I’ll start this final 2022 edition of Crypto: Decrypted by wishing everyone a Happy Holiday. Life moves pretty fast and, in this space, it seems to move even faster. Enjoy this time with family and friends and, hopefully, the pause it provides for you to catch your breath.
I encourage you to do just that. Use this time to catch your breath because 2023 is right around the corner. We’re excited about it. Not just because it’s the end of 2022 (thank goodness), but because these markets have taken their hits, and we believe 2023 is positioned for a market shift.
As everyone is buttoning up for the holidays, I’ll keep this edition short and sweet and just comment on the things too obvious to ignore which include the latest around SBF, the “are you serious” Trump NFTs and the pre-release of our new book, Crypto Decrypted. Let’s jump in.
Friedman, Madoff & Milken
Too soon to make this comparison? Perhaps, but our illustrious alleged fraudster, SBF, was extradited to the US this week to face, well, a lot of charges. Eight criminal charges in fact, including wire fraud and conspiracy by misusing customer funds. US Attorney Damian Williams calls it “one of the biggest financial frauds in American history.” That’s saying something.
For those that still think this is a crypto thing, this should remove whatever doubt remains. It’s a fraud thing. Just like Bernie Madoff is to securities or Michael Milken is to junk bonds, so it seems SBF will be the poster fraudster for the blockchain world. I’ve beaten this drum quite a bit – especially in my last blog “SBF, FTX, WTF” – but the extradition and formal charges now add a bookend to the structure of this matter that should clarify what was actually happening. It’s fraud in the crypto space, not because of the crypto space.
Naturally, other exchanges are coming (or have been) under scrutiny and, honestly, that’s not a bad thing. Regulation and clarity of offerings are going to be some of the critical elements that drive our industry forward, and the FTX case will impel just action. The challenge is going to be, who is enforcing what?
Take, for example, the case of Binance, which has been under investigation by US authorities since 2018. Binance operates offshore so it lands in a grey area, but they are the biggest player in a new and largely still misunderstood industry. Of course, they’re getting looked at by the DOJ. The culmination of this four-year investigation may lead to filing charges, entering a plea deal, or perhaps even dropping the case altogether. The challenge here from the US side is that, well, three different DOJ bodies are not in agreement on how (or if) to move forward.
Far from FTX 2.0, Binance is an entirely different situation. Whereas FTX didn’t have a CFO (seriously), Binance has taken a strong posture around compliance, cyber-crime and working with authorities. Tigran Gambaryan, the exchange’s global head of intelligence and investigations, noted Binance has “responded to over 47,000 law enforcement requests” since November 2021, and further he claims that Binance has the most robust security and compliance teams in the industry. Gambaryan knows what he is talking about as, prior to his post at Binance, he was a Special Agent at the Internal Revenue Service-Criminal Investigation (IRS-CI) Cyber Crimes Unit for over a decade. Does that mean everything is perfect? Of course not. Could something nefarious have happened on the exchange? Certainly. Could money have been laundered as the exchange built up its compliance protocols? Of course. This has been an evolution and, as an offshore entity, the rules are different. The important part is that, just as nefarious activity occurs across all financial sectors, new and up-and-coming sectors like this one are especially vulnerable (and right now this industry has a huge “guilt by association” complex). This too, however, will sort itself out and, frankly, all of this will lead us to a better, more regulated space with, in our opinion, spot-on timing. Given that these markets historically have a 4-year cycle, 2023 is positioned to move out of these bottoms and we expect it to be the first leg of the next bull.
NFTrump
I don’t want to write about this. I mean, it’s just silly. So, let this be the “lighter side” section of this month’s blog.
The same week that the committee investigating the January 6, 2021 riot at the United States Capitol recommended half a dozen criminal charges against former President Donald Trump, the former president released his NFT collection featuring… himself. That’s correct. This is the same Trump who just recently recommended on the Truth Social platform that parts of the constitution be thrown out. This is not a political blog so I’m not going to opine on any of that or the unprecedented legal cases that are unfolding. Let’s just let our legal system do its job.
I am absolutely going to opine on our former president’s recent NFT release.
To begin with, if you follow this Crypto: Decrypted blog, you’ll know that NFTs (Non-Fungible Tokens) stand to transform the digital world, but not because they are collectible art. NFTs allow provable uniqueness and provable ownership of a digital object, the implications of which will be massive in almost all sectors, including medical records, real estate, law and, especially, in the inevitable implementations of the metaverse.
Of course, now they are infamously known for their use in creating digital collectibles and, not to be left behind, Trump issued 45,000 NFTs this past week. The NFTs, which were sold at $99 each, depicted the former president in various poses, from superhero to cowboy, astronaut to a Rambo-esque ranger, and I do have to say that the cards certainly are provably unique.
Upon release, prices surged on the secondary market only to quickly fall 75%. As if this couldn’t get any weirder, there is now an allegation that the cards are using unauthorized images, including those from Amazon, Men’s Warehouse, Wired magazine and even Shutterstock, some of which still include watermarks. These are just allegations at this point, so who knows. Heck, maybe this unauthorized wrinkle will, in some bizzarro way, make these even more “collectible” so that in 30 years one can relish in owning one of the strangest NFTs ever minted. I don’t think that will be the case, but we are so far out on the weird branches here, who knows.
Speculation aside, here’s my ruling for these OMG NFTs. In their current implementation, NFTs in general have a credibility strain among many. This collection does absolutely nothing to dissuade that. It not only undermines the credibility of NFTs further, it certainly isn’t helping Trump’s reputation in any way, shape or form. Therefore, it is my finding that this was in the height of bad taste, bad planning, bad execution and… well… is just bad on all fronts. If nothing else, this collection is guilty on that count.
You can’t make this stuff up.
Crypto Decrypted – The Book
Finally, on to the labor of love portion of this December blog. Education is important to us. In fact, in my opinion, education is the most important part of what I do at Tradecraft Capital, so I’ll close out this month by noting that, following on the heels of the well-regarded “Crypto Asset Investing in the Age of Autonomy,” Jake and I have finalized the manuscript for our new book “Crypto Decrypted: Debunking Myths, Understanding Breakthroughs, and Building Foundations for Investing in Digital Assets .”
We’re in pre-release now with copies shipping in April 2023. Whereas Jake’s first book focused heavily on the Age of Autonomy and the long-wave financial future, this new work (for which I have the honor of a co-authorship with him) is designed to address common misconceptions and also to unpack the technological breakthrough that is so often overlooked when considering this world of digital assets. Just like this blog, it’s designed to lend common sense and understanding to this misunderstood technology. Of course, we also spell out some of the key things that we focus on when building a portfolio, so it’s practical as well. If you’re keen on expanding your understanding of this world, I (of course) encourage you to check it out!
In Closing
Thank goodness this year is almost over. 2022 sucked for most markets. It especially sucked for the blockchain space which was arguably more about survival than anything else. It’s almost a Christmas song! “5 EFF-TEE-EXX!!…, 4 Celsius, Three Arrows, 2 Terra Luna and a S-B-F that’s been indicted!” (sung to the 12 days of Christmas starting at verse 5). Seriously, with all that on top of the markets in general, it’s been a crypto winter indeed.
With the markets at their current levels, however, we see that we’re bouncing around the bottom and preparing for the turn in our 4-year cycle. Interestingly, we see this as corresponding with the Fed’s anticipated policy shifts in 2023, so, looking ahead, we do see there is a North Star in front of us. Thankfully we’re at the end of 2022. Here’s to 2023 and beyond!
That’s all for now. Happy holidays, Happy New Year, and I’ll look forward to connecting in 2023 where I’ll continue to Decrypt Crypto for you!