There are sometimes moments in life where some shit is happening, and you’re thinking ‘I can’t believe this is happening. Wait is this actually happening?! I can’t believe i’m witnessing this!!’. Like a world champ being beaten by a no-hoper or a rocket landing vertically back on Earth for the first time ever. Last 24 hours has been just like that. Totally wild.
I’m not going to bother explaining what happened; plenty of people have done that better than I can. Probably the best summary is here:
And if you want to understand the flows in detail, and what SBF (the founder of FTX) has been up to, then check this out:
What I think / hope is more useful / helpful is what I actually think about this situation. Am I going to dust off my CV and take out all references to crypto?! Do I change my LinkedIn status to ‘open to work’. Was this whole thing a terrible (at times quite fun) joke? I just think of words like ego, ponzi, liars, fake, illegal, trust… It feels bad. I feel like I’m maybe trying to make excuses for shit heads. Maybe I am. Judge for yourself…
The pull of Mammon is strong; almost irresistible for some: it’s the greedy pursuit of gain. Like it or lump it, we’re animals. We compete. We are concerned about our welfare, the welfare of our family and our offspring. Our reputation. For all of our evolution and development, there are some basic animal instincts that still remain.
We also have ego, again an inescapable aspect of being human that is only quashed by the most dedicated, present, focused, mindful individuals. This I think can be split into two sub sections; the ego of success and the ego of failure. One is proactive and one is preventative; but both exist in some senses in the context of bad decision making. We might do something that we shouldn’t to compete with others, but we also might make bad decisions in order to preserve our status, or even (and here’s a moral hazard) to prevent the destruction of colleagues, collaborators and so on that we care about or that have supported us.
Or maybe we’re just negligent.
Whatever the cause, the outcome is bad decisions.
Which leads to my first point: laws and regulations exist to stop us from making bad decisions in the light or desperation, greed, ego or whatever. If you think about it for a second, the restrictions that govern our every day lives prevent us from being able to make bad decisions that are SOOOO tempting, for whatever reason.
Now I’m not pointing a finger…. I’m pointing all my fingers and toes and a spotlight and a massive ‘it was them’ sign at the regulator for this… They have made it so hard, or rather next to impossible, for anyone in crypto to become properly regulated, that 95% of all crypto assets are now outside of the jurisdiction of the US.
![Twitter avatar for @brian_armstrong](https://substackcdn.com/image/twitter_name/w_96/brian_armstrong.jpg)
Now hear me out for a couple of seconds. Firstly, I’m not excusing the behaviour of SBF at all. Absolutely not. He was tempted and he failed. And I’m also not underestimating the size of the task that’s presenting itself to regulators around the world. It’s a massive massive job to work out how to deal with a global, decentralised, huge, financial ecosystem that is super complicated and covers so many different areas of existing regulation. Totally get that. Hats off to ya, and good luck and God’s speed; I don’t envy their position at all.
But there are 3 other things that I want to say that I think are important. These are the three things that I really think about this situation:
Does the fact that the crypto world is unregulated - and that there have been individuals that have taken advantage of the lack of regulation - mean that the technology is worthless? Well I don’t think so. What has happened is a reflection of the state of governance that exists within the space, and is not an indictment of the underlying technology, its use cases, or the direction of the development of the sector in and of itself. Now I’m not saying the regulation is going to sort everything out, and this leads to my second point…
This shit happens all the time in traditional finance and in business around the world. Granted crypto has seen it’s fair share recently. But think about 2008… wtf was going on there? And that was fully regulated. Look at Credit Suisse. These guys have been embezzling funds, dealing with drug dealers and Russian oligarchs… If you don’t believe me, check this out:
Credit Suisse has been around since 1856, it’s fully regulated, and it’s still mucking around and messing things up. We only know about these things once they come to light. But they’ve been going on for years and years. These are all known unknowns, the crazy stuff that’s going on behind closed doors that we don’t know about… until we know…
Now I’m not excusing bad behaviour. We can’t say ‘well I punched that dude, but it’s ok because at least I didn’t murder him’. An eye for and eye and so on. All I’m saying is that this shit happens ALL of the time. I used to work in banks, in oil trading and I’ve worked in Venture Capital. This stuff is everywhere. My point, though, is that the fact that we know about this stuff happening at FTX and so on is because crypto is totally transparent. We can track everything that SBF, FTX and Alameda were doing… So whilst it’s bad, at least we know what’s going on. For the past 2 years. Vs the past 200 years… Check this out
1/ I found evidence that FTX might have provided a massive bailout for Alameda in Q2 which now came back to haunt them. 40 days ago, 173 million FTT tokens worth over 4B USD became active on-chain. A rabbit hole appeared 🧵👇Bad behaviour is not unique to crypto… other industries just hide it from us much more effectively. I believe that crypto will always be totally transparent… and maybe that’s the promise of crypto in the long run, that’s really the good thing about it… I think it probably is… we’re likely to achieve ultimate operating status more quickly from all of these situations, which leads to my third point…
I’ve said this a million times before and i’ll say it again…. growing pains. Nothing was ever created perfectly in its final, fully functioning form, apart from Adam and Eve. And I’m no scientist, but I wonder if they actually really existed… so it’s plausible that NOTHING was ever created in its full and perfect form. This is the book I know and love
The US healthcare system is the biggest killer in the US. Why? Because they don’t have feedback loops to deal with mistakes that are made, mostly because nurses and doctors don’t (understandably) want to admit the errors of their ways. Compare that to air travel, that uses black boxes. We fly millions and millions of people around the world every year, with barely a mistake? Why? Because we’ve created feedback loops to learn from our mistakes. Now it’s painful and difficult and challenging… but if we don’t have these data points to learn from, we can’t create a robust industry that will benefit the majority of mankind. To make a mistake once, learn from it, and never make it again is progress. In the unlikely that SBF does save FTX, this is what he’s said…
![Twitter avatar for @SBF_FTX](https://substackcdn.com/image/twitter_name/w_96/SBF_FTX.jpg)
If we accept that the industry is young and volatile and imperfect, then we can learn ways to navigate it and build it / benefit from it as we go. Could it be that the more blow ups we see, the more quickly we get to a perfect form of the industry? Think about how long the banking sector has been around; that still seems to be learning about the best way to operate… In comparison to crypto, it might be that crypto learns from its mistakes more quickly and more efficiently because we’re creating data points that the regulators of the world can use to regulate the industry effectively through unprecedented industry transparency… so that we can be prevented from making these (inevitable) bad decisions in the future. Reference merkle tree proof of reserves for exchanges, which already seem to be around the corner in just a matter of days…
One final point just to get it off my chest…. I really really really want people to start thinking carefully about what a token/crypto currency actually is. What does it represent? Think about it objectively. WTF are people doing piling into some ‘asset’ that doesn’t actually mean anything or have any value. I just don’t get it. I really don’t. And that that asset can then be both created in an unlimited fashion AND then used as collateral for leverage just makes no logical economic sense (although in writing that, I started thinking about the dollar 🤔😂).
I just really want people to realise that cryptocurrencies and tokens are not equities… they’re not stocks, they don’t necessarily represent a share of anything at all. Mostly they are fabricated out of thin air. Does this make blockchain and cryptocurrency worthless? No, not at all. But it just means that, as investors, we need to think really carefully and diligently about what we're actually putting money into. It’s not ok to follow the heard blindly into some shitty ponzi scheme that the rest of us have to then go and make excuses for when it blows up. Sequoia and the other investors in SBF are just as to blame as he is himself.
Finally. Fair play to the new leader of the crypto world order. SBF asked him into the ring and he got knocked out. Now CZ holds the ring of power. I hope he uses it wisely.