Dear friends

November began with a bearish week on Wall Street, as investors were spooked by another 0.75% rate hike by the Fed right after Halloween.

The U.S. midterm elections followed, with Republicans winning a razor-thin majority in the House of Representatives, while Democrats retained an equally small edge over the Senate. Although neither party will be able to pass a major bill anytime soon, this provided clarity to the markets and triggered a brief relief rally.

Economic data for the rest of the month was mixed, but the lower-than-expected CPI gave investors hope that inflation in the U.S. may have peaked and that the next rate hike could be smaller.

In the United Kingdom, however, inflation reached 11.1%, the highest level in 41 years. With the GDP report also showing a contracting economy, the Bank of England now expects the longest recession since the 1920s.

Meanwhile, new covid cases flared up in China, leading to further restrictions and lockdowns and sparking public protests against the country’s failing covid policy. Uncertainty about the impact on production and supply chains also affected global markets.

At the end of November, the Nasdaq was up 4.4% while the dollar index was down 5.0%, so no real value gains from an absolute perspective. Most notably, a big blow-up in the crypto world sent Bitcoin down -16.2% for the month, more on that in a moment.

Our strategies reacted according to their crypto exposure with Universal up 0.4%, Progressive down -1.6%, and CryptoMax unfortunately down -12.6%.

But November 2022 will go down in financial history, as alluded to above, for the epic blow-up of FTX and the meteoric rise and fall of a crypto empire built with modern alchemy as a labyrinth of leverage and lies.

The story began in 2017 when ambitious 25-year-old trader Sam Bankman-Fried (aka “SBF”) started his own crypto trading firm, Alameda Research, in sunny California. After reporting success with leveraged arbitrage, he decided to create his own public crypto exchange with a special twist. So, in 2019, SBF founded FTX in the Bahamas and launched the FTT token, a cryptocurrency tied to FTX’s success.

As FTX became the third largest crypto exchange with over a million users, the FTT price went through the roof. What no one realized was that only about 10% of FTT’s supply was publicly traded, and SBF’s Alameda, as the main market maker, could influence prices upward almost at will. Over time Alameda ended up holding over 50% of the total supply and started using its FTT holdings as collateral for loans to cover losses in other crypto investments. 

In other words, SBF sat on both sides of the deal, misusing “real money” from FTX customers to provide Alameda with multi-billion dollar loans, backed only by FTX’s own inflated FTT tokens.

When CoinDesk published concerns about Alameda’s balance sheet in early November, the FTT price crashed, and the house of cards started to collapse. More and more customers began withdrawing their deposits from FTX and soon it was clear that there wasn’t enough money to pay off everybody.

A week later, FTX, Alameda Research and over 100 related companies (!) filed for bankruptcy. Right thereafter, FTX was allegedly hacked and another $500 million disappeared from customers’ wallets….

But was it really a hack or, as some suspect, an inside job using a software backdoor? Was the FTX debacle crypto’s Lehman Brothers moment, or was it a Bernie Madoff-style Ponzi scheme from the start? Intensive criminal investigations are underway to uncover more details about the obscure entanglements between SBF, Alameda and FTX.

The collapse of Sam Bankman-Fried’s empire triggered a ripple effect throughout the crypto industry, pushing the bitcoin price to its lowest level in two years. Over $100 billion were lost across the crypto market, and SBF’s own purported net worth of $16 billion evaporated overnight.

But I’m confident in a couple of years SBF’s story will be a block-buster movie called “The King of Crypto”, like we have seen it with “The Wolf of Wall Street” about Jordan Belfort…

Stay happy, healthy and wealthy!

Omar