Friday was quite a day. The crypto lender BlockFi provisionally agreed a bailout deal with FTX . The hedge fund Three Arrows Capital (3AC), already in compulsory liquidation in its home territory the British Virgin Islands, filed for Chapter 15 bankruptcy protection in the United States. And the crypto broker Voyager suspended trading and withdrawals . Voyager's press release revealed a massive hole in its balance sheet. Some 58% of its loan book consists of loans to 3AC: And its loan book is nearly 50% of total assets: So approximately 28% of Voyager's assets are in default. And since 3AC now has creditor protection, Voyager must wait for bankruptcy courts to decide how much, if anything, can be recovered. That will take months. But the balance sheet hole doesn't explain why Voyager has suspended US dollar withdrawals. Despite its apparently healthy "cash held for customers" balance, it seems to be dreadfully short of cash. There is something else going on he
Why did the Bank of England intervene in the gilt market this week? The answer that has been doing the rounds is that it was protecting the solvency of pension funds. But this doesn't make sense to me. The Bank doesn't have any mandate to prevent pension funds going bust. And anyway, the type of pension fund that got into trouble isn't at meaningful risk of insolvency. There was never any risk to people's pensions. I don't think the Bank was concerned about pension funds at all. I think it had a totally different type of financial institution in its sights. Let's recap the sequence of events from a market perspective. This was, on the face of it, a classic market freeze. Pension funds sold assets, mainly long-dated gilts, to raise cash to meet margin calls on interest rate swaps (of which more shortly). The sudden influx of long gilts on to a market already spooked by an extremely foolish government policy announcement caused their price to crash. I am told th
How did it all go so wrong, so quickly? Less than a month ago, Sam Bankman-Fried was the golden boy of crypto, with a net worth in the $billions, and his exchange FTX was valued at $32bn. Now, FTX has a gaping hole in its balance sheet, thousands of people have lost their money, and Sam is facing personal bankruptcy and, potentially, fraud charges. The short answer is - it didn't. The hole in FTX's balance sheet has existed for a long time. We don't know exactly how long, but the size of the estimates (ranging from $6-$10 billion) suggests several months if not years. Sam has been trading while insolvent. He's not the only crypto oligarch to do so: Celsius's Mashinsky also traded while insolvent for an extended period of time. Trading while insolvent is illegal, of course. But in cryptoland scant attention is paid to such niceties. It is (or would like to be) a lawless, self-regulating space in which conventional courts and regulators have no place. And anyway, th
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