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The Wolf Den #619 - Sitting On The Sidelines While Markets Soar

November 11 · Issue #619 · View online
The Wolf Den Crypto Newsletter
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In This Issue:
  1. Sitting On The Sidelines While Markets Soar
  2. Bitcoin Thoughts And Analysis
  3. Legacy Markets
  4. SBF Apologizes, Lies
  5. Did Alameda Short Tether?
  6. Sequoia Marks Down Investment In FTX To Zero
  7. My Recommended Platforms And Tools
Sitting On The Sidelines While Markets Soar
I have argued that crypto became untethered from global markets a few months ago, which is supported by data. That meant that Bitcoin was trading sideways while all hell broke loose around the world.
Not correlated in the short term.
Most crypto investors were not buying into the lack of correlation and were still waiting for clearer evidence. We got that evidence in spades, when crypto dropped massively on news that FTX was insolvent.
Not the decoupling that we were looking for.
To make matters worse, CPI came in cold, the dollar went cliff diving and markets had a historic day.
Yes, crypto went up. But if we had not had a black swan event, it is almost certain that Bitcoin would be around $23-$25K, with Ethereum over $2K. Markets correlate on big moves down and big moves up. Crypto would have certainly benefited from the orgy of buying that occurred yesterday.
It is one thing to discuss a lack of correlation in price action, but the real divergence is in sentiment. The vibe is that equity markets might be sniffing out a bottom. Things are improving.
The feeling in crypto could not be more diametrically opposed.
I am seeing OG crypto advocates who have been here for decades talking about quitting and moving on. Yes, these are typically bottom signals. But still, the level of capitulation is astounding. Companies are going out of business. Regulators are getting ready to drop the hammer. Our heroes are having their Harvey Dent moments.
“You either die a hero, or you live long enough to see yourself become the villain.” 
It’s seemingly all bad news.
We are all sick of it.
So let’s talk about the “good” news.
CPI dropped dramatically from 8.2% in September to 7.7% in October. The print beat expectations for the month by .2%. Americans rejoiced and markets soared, but I’m not convinced that we are at a turning point yet.
It’s a good start.
Nearly all price measures increased over a 12-month period but decreased from the previous month to now. This is the first sign of progress. In light of this turnaround, Fed funds futures have now priced in the odds of a half-point increase at the next meeting to 80%.
That’s what everyone was already expecting. 75 in November, then 50, 25, 25 in the coming three meetings.
The S&P, NASDAQ, and DOW jumped 5.5%, 7.3%, and 3.7% respectively. It seems like an overreaction with investors looking for any excuse to pump markets. I remain skeptical but will take whatever I can get.
Powell is likely unhappy that markets soared when inflation is still a serious problem and has only marginally improved. Remember, their goal is to crush demand and “break something” before pivoting.
There is always a lag between monetary policy and inflation, which probably means that we are at least approaching a turning point. That’s great. But the lag goes both ways. If the Fed continues to hike without recognizing that the turnaround is happening, then they are still liable to break something.
A recession is still in the cards.
Remember, the decision to raise rates is the easy part for the Fed. The hard part is knowing when to stop. It is a game of inches. They need to perfectly thread the needle. Time is of the essence and the Fed will likely choose to be safe over being sorry. And even if inflation does start to reliably improve, then one small miss is liable to send it all down in flames again. The market moves based on the result vs. the expectation, not the actual reality. If the market reacts well to beating expectations, then it can turn back around on a negative miss.
The 2% finish line is still a distant goal, so expect the roller coaster to continue.
I hope you packed your Dramamine.
I attempted to write this intro about something other than FTX (somewhat failed), only to discover last night that BlockFi is potentially next on the list of collapsing platforms. I’m far too mentally exhausted to extensively cover this story, so I will share their official statement below.
It is no surprise to anyone that BlockFi was next to go. They have narrowly avoided disaster a number of times, most recently by receiving a $400M bailout from… FTX.
And remember when I reported, just yesterday, that Genesis trading was able to avoid exposure to FTX, only losing $7M? Well, they also have $175M stuck on FTX.
Genesis Trading reveals $175M of funds are locked in FTX
The contagion will continue to spread.
Bitcoin Thoughts And Analysis
$17,592. I mentioned this key level yesterday. It was the June low, also the 2022 low before we had the recent breakdown. That is now the key resistance. And that’s basically where price was rejected at the close yesterday and in trading today.
I would LOVE to see a weekly close above that line, holding support. We have work to do.
Legacy Markets
Stock Market Today: Dow, S&P Live Updates for Nov. 11 - Bloomberg
“US index futures and European stocks rallied as the euphoria over falling inflation in the world’s largest economy extended into a second day and China relaxed some Covid restrictions.
Risk sentiment has come back roaring into global markets after a sharper-than-forecast drop in US inflation improved the prospects of a dovish tilt by the Federal Reserve. However, some money managers warn that such expectations are misplaced as the central bank won’t consider its job done until inflation reaches its target of 2%, far below the October level of 7.7%.
“The Fed will want to see several consecutive months of tamer inflation before considering a pivot to a more dovish posture,” Mark Haefele, the chief investment officer of UBS Global Wealth Management, wrote in a note. “Services inflation remains a worry. The Fed needs to see signs of a cooling labor market.”
Some of the main moves in markets:
  • The Stoxx Europe 600 rose 0.2% as of 10:35 a.m. London time
  • Futures on the S&P 500 rose 0.4%
  • Futures on the Nasdaq 100 rose 0.6%
  • Futures on the Dow Jones Industrial Average rose 0.4%
  • The MSCI Asia Pacific Index rose 5.1%
  • The MSCI Emerging Markets Index rose 4.8%
  • The Bloomberg Dollar Spot Index fell 0.8%
  • The euro rose 0.6% to $1.0269
  • The Japanese yen rose 1.2% to 139.30 per dollar
  • The offshore yuan rose 0.5% to 7.1162 per dollar
  • The British pound rose 0.3% to $1.1748
  • Bitcoin fell 3.2% to $17,245.67
  • Ether fell 4.2% to $1,265.53
  • Germany’s 10-year yield advanced five basis points to 2.05%
  • Britain’s 10-year yield advanced two basis points to 3.31%
  • Brent crude rose 3.1% to $96.53 a barrel
  • Spot gold rose 0.5% to $1,764.31 an ounce”
The dollar is finally rolling over, collapsing and sending global market flying… and right when we get hit with a black swan in crypto. There’s something poetic about this, in the same way there is something poetic about death metal.
I am still watching the 103.8 area, where I drew a circle a while back. We will see.
SBF Apologizes, Lies
1) I'm sorry. That's the biggest thing.

I fucked up, and should have done better.
In case you missed it, SBF has apologized to the community. He shared a few important pieces of information.
First, according to Sam, FTX.US is in good standing and all users are fine.
It took a matter of hours to prove that this is likely not true. They have posted a warning that trading activities will likely cease “in a few days.”
Second, somehow Sam believed the liquidity FTX could deliver was far higher than it actually was. This makes absolutely no sense. If it is untrue, it’s criminal. If it is true, it’s insane negligence.
His words:
“A poor internal labeling of bank-related accounts meant that I was substantially off on my sense of users’ margin. I thought it was way lower.
My sense before:
Leverage: 0x
USD liquidity ready to deliver: 24x average daily withdrawals
Leverage: 1.7x
Liquidity: 0.8x Sunday’s withdrawals
Because, of course, when it rains, it pours. We saw roughly $5b of withdrawals on Sunday–the largest by a huge margin.”
This is about as “WTF” a moment as we can possibly have, a glimpse into just how utterly poor the operations were at FTX.
FTT tanking plays a huge role in the issue, along with outstanding loans. But give me a break.
Third, FTX claims to be doing all they can to raise money and get liquid. Forgive my pessimism, but the odds are slim to none, and slim just walked out the door. I hope that I am wrong, but the reported hole in the balance sheet continues to grow. FTX had $16B in customer assets. The last estimate I saw showed a $10B hole, as a result of incestuous loans to Alameda Research. Alameda likely lost it all.
Nothing Sam says can be taken at face value. It was a direct violation of their user agreement to lend customer funds in the first place.
FTX Violated Its Own Terms of Service and Misused User Funds, Lawyers Say
Regardless of whether it as a bank error, an oversight or a huge mistake, FTX should have NEVER had commingled user funds and should have NEVER loaned them to Alameda.
What a mess.
Did Alameda Short Tether?
Alameda appeared to have shorted Tether, as the stablecoin briefly fell off peg - MarketWatch
While SBF says that Alameda is winding down, on-chain evidence shows that they are actively shorting Tether. They either know something we don’t or are trying to spook the market to make a quick buck.
A Tether collapse would be astronomically bad for the market, but no viable reason to believe that this will happen. Painting Tether as the bad guy is a strategy as old as… Tether.
Nevertheless, it’s definitely strange to see Alameda make this move. We do know that all bets are off at the moment, but we do not have evidence that this is anything other than a desperate attempt to make back a little bit of money.
Sequoia Marks Down Investment In FTX To Zero
Sequoia Capital marks down its FTX investment to $0
This is a sign of just how bad things are.
Sequoia invested roughly $213M in FTX, which they are now officially marking down to 0. They believe it is worth nothing and are likely angling for a nice tax break.
Galaxy is reportedly doing the same.
Crypto Is Destroyed | FTX Failure Will Be Catastrophic
Podcast - The Wolf of All Streets
Crypto Is Destroyed | FTX Failure Will Be Catastrophic
This week’s crypto team A: Caitlin Long (Custodia Bank), Mike Alfred (Iris Energy), and David Duong (Coinbase).
In this video, we discussed:
  • Caitlin Long: do not mess with leverage
  • Mike Alfred: contagion will continue
  • Mike Alfred: Binance behavior is suspicious
  • Regulators pushed crypto offshore
  • Overcollateralization does not work
  • FTX is a major blow to trust
  • Caitlin Long: I love bear markets
  • David Duong: we still need on-ramp/off-ramp
  • Should we bail out FTX
  • SBF didn’t know what blockchain was when he started trading crypto
  • Twitter pivots to the payments business
  • Mike Alfred: we need a banking-grade regulatory approach
  • Caitlin Long: I did not want to be associated with FTX
  • This can be a very tough bankruptcy
  • Su Zhu is surfing, while he is supposed to be in jail
  • Can FTX close the $8 billion hole?
  • Solvency and liquidity are basically the same things
  • The rise of Justin Sun
  • The ideal scenario for crypto
  • Bitcoin will survive
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to “Buy,” “Sell,” or “Hold” an investment.
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