| | | | | | | Presented By Equitybee | | | | Axios Markets | | By Emily Peck and Matt Phillips · Nov 28, 2022 | | Welcome back. There's a long week ahead. "Gaslighting" is the word of the year, per Merriam-Webster. Friday we'll get fresh jobs data. 🚨 Situational awareness: Public outrage over COVID lockdowns is fueling rare protests in China. Oil and stock markets are already reacting. Today's newsletter — 100% gaslighting free — is 1,077 words, 4 minutes. | | | | | | 1 big thing: Leverage means contagion |  | | | Illustration: Allie Carl/Axios | | | | The financialization of crypto made it vulnerable to the kind of contagion we're now seeing, Axios' Felix Salmon writes. Why it matters: The big change in crypto between 2018 and today is the introduction of large-scale lending to the sector. And with lending comes a new kind of risk — counterparty risk — that crypto still hasn't found a good way of dealing with. The big picture: Crypto is notoriously cyclical — the price of bitcoin plunged 70% in 2011, 83% in 2013, and 84% in 2018. Those drawdowns were all relatively harmless, however, in comparison to the leverage-induced carnage being wrought during the current crypto winter. - Part of that is just because the amount of money at stake was much smaller back then. But another big part of it is that crypto wasn't really financialized then — there was almost zero lending, shorting, and the like.
How it works: At the heart of the crypto project is a technological feat: The ability to create digital objects that exist only in one place and can't be copied. If I send you a bitcoin, I can't send that same bitcoin to someone else. - As a result, if I own a bitcoin, that bitcoin can go down in value, or even be stolen, but those losses are mine alone.
State of play: Crypto lending changes the dynamic. Companies like Celsius Network and FTX — both now in bankruptcy — paid interest on crypto deposits, and lent out crypto assets to borrowers. - Instead of one person owning a simple asset of one coin, a depositor is owed a coin by the exchange. The borrower owns the coin, and the exchange is owed money from the borrower while also owing money to the depositor.
- Effectively, an asset of one coin has become an asset of one coin (in the hands of the borrower) plus two liabilities of one coin (at the borrower and the exchange) plus two receivables of one coin (at the exchange and the depositor).
- There are now three assets worth 1 bitcoin. If the actual coin is lost and the borrower defaults, then the borrower and the exchange and possibly even the depositor can all lend up losing 1 bitcoin.
What's happening: Crypto losses have rippled across companies that engaged in such borrowing and lending activity, from Luna to 3 Arrows Capital to Celsius to Voyager Digital to Alameda Research to FTX to Genesis to Gemini. - None of them adequately managed their counterparty risk — the risk that the trading venue you're dealing with will go bust and not be able to pay you what you're owed.
- In traditional finance, central banks can step in to prevent such contagion. In crypto, however, there are no such macroprudential overseers.
💭 Our thought bubble, via Axios' Kate Marino: Levering crypto is the most human thing ever. Any time something's created for a functional financial purpose — like stock, bonds, oil contracts, houses, you name it — there will always be people who engineer derivations of those things purely to make money. The bottom line: Perhaps the leverage, and the subsequent contagion, was inevitable and foreordained. |     | | | | | | 2. Catch up quick | | 🏠 "Collapse" in home prices is coming, experts say. (Axios) ✨ Fed chair Jerome Powell expected to set stage for lower rate hikes at Brookings event. (Bloomberg) 🇧🇸 Bahamian AG defends the island nation's actions during FTX's fall. (WSJ) | | | | | | | | 3. Jobs disconnect |  U.S. workers aren't too worried about their job security, Kate writes. Why it matters: Despite all the headlines (including ours!) chronicling the wave of layoffs hitting the tech industry, most Americans work in other sectors and still feel pretty good. State of play: Across all income groups, the share of U.S. adults who fear they could lose their job in the next month ticked down during November — and is sitting near series low points, according to polling for the Morning Consult/Axios Inequality Index dating back to May 2020. Yes, but: When Americans put their consumer hats on, they're less optimistic. Consumer sentiment is also near series lows. - That disconnect has been playing out all year — Axios' Neil Irwin wrote about it back in February.
The bottom line: "Despite consumers being pessimistic, economists being pessimistic, and the Federal Reserve intentionally reducing demand — workers remain very optimistic," says Jesse Wheeler, economic analyst at Morning Consult. | | | | | | | | A message from Equitybee | | Unlock access to high-growth startups | | |  | | | | Equitybee gives accredited investors access to VC-backed startups at past valuations by funding employee stock options. Get started! Investments are speculative, illiquid, contain risk of 100% loss; do not grant ownership of stock. Securities offered by EquityBee Securities, member FINRA. | | | | | | 4. SBF's "underdressed genius" look |  | | | Sam Bankman-Fried in a video interview with Bloomberg. Photo: Jeenah Moon/Getty Images | | | | "I think it's fair to say that in the thousands of female founders we've met, there's not a single one who has ever dressed like Sam Bankman-Fried," Nisha Dua, co-founder at BBG Ventures, an early-stage investment fund that backs women founders, told Emily recently. - She was talking about Bankman-Fried's signature disheveled look — shorts, frumpled T-shirts, mussed hair.
Why it matters: Investors in tech startups have long gravitated to super-casually dressed young men. The FTX founder's fall from grace could be a moment to break the cycle. - "The seismic flameout of FTX...helps deflate one of the startup world's great myths: the underdressed genius founder," writes Jacob Gallagher in the WSJ.
Zoom out: The look isn't new, exactly, though SBF (as Bankman-Fried is known) perhaps took it to a new level. Mark Zuckerberg famously wore hoodies and T-shirts; his look's been emulated by many other young founders. - Go back further, and you've got Albert Einstein's hair, too.
- The idea is that a genius founder is too busy being brilliant to care about how he looks, and it's part of the ethos of Silicon Valley more broadly — a meritocratic ideal.
Zoom out: Women got only 2% of all venture capitalist dollars last year, and Black founders, 1%. That could be driven by pattern matching, where investors are more comfortable with those who look like themselves — or those who fit a mold they're familiar with. - "If a founder DOESN'T look like an investor, the next best thing is for the founder to look like what the investor expects the founder to look like," Claire Díaz-Ortiz, a scout for Kleiner Perkins and a venture capitalist, told Axios in a message.
Worth noting: SBF's look was reportedly deliberate. Told to cut his hair by a colleague ahead of one of his first TV appearances, Bankman-Fried defended it: "I think it's important for people to think I look crazy," he said, according to an account in the New York Times from earlier this year. - "Sam and I would intentionally not wear pants to meetings," said the colleague. "Sam literally said to me, 'The only people I think I'd wear long pants for are Congress.'"
| | | | | | | | A message from Equitybee | | Get access to high-demand, pre-IPO startups | | |  | | | | With Equitybee, get access to hundreds of startups at past company valuations by funding employee stock options. Get started. Investments are speculative, illiquid, contain risk of 100% loss; do not grant ownership of stock. Securities offered by EquityBee Securities, member FINRA. | | | | Was this email forwarded to you? Sign up here to get Axios Markets in your inbox. Today's newsletter was edited by Kate Marino and copy edited by Mickey Meece. |  | | Why stop here? Let's go Pro. | | | | | | Axios thanks our partners for supporting our newsletters. If you're interested in advertising, learn more here.
Sponsorship has no influence on editorial content. Axios, 3100 Clarendon Blvd, Arlington VA 22201 | | | You received this email because you signed up for newsletters from Axios.
Change your preferences or unsubscribe here. | | | Was this email forwarded to you?
Sign up now to get Axios in your inbox. | | | | Follow Axios on social media:    | | | | | |
No comments:
Post a Comment