WBD580 Audio Transcription
Unpacking the FTX Fraud with Lyn Alden
Release date: Monday 14th November
Note: the following is a transcription of my interview with Lyn Alden. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.
Lyn Alden is a macroeconomist and investment strategist. In this interview we discuss rampant fraud that led to the FTX bankruptcy, the implications for other businesses and legal precedent, and Lyn’s current outlook on markets.
“We appear to have actual fraud, various types of fraud, essentially a Ponzi scheme, and that’s different from even just a normal casino… you can have a crypto casino, and it just makes money from fees, and most traders get rekt; but this is like a casino built on top of a Ponzi.”
— Lyn Alden
Interview Transcription
Peter McCormack: Hi, Lyn.
Lyn Alden: How's it going?
Peter McCormack: Good, good to see you in person again. I didn't enjoy that last one. We did a remote one.
Lyn Alden: Oh, that's right, yeah.
Peter McCormack: I hated it. I mean, I love always talking to you but afterwards like, "Danny --"
Danny Knowles: No more remote.
Peter McCormack: "-- no more remote shows". We just accept if we can't do it.
Lyn Alden: What are we going to talk about this time? It's a slow news week!
Peter McCormack: Yeah, not much has happened this week! I mean, I was at a conference, I didn't pay attention to anything. Well, there was big news today in the football space! But no, I think we need to talk about FTX and everything blowing up, what it means, why it happened. I think there's going to be -- well, firstly, there's going to be some people damaged by this and we need to talk about that and talk about what we can learn from this and how things improve in the future. But also, I think some people want to understand what happened, why it happened, how it happened. There's a lot to take in. How have you been taking the whole weekend?
Lyn Alden: Well, it's a big news week and it's challenging because we're at the Pacific Bitcoin Conference, which was awesome by the way, I'll give that a plug.
Peter McCormack: Are you making an excuse ahead of time?!
Lyn Alden: Well, no, I'm just saying we're at this conference all the time and we're following this crazy news event. And basically, the funny thing is how rapidly it changes. I mean, if we had this interview a few hours ago, we'd talk about some different things. I mean basically hour after hour, day after day, new, crazy details and events keep happening. But the short answer is it appears to be massive fraud. I think one thing we can do ahead of time is just say, everything is alleged, or appears to be, because obviously the lawyers have to go through this in detail. But obvious scams are obvious now, now that the documents are out, now that things are less opaque than they were before.
Basically, you have this offshore exchange that had inappropriate connections with their trading arm and appeared to be using customer funds to finance their trading, and were using their own token, created out of thin air, as collateral for loans. So, we appear to have actual fraud, various types of fraud, essentially a Ponzi scheme, and that's different from even just a normal casino. I mean, you can have a crypto casino and it makes money from fees and most traders get rekt. But this is like a casino built on top of a Ponzi, so this is among the worst of the worst.
Peter McCormack: Yeah, and I can't figure out if this is a -- it's definitely a scam. I can't figure out if it's a scam whereby they've set out on purpose to scam and defraud people to personally walk away with a huge amount of money, hide a huge amount of money; or it's a situation that's become a scam because something's got out of control. They've tried to grow a business too quickly, they've tried to use very strange financing methods, and in doing so they've got themselves into a sticky situation and tried to dig themselves out of it by doing some kind of weird financial engineering.
It feels like the latter. Maybe it doesn't matter, maybe it's a scam whatever, but it feels like it's something that got out of control.
Lyn Alden: Yeah, I certainly don't think they intended it to blow up, especially by being so cosy with regulators and politicians in public. A lot of that was clearly legal defence. And I think the way we can look at it is, now there's leaked documents of what they pitched to investors, some of those documents were sketchy like, "Earn high returns with no risk!" and it's bolded and they're explaining why there's virtually no risk for these high returns, which is a giant red flag.
Peter McCormack: What were they saying? Were they basing the business on trading fees though?
Lyn Alden: Yeah, they were basically saying -- well, in the beginning, it was Alameda and they were basically saying, "Our trading algorithms are so good and we can make money in both market directions as a market maker, and therefore if you loan us money at 15% annually, there's almost no risk"; that was some of the early documents that are now surfacing.
So, from the beginning there were red flags, and not all of those documents were publicly knowable; they were to VCs and financiers and things like that. And so it started out as that trading arm; that was 2018. And then 2019, they launch FTX, which is the exchange. And it appears that a large purpose of the exchange was essentially to provide low-cost capital to Alameda, which were supposed to be separate entities. But it's clear now that they were -- it was kind of understood all along by a lot of traders and observers that there was some sort of probably uncouth connections between the two, but as more details come out you see how intertwined they appear to be and how FTX was really almost like a mechanism to extend Alameda and their trading activities and their leveraging.
Peter McCormack: So, Alameda was the trading arm that existed prior to FTX?
Lyn Alden: Yes.
Peter McCormack: Do we know when they were established?
Lyn Alden: I believe 2018.
Peter McCormack: And do we know much about their trading record up until that point? They were generally held in high regard; or do we now have suspicions that it was never making any money?
Lyn Alden: I mean, I assume they were probably making money, but it's now unclear. I mean, if you can't trust the books, then it becomes kind of speculation. And of course there were people who might have made it their whole thing, almost like private investigators, to follow exactly. But I think from early on, they had some sophisticated trading that could work temporarily, but especially once you start printing your own token and then leveraging that token, you start building a more and more fragile Ponzi. So, I think it very much got out of hand, but there were red flags in those documents from the beginning, at least for those who had the access to see those documents, which were not very public documents.
Danny Knowles: I think Alameda started as a market maker and then became directional at some point in 2021, from what I can see.
Peter McCormack: But market makers make money whatever direction --
Danny Knowles: Completely neutral, yeah.
Peter McCormack: Yeah, completely neutral, so you just make a very small part on every trade.
Lyn Alden: But you still have to manage a risk appropriately, because you can get caught off with a one-sided position if things change rapidly.
Peter McCormack: Right, okay.
Lyn Alden: You take near-term sometimes one-directional bets while you're making those markets, even if you're not structurally trying to make a long-term bet.
Peter McCormack: And the rumour is, what, an $8 billion hole?
Danny Knowles: It's more than that now. So, in their bankruptcy document, I think they've ticked the box between $10 billion and $15 million.
Peter McCormack: For Alameda or FTX?
Danny Knowles: They're all wound up together. Am I right in that Lyn; are they all wound up together?
Lyn Alden: It keeps changing, but yes, multiple entities have now filed for bankruptcy, including --
Danny Knowles: I think it's like 132 entities, or something.
Lyn Alden: Yeah, including FTX US, which again was supposed to be separate and regulated differently. And as this was playing out, in many now deleted tweets, first they were saying funds were safe, then they were admitting that funds were not safe. They were like, "Well, FTX is still safe". But then even FTX US is doing bankruptcy, so across entities it's all intertwined. There's actually shots of their organisational chart and it's an absolute mess if you look at it.
Peter McCormack: Can you find it?
Danny Knowles: I'll have a look.
Lyn Alden: It's almost purposely obfuscated, the way it looks.
Peter McCormack: So, do we know what the speculation is and the chain of events that led to the collapse, because the speed of the collapse, from something that was two weeks ago maybe, we had no idea, or maybe there were some suspicions, but valued at $32 billion --
Danny Knowles: Is this it?
Lyn Alden: Yeah, there's the organisational chart.
Danny Knowles: I mean, I don't even know how you look at that.
Lyn Alden: I've been keeping track of that.
Peter McCormack: Yeah, do you know what that reminds me of? That reminds me of Vitalik's Ethereum roadmap!
Lyn Alden: More or less.
Peter McCormack: Hold on, what are all these fucking companies?
Lyn Alden: He had exposure to over 100 companies, various investments.
Peter McCormack: West Realm, Alameda Research, North Wireless Dimension, what the hell? I can't even read most of it. Yeah, I can't read that, Danny. I want to dig into that and find out what that is, but why have they got that many companies?
Danny Knowles: I think they had to domicile in lots of different locations, and that kind of stuff. So, a lot of them were sort of Alameda US, Alameda wherever else, but I don't know the answer.
Lyn Alden: They also apparently did a lot of venture stuff, and they're going to find out which ones of those are maybe real venture versus which ones are kind of shell companies. I mean again, it's changing hour by hour. Some of this will probably be obsolete by the time this publishes, because that's how fast-moving this all is.
Peter McCormack: Do a Twitter search and see what the latest thing is in the last hour! I mean, the last thing I just saw, they said they've got zero Bitcoin on the balance sheet, but they've got $1.3 billion in liabilities.
Danny Knowles: $1.4 billion.
Peter McCormack: $1.4 billion in Bitcoin liabilities, which means, I mean what does that compare to Mt. Gox; that's about three times? Wasn't Mt. Gox about $400 million? I think it was about $400 million; I could be wrong. But I also read there are 16,000 wrapped Bitcoin that now can't be accessed.
Lyn Alden: Yeah, on Solana, and also wrapped Ether, I think. But yeah, there are some wrapped entities. A big challenge with DeFi as it exists now is that it is very reliant, ironically, on custodial entities. So, you have custodial stablecoins and you have custodial wrapped Bitcoin, wrapped whatever, and then you'll have these protocols like decentralised exchanges and pseudo-decentralised liquidity leveraging providers; but the core of the system is often still these custodial assets.
So, if FTX holds the keys to these wrapped Bitcoin, wrapped by Solana, if they lose the keys, then that's a useless token, so they're currently trading at a major discount based on the non-zero chance that among these bankruptcy proceedings, someone will find the keys and it will be opened. But at the current time, it's a problem.
Peter McCormack: Did you find that Mt. Gox number?
Danny Knowles: No, I've not looked.
Lyn Alden: There's also, one of the recent views is there's a hack, so someone hacked it.
Peter McCormack: $600 million?!
Lyn Alden: Yeah, I've seen the number keeps changing. That was the first number I saw, then someone said over $1 billion, then it could be all different by --
Peter McCormack: It's a crazy story. I saw that then immediately also saw that Sam was on his private jet flying to Argentina. I was like, "Is he going to LABITCONF?"
Lyn Alden: Then that was countered and people said, "No, we still see him on the Bahamas". So again, this could be different. We're probably going to know where he is in a couple of days, but I've seen competing rumours on social media, so I wouldn't speculate on that personally.
Peter McCormack: So, the weird thing about FTX is, I thought they were just a very successful business. I remember when Binance came out of nowhere and very quickly became a huge exchange; almost every trader I know was using it. Traders didn't tend to use Coinbase, and some used Kraken and Gemini; that tended to be more retail spot buyers. But it felt like FTX came very quickly out the gates and they were able to spin up new markets very quickly. Have you used it?
Danny Knowles: No.
Peter McCormack: No, I've never used it, but I was aware they constantly spun up these new markets, these new futures markets, or -- and it seemed to me like they understood traders. And a lot of people I know used it, so when I saw that and then I saw they had Tom Brady, I was like, "Okay, this is just a successful business that is making a lot of money on trading fees". So, I don't understand, because my assumption is they probably were doing quite well to begin with, probably had some good users, sign-up numbers, some good trading numbers, probably some good numbers to raise funds and grow a business. I don't understand where it's gone wrong. Has it gone wrong because they've tried to protect Alameda, or I don't know where it's gone wrong?
Lyn Alden: It appears to be, yes, they probably tried to protect Alameda. That's at least the current evidence I've seen. If we kind of back up to how we got here, so touching back on the macro for a second, because a lot of these things start with macro, you have rising liquidity environments and you have falling liquidity environments, and most of these, let's say Bitcoin and altcoin booms that happen, because they generally happen at the same time, when you have a rising liquidity environment, that's where they've all occurred. They've all occurred when money's flowing, money's cheap, risk assets in general are doing well.
Then, when that rolls over, the economy's slowing, the Federal Reserve's tightening, there's various reasons why this can happen and you have this declining liquidity environment, all these Ponzis break. And even Bitcoin takes a price hit as capital goes out and euphoria goes away. The difference is Bitcoin's been through four of these and it keeps giving higher highs and higher lows, at least so far, and other ones go through one or two cycles and then they're dead and, in Bitcoin terms, pretty much forever; that's historically what's happened with thousands of these projects.
So, ever since roughly mid-2021, we've been in a declining liquidity environment, and it really accelerated here in 2022. So, all these speculations, all these risk-on things start pulling out. Then, when that gets pressured, you find out who's, to quote Warren Buffet, "Swimming naked"; who's more levered in an opaque way than maybe the market would have thought. So for example, there were a bunch of us pointing out LUNA and Terra, that intertwined system, as a gigantic vulnerability, and I wrote about that a lot. The good thing about that among the terrible things is that it was transparent, and so you could be like, "No, we can map this out. This is a problem", and a bunch of people did.
Then you have Celsius, which was well-known as being sketchy for a long time and there were a lot of people calling that out. It's a little bit more opaque obviously than something like LUNA, but it was pretty well telegraphed. So, when LUNA goes down and all these things fall, Celsius is heavily reliant on their token, that's getting pressured; and then the surprise to a lot of people was Three Arrows Capital because that was more opaque, and they were considered smart money. They went down and that hurt a lot of lenders and you had contagion in the whole industry. All this intertwined leverage was more intertwined than people thought, because again a lot of it is opaque.
Then you had FTX and Alameda come in and provide liquidity to some of these. And I think as a lot of people pointed out, he was positioning it like, "I want to save the industry, I want to be altruistic", but really he's intertwined with them too, so they want to mitigate contagion so it doesn't bring them down. But then the question is, people were obviously again, because of opaque balance sheets, you couldn't be sure how deep their pockets are. Are they on the verge of insolvency; are the medium; or are they as deep as they claim? And so, a lot of people I think rightly pointed out that they're probably doing this to save themselves.
So there was this lull in the market, where they're not making new lows, there's no more blow-ups, or at least big blow-ups, and then it was leaked what their balance sheet looked like, Alameda's balance sheet. I think CoinDesk had a report on that. And what it showed was that -- so you have assets and you have liabilities, and of course the difference between those is your actual equity. And the problem was that a lot of their assets were basically make-believe. They were these illiquid tokens where their own token, the FTX token, they can print billions of it, give themselves most of it, sell a little bit to the market and have that trade and have a "trading price" that they can probably manipulate on their own exchange, to some degree. Sam would post his own buys of his own token every week, almost encouraging retail to keep buying.
Peter McCormack: It's so obvious in hindsight.
Lyn Alden: Once that leaked, a lot of people were like, "This is a giant red flag", because not only that; if they ever had to sell that, they would not be able to, because once you start selling $100 billion of that, the price is now so crushed, good luck offloading the other billions. So, you don't really have the value that you claim you do.
Then they also held other tokens that they didn't control, but they were just fluff. Many of them were down significantly. And so people were like, "Wait a second, if this is their actual balance sheet, how can you verify it? Do they have another balance sheet?" So people could still not be 100% sure, but that was basically a major vulnerability that was now pretty clear, and that's when a lot of people started analysing that a lot more. And then Binance comes in, because they held some of those FTX tokens --
Peter McCormack: Was it $400 million, $500 million?
Lyn Alden: Something like $500 million.
Peter McCormack: How did they get those tokens?
Lyn Alden: They had previously invested in FTX.
Danny Knowles: I think they were one of the very early investors.
Peter McCormack: Okay, so they backed FTX and therefore they had --
Danny Knowles: In exchange for the tokens.
Peter McCormack: Yeah, okay.
Lyn Alden: So, they started selling their tokens with CZ coming out and saying, "Just for prudence, we're going to sell these. We don't want a repeat of LUNA", simultaneously adding to selling pressure, while also using language to show that you're concerned about it and show risk, which makes other people pile on, shorts pile on, other people sell. Then Alameda came out, the CEO, and she said, "We'll buy all those tokens from you at $22".
Peter McCormack: Is that Caroline?
Lyn Alden: Yes.
Peter McCormack: By the way, I'd never heard of her until I saw her up on Twitter and I thought it was a child.
Lyn Alden: She's a young woman.
Peter McCormack: Yeah, but she looked very young and very inexperienced.
Lyn Alden: Their team's pretty young, yeah.
Peter McCormack: Yeah, but very inexperienced to be running that size of a book. I mean, yeah, and saying some pretty crazy things.
Lyn Alden: Yeah, and that's another red flag when you go on Twitter and say, "We'll buy it all at $22", because you could have done that privately. If you want to do an OTC transaction, you do that privately. To put it up publicly shows you're trying to build confidence, and that was a major technical support level. There was nothing but air below $22, so now that becomes the line in the sand and then obviously the shorts pile on. Once that broke through $22, started crashing, that's when it's all messed now, because going back to that balance sheet, when your equities are entirely made up of these make-believe tokens with no real liquidity, if they go down, you're done. That's what happened.
Peter McCormack: Like your McDonald's analogy that we spoke about at the conference?
Lyn Alden: Yes, and then you're insolvent. So, that's the Ponzi part. But then, after obviously the post-mortem, people are diving in, they're saying, "Okay, well FTX had a back door to Alameda, they were lending customer deposits to Alameda, so FTX customers are at risk, it's not just Alameda going down", and they basically showed how bad it all was. So, there were a lot of people that knew it was bad. But basically as bad as you thought it might be, or concerned it might be, it was worse than that; it was just outright worse.
Peter McCormack: So, the big whole in Alameda's balance sheet is basically because they were shit at trading?
Danny Knowles: Well, I think there's some speculation that they were more heavily hit by the LUNA stuff than they have been public about.
Peter McCormack: Okay, so they could have been hit quite heavily by LUNA. What was the size of the LUNA --
Lyn Alden: That was tens of billions of dollars.
Peter McCormack: Okay, so they were hit by that potentially to whatever number. But potentially, it's similar to Three Arrows? It seems like a lot of these funds were massively leveraged. It's almost like everyone thought we were going to $100,000, $150,000 and when we didn't, they've all kind of got blown up by this.
Lyn Alden: Yeah, and also it's like how do you get so big so fast? Print your own token and leverage against it; that's how you do it. But of course, it's a super-fragile, fraudulent model essentially. So, if that tide ever goes out, as fast as you came up, you're now vulnerable just as fast on the downside. And another thing we're touching on is that in addition to raising capital those ways, FTX raised traditional VC capital, something like $2 billion, through multiple rounds, up to a $32 billion company valuation. And it included absolute blue-chip investors: Sequoia.
Peter McCormack: Sequoia, yeah.
Lyn Alden: Yeah, Sequoia, one of Singapore's two essentially sovereign wealth funds, basically state-owned investment corporations, Canadian pension funds, Paradigm, so these major pools of capital. And a lot of time, that industry works circular, "Well, if Sequoia did it…"
Peter McCormack: Yeah, "We want it".
Lyn Alden: Then of course there are documents, this was going viral, that Sequoia had written about them, and it was a rather embarrassing document. They were basically fully just embracing the personality that was being cultivated and clearly didn't do to the due diligence they should have. And when you're investing that much, you have a lot more capability to do deep due diligence than people just on the sidelines looking at this opaque situation saying, "Yeah, it looks sketchy". But you don't know how sketchy it is until you actually look at the finances.
Peter McCormack: Can you see how much Sequoia are in for?
Danny Knowles: It was about $200 million, I think.
Lyn Alden: Something like that.
Peter McCormack: $200 million?
Lyn Alden: Yeah.
Peter McCormack: It's incredible that you can invest $200 million without performing proper due diligence.
Lyn Alden: That's the thing, and it's one of those things where that's actually a small percentage of their money, so it's not like they're rekt or anything, but it's reputational damage. Start-ups fail all the time so there's no shame in investing in a start-up that doesn't work out, that's the whole point; you're investing in experimental technologies. What is embarrassing is to get this far, a $32 billion valuation company, and it's basically an offshore casino built on a Ponzi scheme that also just seemed to have outright fraud in it, and just clear lack of due diligence oversight from the people that had the money to have access to the documents.
Then there are other VCs that came out and basically said that they were in talks to potentially invest and when they asked for more information, they were told no. So they would then say, "Well, we can't then", whereas other ones clearly went through with it, they just said, "We believe you".
Peter McCormack: It's a wonder why they didn't just let Alameda fold because it's very clear that multiple people are at risk of going to jail, not just for a few years, potentially decades. We talked with Preston earlier about Bernie Madoff, 150-year sentence for a $68 billion, I think, the size of that Ponzi? I mean, I don't know what this is, $10 billion, $20 billion, $30 billion?
Lyn Alden: Yeah, if you lose rich people's money, that's when you're generally going to jail for a long time usually.
Peter McCormack: Yeah, and I don't know if it's 150 years because it's $68 billion; I don't know if the amount of money affects the time. But you have to be aware, if you're involved at this level of crime, you're potentially facing a number of years, maybe decades in jail, but could they not have just let Alameda fold; just, "Okay, it's failed"; would that have taken FTX down with it?
Lyn Alden: It seems like, again, there's going to be a lot of post-mortems on this. Can you fully trust the books we see yet, because this is all recent? But the problem is that Alameda held a lot of FTX token, so that would have all been liquidated anyway, so FTX's token would have been just wiped out. So it's unlikely you can completely nuke one without the other. But obviously, the legal risk is when FTX goes down, because that's when all your customer deposits, especially if you've been rehypothecating them and re-leveraging them, that's when they're at risk.
Peter McCormack: Do you think they got away with a lot of this because they were based out in the Bahamas; is it too opaque?
Lyn Alden: Oh, yeah, I mean they were obviously doing jurisdictional shopping, so they were not regulated to the same degree that they would be in the US. That doesn't mean that US regulations are perfect. I'd be the first to be critical of some of these big, I call them casinos, that are onshore; but generally, what you won't see is a casino built on a Ponzi at least. So, offshore, when you're shopping for jurisdiction, you can basically pick a jurisdiction that's not going to really look into you that much and they're just happy to have you there and they get some revenue out of it and look the other way.
Peter McCormack: God! So, in terms of looking at this in terms of the rest of the Bitcoin market, the crypto market, when you looked at, say, when they bailed out BlockFi and Voyager, that to you is them just trying to delay things because they would have been caught up in the same contagion?
Lyn Alden: Well, back then, their balance sheet wasn't fully known to the public yet, the way it was after the leak, which was pretty recent. So, I think clearly they didn't want more and more liquidations going on. And each of these lenders had different levels of problems. So for example, some of the dumbest lenders were outright insolvent, whereas other ones were more careful with their lending practices. So, they weren't necessarily insolvent, but they were not liquid enough to withstand the sheer amount of bank runs that they were having.
Peter McCormack: Yeah, so Zac at BlockFi, when we spoke to him, he said their main issue was duration matching.
Lyn Alden: If that's correct, that's essentially a liquidity problem. That's why they were one of the ones to get through that summer event, because they were not as -- Voyager, for example, if I remember correctly, they did an uncollateralised loan.
Peter McCormack: Yeah, $650 million!
Lyn Alden: Whereas BlockFi's, for example, was at least collateralised. So, a solvency risk is worse than a liquidity risk. Both are not great, but obviously liquidity means you can eventually potentially make everything whole again; whereas solvency's a major problem. So, if you're having a liquidity problem but you're solvent, you can sometimes get a loan that will then make you more liquid, so you can avoid that whole freezing withdrawal thing.
So basically, the weakest and dumbest lenders went down first; and then the ones that had some degree of better risk management in place, they were the ones that were able to get through it. But if the industry itself is so intertwined and so bad, it can bring everything down.
Peter McCormack: Well, that's another thing, it feels like everyone was lending everyone else money throughout the system.
Lyn Alden: Yes, pretty much.
Peter McCormack: I guess this is how you get the contagion, right?
Lyn Alden: Yes.
Peter McCormack: Danny, in terms of BlockFi, we know they got a line of credit which would enable them to be able to deal with their liquidity issue. But they said they were able to support customer funds and their issue was purely liquidity. But they have now completely paused withdrawals and I've heard nothing more from them. Do we know if they kept their customer assets separate, or they become custodied by FTX; do we know anything about that?
Danny Knowles: I would only be guessing, but I'm pretty sure they kept their customer assets.
Peter McCormack: Okay, so I think the issue for BlockFi is they just don't have that line of credit to call on anymore?
Danny Knowles: I think they then lent a lot of money to Alameda afterwards.
Peter McCormack: Who, BlockFi did?
Danny Knowles: I'm not 100% sure, but I think so.
Peter McCormack: For fuck's sake! All right, have you looked much into the political aspect of this? We've seen that Sam had become a big donor to the Democrat party.
Lyn Alden: Yeah, one of the biggest in the country.
Peter McCormack: $40 million.
Danny Knowles: That was just on the midterms. I think he's actually put more in than that.
Peter McCormack: Has he? Have you seen that chart that's come out, the relationships between him, his father and Gensler?
Danny Knowles: No.
Peter McCormack: Oh my God!
Lyn Alden: They all have those MIT relationships, so there were a lot of allegations, but we'll see what comes of it.
Peter McCormack: What do you make of what was happening here with the support of the Democrat Party, the lobbying?
Lyn Alden: Well, so some of it could be ideological, other parts could be that he wanted to find a jurisdiction, he wanted to basically get in on being regulated in such a way, I guess. As lawyers look through this, they'll find chats and maybe they'll learn more. But it clearly was a regulatory arbitrage play; he wanted to use regulation against his competition, while not having regulators go at him very hard, and that's obviously a strategic play, a sketchy one, but that's what he was doing. He was able to buy politicians, he was able to buy celebrities, he was able to basically have good connections with all these regulators. So, it was an emerging threat really on the industry.
Peter McCormack: It's strange how a lot of people have said there were these red flags now, but they got away with it for so long.
Lyn Alden: I mean, there were a number of people, a lot of the Bitcoin maxis, if anything, were the ones pretty critical of this.
Peter McCormack: Actually, Pierre, did you see Pierre's thing?
Lyn Alden: Yeah, Pierre called it.
Peter McCormack: Pierre called it perfectly.
Lyn Alden: He was very aggressive, Cory was very aggressive on it.
Peter McCormack: Like I said, Cory scares me! I've got to make sure I've got all my ducks in a row with Cory!
Danny Knowles: Yeah, this was back in June.
Peter McCormack: Yeah, that's pretty impressive. Okay, we're just going to read this tweet out for anyone listening, "Easiest prediction I'll ever make: (1) Fiat-brained bozos try fractional-reserve banking with Bitcoin and get rekt; (2) SBF fancies himself as a savvy JPM, bails out the bozos (u r here); (3) which only encourages more bad risk-taking; (4) SBF needs a bailout but he can't print Bitcoin". Oh, that's retweeting the Voyager, "This morning, we announced a definitive agreement with Alameda Ventures for a $200 million cash/USDC revolver and a 15,000 BTC revolver". I mean, he's nailed it.
Lyn Alden: Yeah, perfect.
Peter McCormack: So, what do you think is going to come out of this, because this is terrible, it's terrible for a bunch of people, it's terrible for the industry, it puts us back? Let's talk about the regulatory side of things. Do you think this is going to put a bigger spotlight on us? Well, it already is, to be honest, but how do you think things are going to change? Do you think we're going to become more regulated? I know it's not a popular thing to say around these parts, but is that a good thing?
Lyn Alden: I think we can start by defining what "us" is. I think, for example, we don't identify with FTX and that whole contingent. So, the way I would look at it is that there's obviously going to be more scrutiny and more at least attempts at regulation and we'll see what can get through a divided government at this point, but there's going to be more scrutiny. And a lot of these are still -- essentially what they are is unregistered securities. And hidden in this whole week was the SEC, they won a court case against a token about it essentially being a security, and now it's a pretty significant precedent for anything that had an ICO, which was obvious for people that look at the Howey Test; but it's now a legal precedent that pushes that forward.
So, I think there's going to be more securities regulation on exchanges and on issuers, I think is number one. Bitcoin though obviously doesn't pass the Howey Test, it's obviously not a security. Gary Gensler's been very clear on that, and it's petty straightforward. So, the good news for Bitcoin in the long term is that Ponzis built around Bitcoin that have nothing to do with Bitcoin, but they kind of affinity-scam Bitcoin and get a lot of the media and people in the public to equate them all together, it's good for those to die, or be impaired and not be as big as they are; that's a good thing.
But the risk is that regulators going after that stuff can use that as an opportunity to also, where they can, lump Bitcoin into it. So, this is obviously not great for Bitcoin in the near term, because it's been bad for price, obviously. But I think longer term, this is a phase that Bitcoin had to go through, because these Ponzis and these altcoins and these seigniorages have to keep dying for capital to find where it should be.
Peter McCormack: Does it not just push these altcoin projects out of the jurisdiction of the US?
Lyn Alden: So, partially it can do that, but I think multiple jurisdictions now are obviously going to be more in scrutiny of it. I mean, these countries jurisdictional-shop for a reason. And two, the United States can extent that to, it's got a lot of influence with other countries, and it can say, "If you host this, that's going to be a problem with us". So, you can extend your net that way. But also, it's not just the regulatory front; it's that it kills the reputation among these things, among traders and among institutions and things like that.
So the way I've described it is, we've had this 40-year cycle of just lower and lower interest rates and higher and higher valuations and then the crescendo was obviously COVID, lockdowns, print a ton of money with zero interest rates; you kind of hit the crescendo of that bubble. I keep joking, "Famous last words", because I find it hard to believe that there will be a crypto bubble bigger than the one we just saw, because there are so many macro factors together. And then you can't imagine that the regulatory framework's not going to get worse for these types of things. So, it's hard to imagine a bigger bubble, but maybe we'll be laughing about that statement in four or five years, three years.
But this might have been the high watermark for just the sheer volume and sheer scale of some of these scams and fake seigniorage and things like that.
Peter McCormack: By the way, I was surprised that LBRY token was still going. I think that's one of the first shitcoins I bought about four or five years ago! As I remember, was that the one where it was like a YouTube?
Danny Knowles: Yeah, it's like a decentralised YouTube, kind of thing. Not on the blockchain though!
Peter McCormack: Yeah. So what is the impact of them losing that case? Were they fined, but are still able to operate, or are they only allowed to sell LBRY tokens to accredited investors; what's the outcome of that?
Lyn Alden: I've not dived deep into that, but they have to rethink all of their situation, because they're basically blocked from doing what they were doing. But again, I didn't go deep into that one because there was just so much this week.
Peter McCormack: But traditionally with securities, is it a case of if something is a security, you have to be an accredited investor; is it that kind of thing?
Lyn Alden: Well, you don't have to be necessarily an accredited investor, but it means when you -- essentially what securities law is, it's not supposed to really pick what investments have merit, it's meant to enforce proper disclosures. So, if a company goes public it's like, "Okay, what's the board of directors; how much of the security do all the insiders and investors own?" You have to disclose risks and it has to be able to pass a kind of legal merit, and that's a pretty expensive process. So it sets kind of a minimum threshold, you have to be big to go public.
So basically by doing unregistered securities, you go round that whole procedure, and so you can have these opaque tokens, you don't fully know the rules, you don't who owns what, and so that's I think what they're going to increasingly be clamping down on. And essentially, virtually anything that doesn't ICO ends up looking a lot like a security. And then if you didn't use the normal security procedures, that's risky, and there's a couple of phases there. So, some of the ones that got hit early on by using their ICO for American investors, that was obvious, those were the first things you go against.
The second thing you can do is do an ICO, but only for accredited investors or offshore investors. But then you bring the token to an exchange in America, or another country that has securities laws, and you can still sell them to retail that way, even though it wasn't the ICO. That's the part where exchanges are potentially liable.
Peter McCormack: As sellers of unregistered securities?
Lyn Alden: For selling unregistered securities. So, there's different layers here where they've clamped down on some more than others, and so that's where we're at.
Peter McCormack: Okay, so how does this play out, because will the SEC have to take every single token to court or, to set the precedent, put out a warning to all other tokens that they are potentially securities, and to the exchanges to start to self-regulate; how does this tend to work?
Lyn Alden: So, if you set a big precedent, it generally prevents a lot of big entities from doing it in the future. So for example, if you sue someone for selling an ICO to Americans, all these other ICOs are going to think twice and usually not sell to Americans, they're going to sell offshore, or they're going to sell to accredited investors; so, that's one. For example, if you were to sue a large exchange, or even a small -- just basically, if you were to sue an onshore exchange for selling unregistered securities, it would make the other ones quickly re-evaluate the tokens they have on their platform.
The thing that's still in the grey zone is that if a certain thing looks like a security and is probably a security but hasn't officially been called a security --
Peter McCormack: It's probably a duck!
Lyn Alden: Well, basically exchange XYZ can say, "We're selling this asset. We don't know if it's a security or not". I think the biggest counterpoint to the SEC from these exchanges can be, "You've given us no clarity on how to even more forward". There's no real mechanism to apply really to be a security or what you should do. So, the government's almost left it purposely unclear and opaque, and they've used enforcement to go after these things.
I don't want to speak for them, but I think their perspective is, "You have to be proactive". I mean, if it looks like a security, you should assume it's a security; whereas exchanges almost want to do the opposite where if it's not labelled officially a security, they want to almost be, "Well, we don't know, we want to sell it anyway".
I think what could complicate it going forward is that these exchanges might have to be registered with both the SEC and the commodities trading regulators.
Peter McCormack: Right, so the CFTC, what, because of Bitcoin; and then the SEC because of these securities?
Lyn Alden: Essentially, yeah. Bitcoin, maybe Litecoin, things that don't necessarily directly pass the Howey Test. You can have a small number of commodities, digital commodities, and then a very large number of digital currencies, digital securities, and that could be the market that people play in.
Peter McCormack: And is this all part of Gensler's roadmap to get us towards an ETF; does this all play in as part of it?
Lyn Alden: Well, I don't want to speculate on his roadmap but they keep citing exchanges as their reason.
Peter McCormack: Yeah, he wants jurisdiction over them.
Lyn Alden: I think so and it does seem to be obviously a jurisdictional battle between the SEC and commodities. But also, there's been pushback showing that the United States allows that price discovery happens with those futures anyway, and those are already regulated. So it's almost like the SEC's argument there has not necessarily the best merit, but it might be used as a placeholder while they go after whatever else they're going after here. So, it's unclear.
Also, he's only got a certain amount of time to do whatever he's going to do, so we'll know shortly. And now, he's potentially going to be investigated by some of these connections, and I have no clue how that's going to turn out.
Peter McCormack: Is he?
Lyn Alden: There have been some Congress people that have been critical of Gensler and they might pursue something. And again, it could be completely without merit, it could go nowhere, I have no idea; but it's certainly I think going to be a more polarised or more challenging environment for them to navigate.
Peter McCormack: Is there anything else on the regulatory side that we may have to worry about as a result of what's happened here; is there anything else you've looked at?
Lyn Alden: I think the separate thing is using that to go after things that are unrelated. So, someone can be like, "Well, that's why we have to ban Bitcoin mining", you know what I mean; something that had nothing to do with it, especially because we're also seeing Bitcoin mining bankruptcies, which that's got obviously less legal issues, because they did something, they over-extended. Most of them are registered securities, these are publicly traded companies, some of them are private. They messed up or they were hit by the industry, they go down and then combine that with the energy FUD potentially and they say, "Well, we have to go after Bitcoin too".
Peter McCormack: Are you even surprised with those, with these miners, the stupidity of some of the ways they've over-leveraged themselves by using their equipment as collateral at their highest prices? Do you blame the miners, or do you blame the people providing the capital?
Lyn Alden: Well, I think it's obviously a new industry so it's going to be prone to these problems. I always would generally put it more on the borrower side. They're the ones that generally are suffering the most from this, and they are the ones that in some cases are going bankrupt because of this. I think like a lot of us, they probably thought that Bitcoin would go higher before this bull market ended, maybe it wouldn't go as low as it did now, they wouldn't expect rates to be risen to 4% this year. So, the macro headwinds I think are a lot harder on them than anyone expected.
Then another challenge, CapEx comes up with a lag. So, China bans mining, hashrate collapses, machine comes to the US, building out data centres, and just tons of capital went into ordering ASICs, building things, and that happens with a lag. So, what's challenging for miners right now is that even as the price is collapsed, hashrate is near all-time highs, because decisions made a year or two ago, are now coming to fruition, so it's really rough for all the existing miners, particularly ones with leverage; because, if they don't have leverage, they can shut down their highest-cost operations. It's painful, but they can muddle through, they can pause operations. You still pay, you're using real estate, you have some sort of fixed expenses, but if you're a very lean, tight operation, you can get through it; whereas, if you use a substantial amount of leverage, that's when you're super-vulnerable.
Peter McCormack: So, do you think we need to be a little bit more toxic bitcoiners?
Lyn Alden: I think you definitely want to call out things when you see them, and people have different things they're good at calling out. So, I think people should focus on calling out what they're pretty sure is a problem.
Peter McCormack: What do you think is a problem now; what is left?! You can call me out if you want!
Lyn Alden: Well, I'm critical of DeFi in general because for one, I'm critical about the situation where something claims to be a decentralised commodity and is clearly more like a security, where you've raised capital and you promise a roadmap and your developers are then trying to do that roadmap to increase the value of the token. So, there's obviously a lot of obfuscation around that. I think another thing that has to be kept calling out is that DeFi is not as decentralised as it claims to be because it is heavily based on custodial assets.
So, you can build a pseudo decentralised DEX, you can build a pseudo decentralised liquidity provider but if you're using centralised stablecoins that have the option to blacklist, you know, freeze addresses and you're using wrapped Bitcoin, for example, they can freeze addresses, they can do KYC, they can lose their keys and go insolvent or secret leverage themselves, it's like this apparatus of seemingly decentralised activity built around what is, in many cases, a centralised foundation, which is obfuscation.
Peter McCormack: All right, Lyn, well that's all very useful, but I can't let you leave without giving us a bit of a macro outlook. Everything seems to have quietened down a bit and I can't tell if that's because we've been away and we've been distracted, the FTX thing has distracted us; it feels like the scariest headlines, we've gone through some of the scariest headlines, some of the scariest predictions, but I don't know if I've just not seen it. I know you're looking at this all the time, I haven't read your newsletter this month, I'm really sorry; what's going on?
Lyn Alden: So, there is some good news temporarily in the macro front --
Peter McCormack: Yes! We're all going to be rich again!
Lyn Alden: No, we'll see here! So basically, the latest official inflation print came in a little bit below expectations.
Peter McCormack: Okay, so what was expectations?
Lyn Alden: I don't have the numbers in my head right now.
Peter McCormack: Okay. They came in at 7.7%, was it?
Lyn Alden: Yeah, it was something like 7.9%, the expectation, or something on that order. So again, there are macro nerds that are like, "It's 0.2% different".
Danny Knowles: It says here that the consensus was 8% and it came in at 7.7%.
Peter McCormack: Oh, wow. Scroll up, Danny?
Lyn Alden: Yeah, so basically we have inflation coming down. Actually, if you see in the top there, you can click down like five years or something. So basically, what we're seeing is that there's a local high in year-over-year inflation and it's still at a very high level, but it's now going down rather than up.
Peter McCormack: Okay. Can you just go a bit longer; can you go 10-year, Danny? 25-year? Max? Oh, so we've had crazy other times.
Lyn Alden: Yes.
Peter McCormack: But even with what's happening at the moment, the trend --
Lyn Alden: One thing I'll point out though, the measurement has changed over time, and if you use some of those older ways of measuring it, this spike would have been on par with at least some of those 1970s spikes.
Peter McCormack: Okay, so it could have been 10%, 15%?
Lyn Alden: Yeah, I would say at least low double digits, if you measure it the old way.
Peter McCormack: What's kind of interesting, looking at all these previous spikes, most of them once they've reversed, they continue to reverse; do you see what I mean? So, anyone listening, we're looking at the previous spikes of inflation in the 1940s, 1950s, 1970s, 1980s. Do you see what I mean though? Once they've reversed course, they continue to reverse course.
Lyn Alden: Generally, at least for a while, until you get another spike, that's the thing.
Peter McCormack: Yeah, but what I'm saying is on the way up, there don't seem to be any times when the inflation's gone up, it's dropped and then carried on going up; they've almost always reversed course.
Lyn Alden: Yes.
Peter McCormack: Hopefully. Okay, so do you think we might have peaked on inflation?
Lyn Alden: We've actually talked about this in prior macro discussions, where I think we're entering a disinflationary period within a bigger inflationary trend. And using those prior examples, you would see this both the 1940s and 1970s had multiple inflation spikes, and I think we're probably going to have something like that happen again.
Peter McCormack: So, we're going to yo-yo around a bit?
Lyn Alden: I think so.
Danny Knowles: Maybe I got rid of this too soon. Like here?
Lyn Alden: Yeah, in the 1940s, you had three different inflation spikes. And in the 1970s, well, the late 1960s, you had two big inflation spikes and you also had that smaller initial spike. So, you basically had three; they kind of come in threes.
Peter McCormack: And is that because you think what will happen is once inflation drops, they will have to reduce interest rates, and then they will do more quantitative easing, and then we'll see --
Lyn Alden: I think that's part of it, but I think another big aspect is deglobalisation, and then especially energy. So, we are seeing outright disinflation in things like shipping costs and some of these supply chain bottlenecks, things like that. What's still sticky is things like labour inflation, which if anything is a good type of inflation; it means wages are going up. Obviously, you want those to go up faster than, say, corporate profits, but it's not how it often works.
The thing that's still really stick obviously is energy. Europe's got their unique situation, but the more structural problem is that there's been an underinvestment in new energy, both the production of oil and gas, like enough production, as well as infrastructure, pipelines, ships, ports to get that to where it needs to be. That's something that I think can drive the second wave, along with a shift in monetary policy when you, say, enter a recession for example; weaker dollar, something like that, that can give you potentially the second wave.
So, most of those prior multiple inflation periods, they generally end after you have a significant CapEx cycle. So, in the 1970s, for example, they fixed a lot of those issues, at least politically, the end of the oil embargos, things like that, get the oil flowing again. And then you enter this period where you've essentially done the supply side improvement. So, what we're doing now is the Fed is tightening policy, which over time cases some degree of demand destruction so fewer people buy homes, fewer people sell homes, so some of those people that work in that industry get fired, less energy and materials go towards construction.
We're seeing a lot of tech layoffs, because a lot of these companies, a lot of their growth rates were based on super-low interest rates and very high equity valuations, and you paid the employees very high equity valuations so you can keep prices low and you can grow very fast. And now they actually have a cost of capital, your equity valuation's much lower, so you actually have to raise prices to pay your employees better, which then means you grow slower, which then results in even lower equity valuations. So, you kind of enter a doom loop until you find what is actually not malinvestment. So, we're seeing a lot of tech layoffs.
Peter McCormack: That's a good thing then?
Lyn Alden: Yes, but it's rough while it happens. So, that had to be done, but now we're basically in a slowing economy with demand destruction. Then we've also had things like the US Government's been selling down their strategic petroleum reserve for likely political reasons. Then you have China has been in this going on three years now of rolling lockdowns, which reduces their fuel consumption. If you look at the number of flights, for example, it continues to be below baseline, even as some other countries have recovered. So, all else being equal, there's less fuel usage.
That combination has kept somewhat of a lid on global oil prices. The risk is when you stop drilling down the strategic petroleum reserve, and if you do ease monetary policy. Whenever you try to get out of the next recession that we're in, oil's still under-supplied, and that's where I think you get the next inflation spike.
Peter McCormack: Well, the interesting thing is, Diesel is still £1.90 in the UK. I mean, it's still very expensive.
Lyn Alden: So, even in the US, we have a much less severe energy problem, we do have diesel shortages. And then specifically, our New England area looks a lot like Europe, because what they did was, they didn't want to build pipelines, they wanted to go green and all that; they didn't want to build pipelines. But actually, some of our biggest gas fields are in the Northeast. Everybody thinks it's Texas, but for natural gas specifically, out there in Pennsylvania, we have these really big gas fields. It's very close to New England, you can just build a couple of short pipelines. And there's a dearth of pipelines that should go from A to B; they don't.
So, what happens is, in New England, the demand is still there. They still want electricity and they still want heat. So, what happens instead is they have to buy LNG, which you're taking the same natural gas and you're freezing it and you're shipping it and then unfreezing it, so it's more expensive, it's more environmentally damaging, and of course now with Europe trying to buy as much LNG as they can, that puts pressure on gold prices.
Then there's laws like, I don't think they can even buy their own American LNG, they have to buy from someone else, like another country's LNG. So, that's number one, is they use the same product, but more expensive and less environmentally friendly. And two, they fall back to burning oil for electricity, which is not ideal. It's both dirtier and generally more expensive. And so you end up ironically having a worse environmental impact, because you just didn't do the maths, you didn't have the technology to front run your policy. You tried to front run the technology with policy.
So, we're kind of having a mini-Europe potential happening in New England, but we'll see. So far, it's not there yet, but the United States does have some diesel shortages and things like that.
Peter McCormack: Yeah. I'll tell you who's a good writer about that, Danny, is I signed up to Doomberg's email.
Lyn Alden: Yeah, he covers it great.
Peter McCormack: Yeah, he's incredible. He was explaining to me all of this and I was thinking, "Why is there no logic within the policymakers to consider this?"
Lyn Alden: It's almost like no one's in charge. The people you assume thought this through, no.
Peter McCormack: They weren't there.
Lyn Alden: And so, everyone's got these short-term election cycles, everyone's in their own vested interest, everyone drinks the same Kool-Aid, and of course there is a difference between actual environmentalism. And sometimes you see environmental policies ironically cause bad environmental outcomes. Like Europe says, "Okay, biomass is ESG-friendly", so then they go and cut down old-growth forests and use that wood, and it's like, "Under what context could that possibly be environmentally friendly?" It's obviously a bad carbon sink, it's bad for biodiversity. It's not the same as cutting down wood that you can grow trees and then cut them down and keep them, you have this managed lumber forest. That's different than going out and cutting down just biodiverse, old-growth forest that take a very, very long time to regain that state.
Peter McCormack: So, you said we've had some good news in that we've had a lower CPI print?
Lyn Alden: Yes.
Peter McCormack: What comes off the back of that that makes things more positive?
Lyn Alden: So, what's come off the back of that is forward expectations of how aggressive the Fed's going to be, like how hawkish they're going to be, have subsided a little bit. Basically, the projections for how high or how quickly they're going to raise rates are going to start to moderate, as long as that inflation print goes down. And then by extension, that generally makes the dollar weaker. So, the dollar's been soaring all year compared to most currencies, not the rouble and Brazilian real, but compared to most currencies the dollar's been going very strong. We've talked about this on prior shows, where a lot of countries and international corporations --
Peter McCormack: Front running.
Lyn Alden: Well, they'll have dollar-denominated debts.
Peter McCormack: Oh, yeah.
Lyn Alden: And if your liabilities are hardening compared to your cashflows, it's a solvency problem. So, a lot of them then sell treasuries and that drives up yields higher, and you create a doom loop. So, you start to get a lower inflation print and lower expectations of forward-fed hawkishness. That can make the dollar then weaken, because now you have a lower forward projection of the difference in interest rates between, say, the United States and Europe and Japan. Whatever number that was a week ago is now a little bit lower. And therefore, the dollar that was screaming higher can roll over a little bit.
The question is how persistent this is. Does that inflation print keep falling for a while? But like I said, the problem is a lot of it's artificial because we haven't… When people say they don't want inflation, what they generally mean is they want growth that is disinflationary. They want to keep growing without the inflation. That means fixing the supply side; that means having more energy, more cheap energy, better supply chains, better manufacturing, whatever the bottlenecks may be. And in this case, instead we're going, "Well, we're not doing anything about the supply side, so we're going to try to rein in demand". Basically, it's like you're causing recession, or near recession. We'll see; I think it's by 2023, recession is probably likely, but these things are always not fully clear, to quell inflation.
Then you have to think ahead and say, "Okay, what's the second-order step?" When you're in a recession, what do you do? Then you loosen a little bit at least and then the question is, "Well, if you still haven't made more energy and more energy infrastructure, what's the next step?" and I think that's when you get again --
Peter McCormack: So, we need more abundance of energy?
Lyn Alden: Yes. And the other issues we've had, especially in the past, so in the 1980s, China started to open up to the world. Basically, there was a lot of capital -- because, a lot of the inflation in the 1970s, for example, there were a lot of reasons for it. It was demand-driven, the baby-boomers were buying their first houses, you didn't have a lot of globalisation so it was resulting in wage pressures building, and then you also had the oil embargo. So, you had an energy shortage, labour shortage and a lot of demand.
One way they broke that, in addition to just essentially putting the economy through a recession, like Volcker, you also turned to globalisation and said, "Well, we're going to break all these unions, we're going to suppress these wages, we're going to get Mexican labour, we're going to get Chinese labour, we're going to do all this". So, basically you have a situation where because of various Iron Curtains, you had impoverished labour ready to work and large pools of capital that want cheap labour. So for decades --
Peter McCormack: Boom!
Lyn Alden: Yeah, you basically said okay, and some people benefit, some people get harmed by that, it depends where you are in the stack. Even in certain countries, you can be hurt or harmed by this. And the problem is, we've kind of tapped into all that. So, once China became a significant rising power, one is their demographics are peaking, so just naturally they're already going to be less able to continue to be a cheap supplier at the same increasing rate they have been; and there's also of course geopolitical tensions.
Also, part of the globalisation was in the fall of the Soviet Union in the early 1990s, so you had a ramp-up in their energy production with more capitalist, or at least crony-capitalist, but still basically more competent capital running some of these energy companies able to increase output significantly. And so, United States benefited from cheap Chinese goods; Europe did too, to a somewhat lesser degree, but then they also benefited from all that cheap Russian energy.
So now, with Russia's production potentially not going to keep going up at the rate it has, with their infrastructure now damaged and/or shut off, depending on which pipeline you're looking at, they can't just magically snap their fingers and put all that gas in China. So, some of that has trouble until they build more LNG, until they build more pipelines; Europe has to build more pipelines and LNG.
Peter McCormack: Nuclear.
Lyn Alden: Yeah, it's rough. And so all of that is now deglobalisation, and so I think we are entering probably a decade, and we've seen now some of it, of periods of either more scarcity or higher prices, sometimes at the same time, sometimes they're almost like a trade-off, where if you try to control prices, then you can get more scarcity; if you don't try to control prices, you might have what you want, but you might have to pay a lot for it. So, I think it's going to be an up-and-down period.
Peter McCormack: A wild decade.
Lyn Alden: Yes.
Peter McCormack: All right, well listen, thanks, Lyn.
Danny Knowles: One more crazy FTX thing that I've just seen.
Peter McCormack: Oh, Danny said it would happen, sorry, "If you have a bank account linked to FTX US, change your bank account password and stop sharing data immediately. Below is a screenshot of my bank account which they tried accessing 40 minutes ago". What?
Danny Knowles: I mean, I don't know if that's data or they're looking for data, but that's wild.
Lyn Alden: I'm sure that no watchers of this fine podcast would have an account at FTX, would they?
Peter McCormack: I have no idea. Yes, they will do, sadly!
Lyn Alden: I think it's a good time to shout out basically, to the extent that you work with counterparties, make sure that you trust the counterparties that they have high integrity. And two, I think it's a good reminder that if you haven't learnt how to self-custody your Bitcoin, there's sole custody, and then there's also, for example, you can do collaborative multisig custody, and there are various ways, depending on how technical you want to get, to self-custody some or all of your Bitcoin.
Peter McCormack: Lyn, thank you, you're amazing. I'm not sure when I'm going to see you next. When are we doing?
Lyn Alden: We'll find out.
Peter McCormack: It will be in the New Year some time.
Danny Knowles: Yeah.
Lyn Alden: We'll sort it out.
Peter McCormack: Thank you.
Lyn Alden: Yeah, thanks for having me.
