(33:11):
effect on the actual economy f y I. The consensus
among economists is that it takes around a year for
interest rates to affect the economy. Jerome acknowledged that at
some point it will become appropriate to slow the pace
of increases, but that point has yet to come. More importantly,
Jerome said that the terminal rate a k a. The
(33:33):
interest rate the FED is targeting, has increased significantly above
what had been announced in September. Jerome also repeated something
he said many times, and that's that the FED is
taking quote forceful steps to bring demand back in line
with supply. This is a scary prospect because it looks
like supply issues are the primary drivers of inflation right now.
(33:57):
Bringing demand down means doing damage. That's why Jerome repeated
another thing he said many times, and that's that bringing
inflation back down will require a quote sustained period of
below trend growth. This includes a quote softening of labor conditions,
which the FED has yet to see in the official statistics.
Jerome concluded his speech by repeating that history has shown
(34:20):
that easing too soon can create serious issues, that the
FED will fulfill its dual mandate, that it understands higher
interest rates are affecting everyone, but that it will quote
stay the course until the job is done. Now, before
I break down what was said during the question period,
you should know that the markets were rallying up until
this point. That's because the FED statement announcing its interest
(34:44):
rate decision contained an additional sentence which suggested rates would
start coming down. In a Block Works episode about the
fed's press conference, macro analyst Jim Bianco mentioned that the
sentence was eerily similar to something Layle Brainard, the Vice
chair of the FED, had said a few months before.
For those unfamiliar, Leal is a dove, meaning that she
(35:07):
supports lower interest rates. By contrast, Jerome is a hawk
who supports higher interest rates. Now, Jim's theory is that
the doves on the fed's Board of Directors are starting
to become concerned about the Fed's aggressive rate heights. Jim
believes the dovish sentence in the FED statement was a
compromise Jerome made with the doves. What's annoying is that
(35:30):
we won't know whether this is the case until the
minutes of the feds November meeting are released towards the
end of this month, specifically Wednesday, twenty three of November. Obviously,
the contents of those minutes will probably have a significant
impact on the markets any who. When it came to
the question period, the first to go was a reporter
(35:52):
from the Financial Times. They asked Jerome what inflation data
the FED needs to see before it starts to slow
it's pace of rate hikes. Note that a slowing of
pace doesn't mean that the FED will stop, just that
the increments will be smaller. Jerome said that the FED
wants to see multiple months of inflation coming down before
slowing the pace of rate hikes. But that's not all.
(36:15):
The Fed also wants to see positive interest rates across
the yield curve. In plain English, it wants to see
interest rates that are higher than inflation, specifically core PCE. Logically,
this means that all interest rates in the economy must
be above five point one. This is a pretty big
task considering most interest rates are currently around four percent,
(36:39):
but it's important to remember that inflation is likely to
come down. This means that positive interest rates could be
around the corner. The second question came from a reporter
at Reuter's and they asked Jerome how big the Fed's
rate hike will be after its next meeting in December.
Jerome responded by explaining the Fed looks at three things,
(37:01):
how fast to raise rates, how high to raise rates,
and how long to keep them there. Jerome continued by
saying that the Fed agreed to raise interest rates quickly
and is now working to figure out how high to
raise them. He revealed that the Fed will start discussing
this at its next meeting, but it will be a
while before it starts discussing how long to keep rates restrictive.
(37:24):
The Reuters reporter followed up by asking why the Fed
felt it necessary to signal that it will start discussing
when to stop raising rates. Jerome tacitly admitted that the
doves at the FED are starting to get nervous, but
that he doesn't feel that way at all, and since
he's the chairman, what he says goes looks like Jim
(37:44):
is onto something. Now. The third question came from a
reporter at the Wall Street Journal who asked where their
interest rates across the yield curve will need to be
higher than core PCE. Jerome confirmed this to be the
case and added that there must be a significant spread
i e. Difference between real yields and core PCE. The
(38:04):
fourth question came from a reporter at the New York Times,
and they asked Jerome whether there's any evidence that inflation
expectations are becoming entrenched. Jerome said this isn't the case
for long term inflation expectations, but shorter term inflation expectations
do concern him. Then Jerome said something interesting, and that's
that there's no scientific way of measuring when inflation expectations
(38:28):
become entrenched. This is interesting because it's believed that the
FED slow response to inflation was due to Jerome trusting
the academics around him instead of his own intuition. Now,
the fifth question came from a reporter at the Washington Post.
They asked Jerome about how long it takes for monetary
policy to affect the economy and which sectors start to
(38:50):
feel the squeeze and when. Jerome's response was surprising because
he said that the economy reacts much sooner than assumed.
This is something that was brought up by former FED
trader Joseph Wang during that aforementioned block Works episode. Joseph
believes that Jerome understands just how financialized the economy has become,
(39:10):
and because investors are always pricing in the future, the
economy reacts faster as a result. Even so, Jerome said
that the FED would rather raise interest rates too much
than not enough. That's because it's easier to come back
from overtightening than from not tightening enough. The cost of
inflation expectations becoming entrenched is also much higher than the
(39:34):
recession this tightening is likely to cause now. The Washington
Post reporter followed up by asking Jerome about the additional
sentence in the FED statement. Jerome slammed investors for thinking
that slower rate hikes means lowering interest rates and said
that won't be happening anytime soon. The sixth question came
from a reporter at Axios and they asked Jerome about
(39:56):
the housing market. After rambling about the labor market for
a bit, Jerome asked whether he had missed anything the
reporter had asked, to which the reporter responded, the housing market.
Tell me about the housing market. I'm paraphrasing. Of course.
All Jerome had to say was that the FED needs
to bring the demand for housing back in line with supply.
(40:16):
If you watched our recent video about the housing market,
you'll know that the Fed is doing a damn good
job of that so far. The seventh question came from
a reporter at Politico, and they asked Jerome what employment
statistics the FED is watching. Jerome fired off a long list,
including unemployment, the supply of labor, the labor participation rate,
(40:36):
another such statistics. The stat that caught my ear was
wage growth. That's because it's believed that higher wages contribute
to inflation. Right now, wages are increasing at a rate
of you guessed it, five percent per year, at least
in the United States. I reckon, you can't blame people
for wanting to keep up with inflation. It sounds like
(41:00):
some economists do, though. Now. The eighth question came from
a reporter at CNBC who asked Jerome about the u
n's warning to central banks that I talked about earlier.
After acknowledging that the rest of the world is having
a rough time with the fed's rate hikes, Jerome said, quote,
but in the United States, we have a strong economy.
(41:21):
Jerome went on to say that price stability in the
United States was the most important thing for the FED,
and that bringing inflation down will quote pay dividends for
decades in some The FED doesn't give a damn about
the developing countries that are struggling under dollar debts. Inflation
must be crushed. The CNBC reporter followed up by asking
(41:42):
Jerome whether there is a risk that inflation will remain
high given that it's being driven primarily by supply side
forces that the FED cannot affect. Jerome acknowledged that there
are supply side issues, but argued that inflation is demand
driven in the USA. This brings me back to one
of Gym's theories, which is that inflation will remain much
(42:03):
higher than most people expect due to a structural change
in the economy. In short, supply chains and manufacturing are
moving back on shore in many countries, and this transition
will create a long period of inflation. More on that later.
The ninth question came from a reporter at Bloomberg who
asked whether the FED is still focused on the inversion
(42:26):
in yields between three month government debt and ten year
government debt. That's because the three month yield and the
ten year yield were close to inverting at the time
of shooting. They have. You see, under normal economic conditions,
longer types of debt offer higher interest rates, mostly due
to the opportunity cost of lending that capital for so long.
(42:49):
As such, when interest rates on shorter term debts are
higher than those on longer term debts, it's a sign
that the economy is in bad shape, i e. Recession.
Not surprised, Lee Jerome was unconcerned and just said that
the FED is watching other indicators to The tenth question
came from a reporter at the Associated Press who asked
(43:10):
Jerome whether he was concerned about the housing market. Jerome said,
he is aware of how bad the housing market is
getting hit, but rents must come down. It looks like
that will be the last domino to fall on the
housing front. The AP reporter followed up by asking Jerome
whether the FED was happy about the market rally that
resulted from the additional sentence in the FED statement. Jerome's
(43:33):
response to this question went viral, and I think you
can guess why. Jerome started by reiterating that the terminal
rate will be much higher than initially projected. Then he
said there is quote no evidence that inflation is coming
down and even added that quote we are exactly where
we were one year ago in terms of crushing inflation.
(43:53):
The markets instantly nos dived now. The eleventh question came
from a reporter at Fox News, who asked Jerome whether
fiscal policy i. Government spending is affecting the Fed's ability
to fight inflation. Jerome admitted that fiscal policy was making
it harder to fight inflation at first, but seemed to
suggest it actually might be helping now. That's because all
(44:16):
the unprecedented stimulus during the pandemic has resulted in record
levels of savings for individuals and cash balances for institutions.
While this wealth is still concentrated in the upper echelons
of the economy, it presents a cushion against rising interest rates. Nonetheless,
the Fox News reporter followed up by asking Jerome whether
(44:36):
all the hundreds of billions that have yet to be
pumped into the U S economy will affect the FED
going forward. Jerome danced around the question, which was honestly
a good political move given the polarized political climate in
the USA. The final question came from a reporter at
Marketplace who asked Jerome whether the window for a soft
(44:57):
landing has narrowed put some Is it still possible for
the FED to raise interest rates without causing a recession?
Jerome said yes, but admitted that this is becoming less
likely by the day. When the reporter asked why that is,
Jerome explained that inflation hasn't come down nearly as quickly
as the FED was hoping. This means that the FED
(45:20):
will have to be more restrictive with its monetary policy,
and that increases the possibility of a recession. You can
learn all about what that would mean for the economy
using the link in the description. So this brings me
to the big question, and that's whether inflation will stay
(45:43):
much higher than investors are currently pricing in. This ultimately
depends on whether you believe the global economy is going
back to the way that it was, or that it
is undergoing a paradigm shift that will cause lots of inflation.
To clarify, Jim Bianco isn't the only macro analyst who
falls into the latter camp. If all the macro podcasts
(46:05):
I've been listening to lately are any indication analysts are
divided down the middle on whether the economy will change,
you'd think that everyone and everything will fall back into
their old habits. However, it's clear to see that a
multipolar world is forming. The United States, the European Union,
and parts of Latin America and Asia seem to be
(46:26):
at one pole, and China, India, Russia, Saudi Arabia and
other parts of Latin America and Asia seem to be
at the other pole. If you watch my video about
China's influence in Africa, you'll know that many countries on
that continent are being drawn towards the second pole too.
If this is the case, then inflation could skyrocket at
(46:46):
the first pole, if, say, trade between the US and
China starts to slow down. This seems to be more
likely than ever, as the United States, Europe, and other
Western powers have announced ambitious plans to bring them manufacturing
of microchips and electric batteries on shore. Something tells me
that these products will be more expensive than their Chinese counterparts. Now,
(47:10):
consider a scenario where individuals and institutions in the United
States and Europe are restricted or banned from importing such
products from China. Did I mention that the US recently
banned the export of semiconductors to China, The same response
from the CCP would be inflationary. That said, individuals and
(47:30):
institutions at both poles will be very reluctant to cut
their lucrative economic ties because of some geopolitical power struggle
between their countries. Case and point, many of these restrictions
have loopholes, including say, the sanctions on Russian oil and gas. Still,
relations could deteriorate to the point that loopholes are no
(47:50):
longer possible. There's no question that the risk of this
happening is higher than ever, and it looks like this
risk is only scheduled to rise. The over lining is
that inflation should come down after the initial adjustment period
is over. When that will be nobody knows, but the
inflation would definitely last longer than a few months. That
(48:12):
means it could be a long time before the FED
starts to drop interest rates. In fact, some believe that
the FED may be forced to change its two percent
target to accommodate a higher level of inflation. I suppose it.
We'll have to wait and see, but I must say
it's times like these that I am still thankful for cryptocurrency.
(48:34):
Thank you so much for listening to the coin Bureau podcast.
If you'd like to learn more about cryptocurrency, you can
visit our YouTube channel at YouTube dot com forward slash
coin Bureau. You can also go to coin bureau dot
com for loads more information about all things crypto. You
can follow me on Twitter at at coin bureau or
one word, and I'm also active on TikTok and Instagram too.
(49:00):
S of co Cock
Hello everyone, and welcome to the latest episode from the
midweek edition of the coin Bureau podcast. Every week, I
pick out two of my favorite videos from coin Bureau's
YouTube channel to present to you in podcast form. The
audio you're about to hear is from those videos I've
chosen this week, and I hope you enjoy listening. There
is really only one story dominating the crypto world at
(00:20):
the moment, and that is the collapse of the ft
X Exchange and its sister company, Alameda Research. It's no
understatement to say that crypto is facing the biggest crisis
in its history as a result of this disaster. F
t X was the second largest exchange in the world.
Its founder, Sam Bankman Freed, one of the most recognizable
(00:41):
and now most notorious people in the industry, and most
seriously of all, f t X held billions of dollars
in customer funds. Those funds are now stuck on the platform,
and those customers are, as things stand, unlikely to get
them back. This is a story which is developing all
the time, and it may be a while before we
(01:02):
know all the details. However, in the first part of
today's episode, you'll hear our initial reaction to the news
and get some vital background information on those involved and
how their actions were to shake crypto to its foundations.
Next up, you'll hear our analysis of the Federal reserves
most recent press conference, which, despite everything that's going on
(01:23):
with f t X at the moment, will have implications
for the crypto market in the long term. The feds
actions and intentions are affecting every asset market at the moment,
and it's continued efforts to battle inflation are going to
affect the lives of pretty much everyone on the planet.
While ft X may be taking up most people's mental
bandwidth at the moment, it's important not to take our
(01:45):
eyes off what's happening in the wider world. Thanks for
listening to today's episode, and there'll be more coming your
way soon. And if you want even more content from
coin Bureau, be sure to subscribe to our YouTube channel
and visit us on social media too. A few days ago,
(02:21):
f t X, one of the largest crypto exchanges, collapsed,
and Alameda Research, one of the largest market makers in
all of crypto, is believed to be in a similar position.
Due to its relationship to f t X. The crypto
markets have collapsed in kind due to the uncertainty around
just how much damage this could do to the entire industry,
(02:43):
and the resulting liquidations are taking many coins and tokens
to multi year lows. Today, I'm going to give you
a bit of history about these two peculiar crypto companies,
tell you what we know so far about their current
status is, and assess just how much this could affect
all of crypto. I'll start by saying that the situation
(03:05):
is changing fast, and some of the information in this
video may be out of date by the time it
hits the tube. That's why I'll be doing another in
depth update once the dust has settled. I reckon we've
only just scratched the surface of the truth about both companies.
I also want to say that I, like many others,
(03:26):
am utterly shocked by what has happened, and also do
have funds stuck on the exchange, albeit not bank breaking amounts,
as I keep the vast majority of my funds in
cold storage. I've always advocated for this, and this recent
blow up only illustrates how no centralized exchange can ever
be fully one trusted. Anyways, back to the video, as
(03:51):
many of you will know f t X and Alameda Research.
We're both founded by Sam Bankman Freed, or SPF as
he's known. SPF holds a bachelor's in physics from Mighty
and spent the first three and a half years of
his career working as a trader for Jane Street, one
of the world's largest market makers. In late seen, he
realized that there were lots of trading opportunities in cryptocurrency,
(04:13):
so he founded a crypto trading company called Alameda Research
with his friend Gary Wang, another m I T graduate
who was tired of working at Google and wanted something
new to do. If you watched our video about the
Richest People in Crypto, you'll know that Alamedas claim to
fame was a bitcoin trade between the United States and Japan.
BTC was ten percent cheaper in the US than Japan,
(04:36):
so Alameda would buy the BTC in the US and
sell it in Japan for an instant ten percent profit.
This became known as the Kimchi premium. Alameda started this
arbitrage trade with just two hundred dollars and soon scaled
it up to the point that they were executing ten
to fifteen million dollars of cross border BTC trades per day.
(04:57):
Note that it seems most of alameda initial investment capital
was borrowed in case that matters. On that note, you
should know that Sam chose the name Alameda Research specifically
because he was concerned about scrutiny from banks who were
skeptical of crypto. In his own words, quote, if we
named ourselves shiit coin day traders, the banks wouldn't have
(05:18):
worked with us. In case that didn't give it away,
Alameda didn't just trade BTC. In presentation, Sam revealed that
Alameda was quote trading every coin on every exchange and
making mad money. In interview, the interviewer revealed that Alameda
was making four to five per month during a bear market.
(05:41):
Alameda's massive profits made it possible to accumulate enough coins
and tokens to become one of the largest market makers
in crypto. Alameda was soon working with every major crypto
exchange to some extent, and in the case of finance,
it was assisting with large over the counter or O
t C trades. That that's why when Binance got word
(06:01):
that Sam and Gary were starting a new cryptocurrency exchange
that was focused on futures trading, it made sure it
was one of the first investors. The ft X exchange
was founded in April, with Sam as CEO, Gary s
c t O and Binance as one of its biggest backers.
This is where things get interesting because it's not entirely
clear what Sam's position is or was in Alameda, nor
(06:26):
how much influence he has or had over the company.
His LinkedIn biography notes that he stepped down as the
CEO of Alameda in April, but the Forbes thirty under
thirty one notes Sam as Alameda CEO. Not only that,
but the LinkedIn profiles for current ALAMA CEO Caroline Ellis
(06:47):
and the former co CEO, Sam Trabuco suggest they only
filled Sam CEO position in the summer of one. This
is just one of many peculiarities in the ft X
Alameda relationship. I'll come back to Caroline and Sam Trabuco later. Now,
when f t X first started, there wasn't much buzz
(07:07):
about the exchange. Sam even admitted in an interview that
they quote didn't know the first step to get users,
but knew there was an army of twenty million futures
traders on other exchanges who are having a bad time
and wanted a better place to trade. According to Sam,
the catalyst that kick started f t x's growth was
the private sale and subsequent listing of its f t
(07:29):
T token in the summer of twenty nine. This attracted
the eyes of investors and traders alike, and f t
x is close relationship with Alameda and Binance led many
to believe f t X would become a big deal.
In terms of token omics, f t T started off
as an EARC twenty token on the Ethereum blockchain with
a maximum supply of three hundred and fifty million. Today's
(07:52):
ft T exists as an spl token on the Salana
blockchain and as a bep too token on the b
n B chain, but almost all of its supply is
still on the Ethereum blockchain. Of f t t s
initial supply was sold to investors across three private sales.
According to Massari, the list of investors in f t
t s private sales included Alameda, Finance, coin Base, multi
(08:15):
coin Capital, and other cryptovcs. It looks like multi coin
is the only one that's been burned so far. According
to the FTT transparency page, more than half of f
t T s initial supply was allocated to the company
and team. All this f t T finished festing in
May this year. Funny that anyhow coin desks article from
(08:40):
earlier this month about the relationship between Alameda and f
t X suggests that the term company and team includes alameter.
More on that, in a moment, the remaining thirty or
so percent of ft t s initial supply went towards
various initiatives and incentives related to or on the f
t X exch change. This is to be expected given
(09:02):
that f t t s primary use cases are as
collateral for futures trading and to lower trading fees on
the ft X exchange. Keep that part in mind. As
with all exchange tokens, f t X uses a portion
of trading fees to buy back and burn the ft
T token. If you watched our video about exchange tokens,
you'll know that f t X has the most aggressive
(09:23):
buy back and burn schedule of them all, burning FTT
with trading fees every Monday. Obviously, buying f t T
raises its price, whereas burning it decreases its supply, which
further increases its price. If demand stays the same, the
result is that the value of exchange tokens goes up
over time, often regardless of actual crypto market conditions. So far,
(09:48):
over twenty one million FTT have been burned, and I
feel obligated to tell you that a massive amount of
ft T is scheduled to be burned this coming Monday.
That's simply because all the chaos on the ft X
exchange resulted in abnormally high trading volume. Assuming f t
X still follows through with its buy back and burn
(10:08):
we could see a short squeeze on FTT that's similar
to the short squeeze we saw on Celsius's cell token.
Now this is a warning to anyone still going short
and those who are thinking of going long, because there's
no guarantee a buy back will occur. It's also worth
pointing out that on chained statistics suggest there are at
(10:28):
least four hundred thousand holders of FTT, almost all of
whom are thoroughly in the red. This means any ft
T pump is likely to be received with a lot
of cell pressure from those trying to recover their losses.
You have been warned, folks, so please just don't go there.
That is financial advice. By the way, anyways, in ft
(10:50):
x is popularity started to explode. This was due in
part to the unprecedented amount of stimulus that tempted many
millennials into trading with one x level John's ship coins
and yet to be listed old coins on f t X.
F t x is popularity was also due in part
to Project Serum, a defied project by f t X.
(11:10):
Those of you around in will know that this is
when the famous defy summer occurred. This is basically when
all the defy protocols really blew up with one thousand
percent yields and all that other defied d gen stuff.
It's also when the crypto bullmarket really started to gather steam.
What's funny is that folks like Sam weren't famous at
(11:32):
all back then. Sam admitted in an interview with block
Works that he didn't really know anyone in crypto until
He also admitted on many occasions that he has a
bad habit of going big, sometimes too big, when a
money making strategy is working. This bad habit helped Sam
become one of the richest people in crypto, and his
(11:54):
massive wealth opened many doors in Washington, d C. And
around the world. If you're a gila on crypto Twitter,
you might remember all the jokes about how crypto was
really Sam's world and we were all just living in it.
This ties into all the stuff that's happened with f
t X and Alameda over the last week, and I'll
reiterate that this is an ever changing situation. It's also
(12:17):
not entirely clear exactly when f t X and Alameda
started to experience issues. Believe it or not, but Alameda
was apparently hours away from insolvency due to liquidations more
than two years ago when the markets crashed in response
to the pandemic. This was implied by Sam in that
block Works interview when discussing a Twitter thread by Sam
(12:39):
Trabuco about the crash. This is important to mention because
it suggests that Alameda has been engaging in risky trading
activities for quite some time. It's quite possible that f
t X was involved to some extent, given that Alameda
was of course the primary market maker for its own exchange. Now,
as far as I can tell, ft x's collapse began
(13:01):
with a coindesk article published on the second of November,
which revealed that a significant amount of Alameter researchers assets
were held in ft T. As of the thirty June
this year, more than a third of alameters fourteen billion
dollar balance sheet was held in FTT. In the days
that followed, lots of speculation started to spread on social
(13:22):
media about the nature of the relationship between Alameda and
f t X. Most of this speculation related to the
possibility that user funds on f t X were finding
their way to Alameter behind the scenes. This evolved into
concerns that f t X didn't have enough crypto on
hand to honor all user withdrawals. Given the recent collapse
(13:44):
of crypto platforms like Celsius, which had engaged in similar
shenanigans with customer funds behind the scenes, crypto holders slowly
started to withdraw from f t X out of caution.
The bank run on f t X accelerated when on
chain Sleuth's discovered that f t x is reserves of
stable coins and other cryptocurrencies were rapidly decreasing. It didn't
(14:06):
help that Alameda started withdrawing stable coins and other cryptocurrencies
from other exchanges to send to ft X. This effectively
confirmed that f t X was facing stress from user withdrawals,
something that Sam was denying on Twitter the entire time. Meanwhile,
Caroline took to Twitter to tacitly confirm that the Alameda
(14:29):
balance sheet reported by coin Desk was correct, but that
it was much larger than reported. When Binance got word
of what was going on at f t X, it
announced that it would be selling it's f t T now.
If you watched yesterday's video on coin Bureau clips, you'll
know that in one Sam brought back the f t
(14:49):
X shares Binance had purchased in for roughly one point
five billion dollars in b U s D and five
and eighty million in f t t For context, Binance
and f t X had a falling out sometime in
one This is believed to be because of former Binance
US CEO Brian Brooks, who was allegedly leaking sensitive information
(15:11):
about Binance to f t X. Brian was only the
CEO of Binance US for four months and attended multiple
ft X events after leaving. There was speculation that f
t X could have been involved in the league of
this information to the mainstream media such that they could
run hit pieces on Binance. The purpose of these hit
(15:31):
pieces was to point regulators in Binance's direction, so naturally
c Z wasn't to impress with ft X is shenanigans
and decided to de risk from Binances f t T stake.
The news that Binance would be selling such a massive
amount of ft T resulted in speculation that f t
X would dump or delist Binance's BnB coin in retaliation.
(15:55):
The conflict caused both tokens to plummet, and all the
uncertainty add to their volatility. It was at this point
that Caroline made the incredibly suspicious decision to publicly offer
to buy Binance's entire ft T stake at twenty two
dollars a pop over the counter. This supercharged further speculation
(16:16):
that a Lameter and f t X were using f
t T as collateral for crypto loans and feared getting liquidated. Now,
while I have yet to see any on chain evidence
of this, it's more than likely that f t T
was being used as collateral for a lot of futures
trading on f t X. Your recall that this was
one of the primary use cases for FTT, and it's
(16:39):
likely that f t X and Alameda weren't the only
whales using large amounts of it as collateral. Even though
f t T had a fully diluted market cap in
the billions, that token had low liquidity, meaning that it
didn't take much money to push its price up or down.
This means it's possible the fears that Binance was going
(16:59):
to sell t T were enough to crash its price
before Binance even sold a single token. I imagine that
this resulted in hundreds of millions of dollars of ft
T liquidations on f t X, which, due to the
tokens low liquidity, caused its price to fall further even faster.
I suspect that f t X and Alameda started selling
(17:21):
off the other cryptos they held to prevent f t
X from collapsing, causing other cryptos to crash. Around this time,
rumors started to circulate that f t X had started
pausing withdrawals. Now, many in the crypto community couldn't believe
that f t X or Alameda could possibly be facing
insolvency due to their supposedly immense war chests. F t
(17:45):
X alone had raised more than one point eight billion
dollars from investors across its lifespan, and then the unthinkable happened.
CZ and Sam announced that Binance was intending to buy
f t X to quote help cover the liquidity crunch.
This confirmed that f t X was in trouble, and
it led to speculation that f t X could be saved,
(18:08):
assuming it's intermingling with a Lameter wasn't nearly as bad
as believed. Unfortunately, it looks like ft x is financials
were seriously left up because Finance pulled out of the
deal earlier today after f t X revealed an eight
billion dollar hole. This effectively confirms that Alameter is also
in trouble, and if you need more evidence, check their website.
(18:31):
It's gone offline. This brings me to the big question,
and that's how much the f t X Alameter situation
could affect the crypto markets as a whole. Well, in
case you haven't noticed, the crypto market is in free
fall already, and I repeat that a part of all
the cell pressure is probably coming from Alameter Research. That's
because Alameter isn't just another crypto company. They're a market maker,
(18:55):
meaning a substantial percentage of all the crypto on every
exchange is owned by them. Last year, Alameda was making
ten percent of the crypto market, and that figure was
probably much larger until recently. If you want an even
scarier statistic, consider that Alameda is the largest recipient of
all the u s d T that's ever been printed
(19:18):
by tether. Of the one hundred and ten billion USDT
minted between one, Alameda received around fifty billion. Interviews with
Sam suggests that Alameda was using this USDT to bypass banks.
Make of that what you will. Now, it wasn't just exchanges.
Alameda was providing liquidity two. Alameda was also one of
(19:42):
the largest liquidity providers in Defy, especially on SLANA. That's
primarily because of f t X is aforementioned DeFi project
serum and the important role it played in slana's defy protocols.
Speaking of SLANA, both Alameda and f t X were
heavily invested in the project and many tokens in its ecosystem.
(20:04):
According to crunch Base, Alameda has made almost two hundred
investments in crypto projects and companies, and many sources suggest
f t X has invested in at least fifty crypto projects.
Now I'll be doing a video about the crypto projects
that will be most affected by f t X and
alamedas collapse next week. But if you can't wait, just
(20:24):
check coin market cap. Chances are that all the cryptos
that have dropped the most over the last week had
the highest exposure to f t X and Lameter. And
then there's crypto regulations. SAM. F t X, and Alameda
were well known names in Washington, d C. The worst
part is that they presented themselves as the krem de
(20:45):
la creme of crypto. The fact that all three of
them have fallen spectacularly from grace is going to leave
a massive stain on the entire crypto industry. The craziest
part is that f t x is implosion has many
disc gruntled individuals and institutions in the crypto community calling
for aggressive crypto regulations, specifically more transparency from cryptocurrency exchanges
(21:10):
about the custody and segregation of customer funds. This is
exactly what we predicted would happen in our video about
Michael Barr, the Vice chair of the Federal Reserve, who
is itching to use the laws he created in the
aftermath of the financial crisis to crack down on crypto.
It's not just Michael or the Fed either. Late last night,
(21:32):
the Department of Justice or d o J and the
Securities and Exchange Commission or SEC announced they were investigating
ft X. This is a timely announcement given that the
Commodities Futures Trading Commission or CFTC had earlier announced that
it too was watching the ft X situation. To clarify,
the crypto industry has been pushing for the CFTC to
(21:53):
become its primary regulator because its regulations are more reasonable
and easier for crypto companies and projects to follow. The
SEC swooping in is a sign that it wants to
make sure the CFTC stays in second place. Not good. Now,
If there's anything to be salvage from this truly god
awful situation is that Sam's own proposed crypto regulations will
(22:16):
probably never get off the ground. If you watched our
video about those, you'll know that he was essentially pushing
for crypto to become part of the existing financial system,
especially defy. What I'm left wondering is who is responsible.
As bad as Alameda and ft X were acting behind
the scenes, both were brought down by truly exceptional circumstances,
(22:38):
who exactly is responsible is something I'll speculate about the
next time I cover this ship show, so look out
for more updates. Now. Many people's minds are probably made
up on that score already, but perhaps there's more to
it than we know yet. For now, I'll leave you
with this sobering thought. The fallout we've seen so far
is truly just the beginning of something that's probably going
(23:01):
to take months or more to sort out. Until then,
we're very likely to see lower lows for most coins
and tokens, so brace yourselves, guys. The real crypto winter
is just getting started. Now. Instead of my usual like
and subscribe sign off, Spiel, I want to end with
a few personal thoughts. Firstly, my heart goes out to
(23:22):
all those people who have funds stuck on ft X.
However stressful, upsetting, and enraging this situation must be. Please
remember that your first duty of care is to yourself
and those you love. Please don't do anything rash. It's money,
and there are more important things in this life than money.
(23:43):
If you're in a bad place, then please do talk
to someone. It will help. Second, this disaster has caught
almost everyone by surprise, including all of us here at
Coin Bureau, My team and I are as disgusted by
what we're seeing as everyone else, and our primary ish
is that ft XS customers are made whole as quickly
(24:03):
as possible. Whether that will happen, I really can't say now.
Third Crypto will survive this. However, grim things are going
to get from here. It's going to be painful, and
not every project is going to make it. But remember
that this is sadly yet another instance of a centralized
(24:24):
crypto platform going under due to mismanagement, incompetence, and quite
possibly criminality. But blocks are still being produced on blockchains
and great projects are still being built. If you believe
in the technology, then you must believe that this will
eventually pass. But we must all push for change because
(24:49):
we can't let this sort of stuff keep happening time
and time again. Bitcoin was invented because Sutoshi saw how
broken our current financial system was and still is. But
the crypto industry as a whole has forgotten this and
has moved ever closer to what Satoshi wished to destroy.
(25:11):
Centralized entities misusing customer funds, opaque financial institutions doing shady
stuff with unfathomable amounts of other people's money, self interested
and incompetent rich dudes holding all the power with none
of the oversight. God damn it. None of this has
any place in crypto, and yet here we are. Now.
(25:33):
Only we can get our house in order, and that
process has to start today. Last week, the Federal Reserve
announced that it had raised interest rates by another point
seven five as expected. This caused plenty of volatility in
(25:55):
the markets, including of course crypto. However, it was the
subsequent press conference by FED Chairman JR. Own Pow that
really made the markets move. What he said suggests that
the worst is yet to come for all asset classes.
So today I'm going to give you a summary of
the fed's press conference, explain what Jerome said in simple terms,
(26:16):
and tell you why interest rates might stay much higher
than what investors are pricing in Okay, Since that press conference,
the crypto space has had slightly more pressing concerns to
address than your own power and a video about the
ft X disaster is linked to below, so do have
a watch after this if you can bear it. But
(26:38):
despite all that's been happening in that sphere, the actions
and outlook of the Federal Reserve will have a big
effect on the crypto market in the weeks and months ahead.
So let's start with a quick bit of context. The
Federal Reserve a k a. The FED is the central
bank of the United States. Every six weeks, its board
of seven governors has a meeting where they decide how
(26:59):
much it will be raising interest rates by and issue
a statement announcing their decision. After the meeting, FED Chairman
Jerome Powell holds a press conference to answer questions from
the media about the fed's meeting, its interest rate decision,
and its future plans. Note that the minutes of the
meeting are only released three weeks later. More about that
(27:21):
in a bit now. Given the impacts that interest rates
have on the markets and the economy, every word that's
uttered during the fed's meetings and its press conferences is
scrutinized by investors. What they're looking for is forward guidance,
hints about how and when the FED will change interest rates.
If you watched our video about the fed's previous press
(27:43):
conference back in September, you'll know that Jerome said that
the FED would no longer be providing the forward guidance
that markets want. Well, it's safe to say that the
FED governors didn't keep his promise, including Jerome himself. The
forward guidance continues and the markets have been responding as expected.
Any suggestion that interest rates will be coming down results
(28:06):
in a rally, and any suggestion that interest rates will
be going up results in a crash. Because the FED
is fundamentally raising interest rates to fight inflation, this means
that are higher than expected inflation reading for the Consumer
Price Index or CPI results in a crash. The same
is true for the personal consumption Expenditures Index or pc
(28:28):
which the FED watches very closely. And because the FED
is also tasked with ensuring unemployment remains low, a higher
than expected unemployment rate paradoxically results in a rally. This
is basically why the markets rallied in the days following
the fed's most recent meeting and press conference. Now, because
(28:49):
the FED is the world's largest central bank, it's heavy
interest rate increases have put pressure on all the other
central banks to do the same. That's because when the
FED raised as interest rates, it causes money to flow
out of foreign economies and into the U. S economy.
That's the simple explanation. The problem is that not all
(29:09):
central banks can keep up with the FED due to
the massive amounts of debt in both the public and
private sectors of their respective countries and regions. Unfortunately, a
failure to do so means that money flows out of
their economies into the U. S Dollar, causing their currencies
to weaken. Another problem, meanwhile, is that many developing countries
(29:30):
have large amounts of dollar denominated debts, which become more
expensive when the FED raises rates. I talked about this
in more detail in a video on dollar strength, which
will be in the description for you. Anyways, these fears
are what prompted the U N to call out the
FED and other big central banks to stop raising interest rates. Unfortunately,
(29:51):
it doesn't look like they listened. So with that bit
of context in mind, we can turn to Jerome's speech,
which begins, as it always does, with him waddling onto
the podium with a big, serious looking binder, probably with
photocopies of its last speech inside. In all seriousness, Jerome
essentially repeated what he said last time. The FED is
(30:11):
strongly committed to bringing inflation back down to its two
percent target, and it has the tools and resolved to
achieve this mandate without price stability. The economy doesn't work,
and the labor market will not be strong without price stability.
That second comment didn't make much sense, because the labor
market in the United States is still strong, at least
on paper. A supposedly strong labor market is why the
(30:35):
FED has continued to raise interest rates so aggressively. Its
officials feel they have the wiggle room to do so.
In any case, Jerome reiterated that the FED decided to
raise interest rates by another point seven five percent, and
it will continue to raise interest rates until the central
bank is confident that inflation is coming down. Jerome added
(30:55):
that the FED is actively reducing the size of its
balance sheet i selling the assets it holds for reference.
The FED holds trillions of dollars of US government debt.
When the FED sells this debt, then the interest rates
on that debt go up. This causes interest rates to
rise further, since interest rates on US government debt are
used as a reference for other types of similar duration
(31:17):
debt in the economy. The FED started reducing the size
of its balance sheet in June and has sold three
hundred billion dollars of US government debt since then. If
you watched our video about Jerome's testimony to U S politicians.
You'll know that he admitted five hundred billion dollars of
selling is equivalent to a rate hike of around point
five pc. So far, this effect is yet to be seen. Anyways.
(31:42):
Jerome went on to give a short summary of economic conditions.
The economy has slowed, the housing market is imploding, the
stock market is collapsing, but unemployment is at a fifty
year low. In other words, the economy is actually fine
because the questionable employment statistics say so. Meanwhile, the pc
E and core PCE are way above two percent, specifically
(32:05):
six point two and five point one percent respectively. Now,
although inflation expectations of the American population haven't gone up,
the FED can't be complacent. That's because history has shown
that inflation can come back if it's not crushed like
in the nineteen eighties. Now, for those who don't know,
inflation expectations are as important, if not more important, than
(32:29):
the actual inflation rate. That's because if he will expect
inflation to remain high, they will act in ways that
cause inflation to continue. This is the main reason why
the FED also watches the c p I. It's what
the people watch. It also begs the question of how
much the US government is fudging inflation related figures, But
(32:49):
let's not go there. All I will say is that
if inflation expectations get too high, then hyperinflation is the result.
Put differently, hyperinflation is a psychological and not an economic phenomenon.
The more you know now, Jerome continued his summary of
economic conditions by saying he is aware that it takes
time for the Fed's interest rate increases to have an
(33:11):
effect on the actual economy f y I. The consensus
among economists is that it takes around a year for
interest rates to affect the economy. Jerome acknowledged that at
some point it will become appropriate to slow the pace
of increases, but that point has yet to come. More importantly,
Jerome said that the terminal rate a k a. The
(33:33):
interest rate the FED is targeting, has increased significantly above
what had been announced in September. Jerome also repeated something
he said many times, and that's that the FED is
taking quote forceful steps to bring demand back in line
with supply. This is a scary prospect because it looks
like supply issues are the primary drivers of inflation right now.
(33:57):
Bringing demand down means doing damage. That's why Jerome repeated
another thing he said many times, and that's that bringing
inflation back down will require a quote sustained period of
below trend growth. This includes a quote softening of labor conditions,
which the FED has yet to see in the official statistics.
Jerome concluded his speech by repeating that history has shown
(34:20):
that easing too soon can create serious issues, that the
FED will fulfill its dual mandate, that it understands higher
interest rates are affecting everyone, but that it will quote
stay the course until the job is done. Now, before
I break down what was said during the question period,
you should know that the markets were rallying up until
this point. That's because the FED statement announcing its interest
(34:44):
rate decision contained an additional sentence which suggested rates would
start coming down. In a Block Works episode about the
fed's press conference, macro analyst Jim Bianco mentioned that the
sentence was eerily similar to something Layle Brainard, the Vice
chair of the FED, had said a few months before.
For those unfamiliar, Leal is a dove, meaning that she
(35:07):
supports lower interest rates. By contrast, Jerome is a hawk
who supports higher interest rates. Now, Jim's theory is that
the doves on the fed's Board of Directors are starting
to become concerned about the Fed's aggressive rate heights. Jim
believes the dovish sentence in the FED statement was a
compromise Jerome made with the doves. What's annoying is that
(35:30):
we won't know whether this is the case until the
minutes of the feds November meeting are released towards the
end of this month, specifically Wednesday, twenty three of November. Obviously,
the contents of those minutes will probably have a significant
impact on the markets any who. When it came to
the question period, the first to go was a reporter
(35:52):
from the Financial Times. They asked Jerome what inflation data
the FED needs to see before it starts to slow
it's pace of rate hikes. Note that a slowing of
pace doesn't mean that the FED will stop, just that
the increments will be smaller. Jerome said that the FED
wants to see multiple months of inflation coming down before
slowing the pace of rate hikes. But that's not all.
(36:15):
The Fed also wants to see positive interest rates across
the yield curve. In plain English, it wants to see
interest rates that are higher than inflation, specifically core PCE. Logically,
this means that all interest rates in the economy must
be above five point one. This is a pretty big
task considering most interest rates are currently around four percent,
(36:39):
but it's important to remember that inflation is likely to
come down. This means that positive interest rates could be
around the corner. The second question came from a reporter
at Reuter's and they asked Jerome how big the Fed's
rate hike will be after its next meeting in December.
Jerome responded by explaining the Fed looks at three things,
(37:01):
how fast to raise rates, how high to raise rates,
and how long to keep them there. Jerome continued by
saying that the Fed agreed to raise interest rates quickly
and is now working to figure out how high to
raise them. He revealed that the Fed will start discussing
this at its next meeting, but it will be a
while before it starts discussing how long to keep rates restrictive.
(37:24):
The Reuters reporter followed up by asking why the Fed
felt it necessary to signal that it will start discussing
when to stop raising rates. Jerome tacitly admitted that the
doves at the FED are starting to get nervous, but
that he doesn't feel that way at all, and since
he's the chairman, what he says goes looks like Jim
(37:44):
is onto something. Now. The third question came from a
reporter at the Wall Street Journal who asked where their
interest rates across the yield curve will need to be
higher than core PCE. Jerome confirmed this to be the
case and added that there must be a significant spread
i e. Difference between real yields and core PCE. The
(38:04):
fourth question came from a reporter at the New York Times,
and they asked Jerome whether there's any evidence that inflation
expectations are becoming entrenched. Jerome said this isn't the case
for long term inflation expectations, but shorter term inflation expectations
do concern him. Then Jerome said something interesting, and that's
that there's no scientific way of measuring when inflation expectations
(38:28):
become entrenched. This is interesting because it's believed that the
FED slow response to inflation was due to Jerome trusting
the academics around him instead of his own intuition. Now,
the fifth question came from a reporter at the Washington Post.
They asked Jerome about how long it takes for monetary
policy to affect the economy and which sectors start to
(38:50):
feel the squeeze and when. Jerome's response was surprising because
he said that the economy reacts much sooner than assumed.
This is something that was brought up by former FED
trader Joseph Wang during that aforementioned block Works episode. Joseph
believes that Jerome understands just how financialized the economy has become,
(39:10):
and because investors are always pricing in the future, the
economy reacts faster as a result. Even so, Jerome said
that the FED would rather raise interest rates too much
than not enough. That's because it's easier to come back
from overtightening than from not tightening enough. The cost of
inflation expectations becoming entrenched is also much higher than the
(39:34):
recession this tightening is likely to cause now. The Washington
Post reporter followed up by asking Jerome about the additional
sentence in the FED statement. Jerome slammed investors for thinking
that slower rate hikes means lowering interest rates and said
that won't be happening anytime soon. The sixth question came
from a reporter at Axios and they asked Jerome about
(39:56):
the housing market. After rambling about the labor market for
a bit, Jerome asked whether he had missed anything the
reporter had asked, to which the reporter responded, the housing market.
Tell me about the housing market. I'm paraphrasing. Of course.
All Jerome had to say was that the FED needs
to bring the demand for housing back in line with supply.
(40:16):
If you watched our recent video about the housing market,
you'll know that the Fed is doing a damn good
job of that so far. The seventh question came from
a reporter at Politico, and they asked Jerome what employment
statistics the FED is watching. Jerome fired off a long list,
including unemployment, the supply of labor, the labor participation rate,
(40:36):
another such statistics. The stat that caught my ear was
wage growth. That's because it's believed that higher wages contribute
to inflation. Right now, wages are increasing at a rate
of you guessed it, five percent per year, at least
in the United States. I reckon, you can't blame people
for wanting to keep up with inflation. It sounds like
(41:00):
some economists do, though. Now. The eighth question came from
a reporter at CNBC who asked Jerome about the u
n's warning to central banks that I talked about earlier.
After acknowledging that the rest of the world is having
a rough time with the fed's rate hikes, Jerome said, quote,
but in the United States, we have a strong economy.
(41:21):
Jerome went on to say that price stability in the
United States was the most important thing for the FED,
and that bringing inflation down will quote pay dividends for
decades in some The FED doesn't give a damn about
the developing countries that are struggling under dollar debts. Inflation
must be crushed. The CNBC reporter followed up by asking
(41:42):
Jerome whether there is a risk that inflation will remain
high given that it's being driven primarily by supply side
forces that the FED cannot affect. Jerome acknowledged that there
are supply side issues, but argued that inflation is demand
driven in the USA. This brings me back to one
of Gym's theories, which is that inflation will remain much
(42:03):
higher than most people expect due to a structural change
in the economy. In short, supply chains and manufacturing are
moving back on shore in many countries, and this transition
will create a long period of inflation. More on that later.
The ninth question came from a reporter at Bloomberg who
asked whether the FED is still focused on the inversion
(42:26):
in yields between three month government debt and ten year
government debt. That's because the three month yield and the
ten year yield were close to inverting at the time
of shooting. They have. You see, under normal economic conditions,
longer types of debt offer higher interest rates, mostly due
to the opportunity cost of lending that capital for so long.
(42:49):
As such, when interest rates on shorter term debts are
higher than those on longer term debts, it's a sign
that the economy is in bad shape, i e. Recession.
Not surprised, Lee Jerome was unconcerned and just said that
the FED is watching other indicators to The tenth question
came from a reporter at the Associated Press who asked
(43:10):
Jerome whether he was concerned about the housing market. Jerome said,
he is aware of how bad the housing market is
getting hit, but rents must come down. It looks like
that will be the last domino to fall on the
housing front. The AP reporter followed up by asking Jerome
whether the FED was happy about the market rally that
resulted from the additional sentence in the FED statement. Jerome's
(43:33):
response to this question went viral, and I think you
can guess why. Jerome started by reiterating that the terminal
rate will be much higher than initially projected. Then he
said there is quote no evidence that inflation is coming
down and even added that quote we are exactly where
we were one year ago in terms of crushing inflation.
(43:53):
The markets instantly nos dived now. The eleventh question came
from a reporter at Fox News, who asked Jerome whether
fiscal policy i. Government spending is affecting the Fed's ability
to fight inflation. Jerome admitted that fiscal policy was making
it harder to fight inflation at first, but seemed to
suggest it actually might be helping now. That's because all
(44:16):
the unprecedented stimulus during the pandemic has resulted in record
levels of savings for individuals and cash balances for institutions.
While this wealth is still concentrated in the upper echelons
of the economy, it presents a cushion against rising interest rates. Nonetheless,
the Fox News reporter followed up by asking Jerome whether
(44:36):
all the hundreds of billions that have yet to be
pumped into the U S economy will affect the FED
going forward. Jerome danced around the question, which was honestly
a good political move given the polarized political climate in
the USA. The final question came from a reporter at
Marketplace who asked Jerome whether the window for a soft
(44:57):
landing has narrowed put some Is it still possible for
the FED to raise interest rates without causing a recession?
Jerome said yes, but admitted that this is becoming less
likely by the day. When the reporter asked why that is,
Jerome explained that inflation hasn't come down nearly as quickly
as the FED was hoping. This means that the FED
(45:20):
will have to be more restrictive with its monetary policy,
and that increases the possibility of a recession. You can
learn all about what that would mean for the economy
using the link in the description. So this brings me
to the big question, and that's whether inflation will stay
(45:43):
much higher than investors are currently pricing in. This ultimately
depends on whether you believe the global economy is going
back to the way that it was, or that it
is undergoing a paradigm shift that will cause lots of inflation.
To clarify, Jim Bianco isn't the only macro analyst who
falls into the latter camp. If all the macro podcasts
(46:05):
I've been listening to lately are any indication analysts are
divided down the middle on whether the economy will change,
you'd think that everyone and everything will fall back into
their old habits. However, it's clear to see that a
multipolar world is forming. The United States, the European Union,
and parts of Latin America and Asia seem to be
(46:26):
at one pole, and China, India, Russia, Saudi Arabia and
other parts of Latin America and Asia seem to be
at the other pole. If you watch my video about
China's influence in Africa, you'll know that many countries on
that continent are being drawn towards the second pole too.
If this is the case, then inflation could skyrocket at
(46:46):
the first pole, if, say, trade between the US and
China starts to slow down. This seems to be more
likely than ever, as the United States, Europe, and other
Western powers have announced ambitious plans to bring them manufacturing
of microchips and electric batteries on shore. Something tells me
that these products will be more expensive than their Chinese counterparts. Now,
(47:10):
consider a scenario where individuals and institutions in the United
States and Europe are restricted or banned from importing such
products from China. Did I mention that the US recently
banned the export of semiconductors to China, The same response
from the CCP would be inflationary. That said, individuals and
(47:30):
institutions at both poles will be very reluctant to cut
their lucrative economic ties because of some geopolitical power struggle
between their countries. Case and point, many of these restrictions
have loopholes, including say, the sanctions on Russian oil and gas. Still,
relations could deteriorate to the point that loopholes are no
(47:50):
longer possible. There's no question that the risk of this
happening is higher than ever, and it looks like this
risk is only scheduled to rise. The over lining is
that inflation should come down after the initial adjustment period
is over. When that will be nobody knows, but the
inflation would definitely last longer than a few months. That
(48:12):
means it could be a long time before the FED
starts to drop interest rates. In fact, some believe that
the FED may be forced to change its two percent
target to accommodate a higher level of inflation. I suppose it.
We'll have to wait and see, but I must say
it's times like these that I am still thankful for cryptocurrency.
(48:34):
Thank you so much for listening to the coin Bureau podcast.
If you'd like to learn more about cryptocurrency, you can
visit our YouTube channel at YouTube dot com forward slash
coin Bureau. You can also go to coin bureau dot
com for loads more information about all things crypto. You
can follow me on Twitter at at coin bureau or
one word, and I'm also active on TikTok and Instagram too.
(49:00):
S of co Cock
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