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November 16, 2022

🥛The FTX Contagion Is Spreading 👀

GM. This is the Milk Road. The daily crypto newsletter that makes you think, laugh, and (sometimes) cry all in 5 minutes or less.

Let's get caught up on the latest FTX drama. 

It's official. The FTX series is longer than Fast & Furious. Sorry, Vin.

#1: FTX CONTAGION SPREADS

The FTX contagion is spreading fast.

The latest victim? Genesis. 

It's a crypto trading company that's owned by Digital Currency Group (DCG).

Genesis isn't small potatoes either. They're the Super-Size-Me from Mcdonald's.

They had $2.8b in total active loans at the end of Q3 2022.

And last night Genesis hit their customers with a "hey. u up? can we talk?" text.

You know you're in trouble when you get that late-night message. 

And this morning Genesis dropped the truth bomb. They held a conference call with investors to tell them they have paused withdrawals and stopped initiating any new loans. 

Funny how things can change in a week…

Last week: Genesis said they had "no material net credit exposure" to FTX

This week: They hired advisors and are 'exploring all possible best options'.

Why should you care? 

  • DCG owns CoinDesk, Foundry, Luno, and Grayscale 

  • Grayscale has 17 crypto ETFs and is one of the largest holders of Bitcoin (own ~$11b worth)

  • Jason Yanowitz from Blockworks says that almost every big whale gives big money to Genesis

  • They are at the center of crypto. They custody funds and help institutions earn yield

Call it trust issues, but I'm getting my money off all these lending/borrowing platforms right after hitting send on this email.

P.S – It's being reported that Binance might be looking to buy out Genesis' portfolio. CZ looking for Black Friday discounts. 

P.P.S – Gemini might be next. There are reports that the main sites have been down this morning and users haven't been able to withdraw funds.

#2: MORE QUESTIONS SURROUNDING FTX'S BALANCE SHEET

Yesterday, Samuel tweeted out where FTXs balance sheet stands today:

  • Liquid: -$8b

  • Semi: +$5.5b

  • Illiquid: +$3.5b

We tried googling "semi-liquid" and nothing popped up…

Before we spent time analyzing the FTX balance sheet, our good friend Matt Levine dropped a 5,000-word piece on it.

Here’s the best from Matt’s piece:

  • There was a negative $8b entry described as a “hidden, poorly internally labeled ‘fiat@’ account”

  • An obscure $7m holding called “TRUMPLOSE”

  • FTXs two largest holdings were $5.9b of $FTT (market cap of $500m) and $2.5b of $SRM (market cap of $65m). Aka illiquid tokens

Not only were both of these tokens illiquid, but they were both issued by FTX. Matt puts it best here…

#3: LEAKED TERM SHEET AND MR. WONDERFUL IS IN

The term sheet FTX was sending potential investors over the weekend leaked…

Samuel and co. were asking for $6b-$10b.

And they created something called the “All Together (AT)” set where investors can pool their money together to reach $6b. 

Gotta respect the creativity. 

And hey, Sam, you already got one investor.

Mr. Wonderful from Shark Tank says that he would invest in Samuel again calling him, "one of the most brilliant traders in the crypto universe."

Brilliant = bankrupt. What a world we live in.

#4: DAVE PORTNOY & SAMUEL INTERVIEW COMING SOON?

I know I'd watch.

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MILKY MEMES TO MAKE IT ALL BETTER

Enough bad news. Let's wash it all down with some Milky Memes.

And the cherry on top? An AI-generated picture of Samuel getting arrested in the Bahamas. 

That's a wrap for today. Stay thirsty & see ya tomorrow!

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DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.