Crypto skeptics step up lobbying efforts with their first conference

For years, crypto skeptics have been a few talking heads on Twitter shouting out to the abyss to anyone who would listen. In the last year and a half, we’ve been networking and sharing information. Our voices are getting louder — and policymakers are listening!

Last month, a group of us joined forces to urge US lawmakers to crack down on the crypto industry. Twenty-six computer scientists and academics sent a signed letter to US lawmakers criticizing crypto investments and blockchain technology. The move got wide media coverage

Soon after, David Gerard, author of “Attack of the 50-Foot Blockchain” and my co-writer in documenting the current crypto collapse,” journalist Izabella Kaminska, and noted academic John Naughton appeared in front of the UK’s House of Commons Science and Technology Committee to tell them that blockchain technology is devoid of any meaningful use case.  

Now, for the first time, crypto skeptics will have our own conference: the Crypto Policy Symposium. It’s a way for us to network amongst ourselves, and to connect with lawmakers to make sure they have the information they need to shape future policy. 

Scheduled to take place September 5 to 6 in London and virtually, the event is being organized by Stephen Diehl, a software engineer and co-author of “Popping the Crypto Bubble,” and Martin Walker. A long-term follower of attempts to apply “blockchain” to banking, Walker is a director of the Center for Evidence-Based Management, a leading management think-tank.

The main goal of the symposium, as Diehl explained it to me, is to give policymakers access to the information and material they need to make informed decisions around crypto regulation. 

Right now, politicians are mainly hearing from lobby groups, funded by deep-pocket crypto companies with lots of venture capitalist backing. Diehl hopes the effort will bring together domain experts and policymakers from the European Union, and the US to address public interest problems.

“Europe and the US are the big fronts, and in the US, there is a bill going through and a lot of debate in the executive branch right now,” he said, in reference to recent legislation introduced by pro-bitcoin Senators Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.). If passed into law, the bill will create new loopholes for token-based startups to skirt securities laws.

Over a span of two days, symposium attendees will get to watch a dozen panels lasting 45 minutes each. “Ideally, panels will include three to four people — someone from tech, someone from law, and someone from journalism,” Diehl said. “The aim is to offer a balanced perspective.” 

Topics will include bitcoin’s environmental impact, the politics of bitcoin — yes, David Golumbia, author of “The Politics of Bitcoin” will be talking — ICOs, NFTs, Web3, and the current DeFi domino collapse. Diehl and Walker have enlisted three dozen notable crypto skeptic luminaries — including myself and David Gerard! — in journalism, tech, and academia, as panelists at the event. 

Diehl hinted at the possibility of a high-profile keynote but we will have to wait for that to be confirmed to learn more. He and Walker have invited members of regulatory and financial agencies across the US and Europe, including the FCA, ECB, IMF, SEC, Finma, and Bafin.

“White papers are being written across every branch of the US government, from the Securities and Exchange Commission to the Treasury Department to the FBI,” Diehl added. “Biden has commissioned all of this work and the bureaucrats are woefully uninformed. This is a problem, and that is why work like this is really important.” 

He and Walker also want the symposium to be a meeting place for crypto skeptics. “I feel like a lot of us are islands. I want everyone to know everyone, make friends, and create a community. That is how things actually get done in advancing this kind of policy work,” he said.

It’s been a lot of work organizing the event, but Diehl is optimistic: “There have been hundreds of other crypto industry conferences but this is the first one where critical voices are welcome to speak freely about these important issues.”

I’m not sure I’ll make it to London, but I’m looking forward to taking part in this event virtually.

Who had Voyager Digital next in the DeFi dead pool?

  • By Amy Castor and David Gerard
  • Become a patron and support our work — Amy’s Patreon is here; David’s is here.

In our last episode, Voyager Digital was looking shaky. Voyager had a massive hole in its balance sheet, courtesy of Three Arrows Capital (3AC), which had imploded. Voyager had maxed out its line of credit from Alameda for the month — it could only withdraw $75 million in credit for each 30-day rolling period. 

On Friday, July 1, Voyager announced it was “temporarily suspending trading, deposits, withdrawals and loyalty rewards.” [Voyager, archive; WSJ]

How screwed is Voyager? Three-quarters of their assets — about $600 to $700 million in BTC and USDC owed by 3AC — are missing. [Press release; Yahoo Finance]

How screwed are Voyager’s customers? “Your debit card will stop working … exploring strategic alternatives,” the crypto broker said. “We are in discussions with various parties regarding additional liquidity and the go-forward strategy for the company.” [Voyager blog, archive]

Whoever had Voyager Digital next in the DeFi dead pool: you may now claim your 100 trillion luna.

Voyager’s business

Voyager is — or was — a crypto investment firm. You deposited dollars or crypto into Voyager, and you earned up to 12% interest on your deposits via their Earn program. The company claimed 3.5 million customers. 

It also had a mobile app that allowed you to trade 100 different cryptocurrencies commission-free. [Voyager, archive]

Voyager was a “CeFi” company, or centralized DeFi — an investment firm that played the DeFi markets.

It also offered a debit card. Customers deposited dollars, which were immediately converted to the USDC stablecoin, which Voyager paid a yield of up to 9% on. “Earn like crypto, spend like cash.” [Voyager, archive]

Voyager very much wanted its customers to treat the company like their bank — and deposit their money. It encouraged customers to directly deposit their paychecks into their Voyager debit card account.

It’s not a bank, though. We’ll see in a moment why that turned out to be important.

The company offered “even greater rewards” if you owned their VGX token! This was aimed squarely at the cryptocurrency audience: “When it comes to your crypto, every satoshi counts.” With VGX you could get up to a 12% yield! [Voyager; archive]

Voyager is listed on the Toronto Stock Exchange. However, its services were only available to Americans — not Canadians. [Voyager terms of use; archive]

At the end of March 2022, Voyager got cease-and-desist letters and orders to show cause from the states of New Jersey, Alabama, Oklahoma, Texas, Kentucky, Vermont, and Washington — who considered Voyager’s yield platform to be an unregistered offering of securities. [CoinDesk; press release]

Voyager’s liabilities

Here is Voyager’s press release for their Q3 2022 numbers, released on May 16. (Voyager’s financial year is July to June, so January to March is Q3.) The headline announced that revenue was up — $102 million! [Voyager, archive]

But the numbers show that year-over-year losses were also way up — Voyager had operating losses of $43 million. The company was burning money to pump up revenue and user numbers. Voyager promoted both these numbers to investors in June 2022 without mentioning the losses that were getting it there. [Voyager, archive]

The Q3 2022 numbers were announced when UST and luna had gone to zero, and Terraform’s Anchor protocol had collapsed. Voyager CFO Evan Psaropoulos said on the quarter’s earnings call: [Seeking Alpha]

“It is important to note with recent news related to UST and LUNA, that Voyager does not have UST listed on the platform and has not placed any access in any DeFi lending protocols such as the Anchor platform.”

But it turned out that Voyager was heavily exposed to UST, luna, and Anchor — via their largest debtor, Three Arrows Capital. The guys at 3AC knew they were in terminal trouble, but hadn’t told anyone yet — including their creditor, Voyager.

In the Q3 2022 earnings call, voyager CEO Steve Ehrlich said:

“We also spoke to all of our counterparties on lending and verified that there were no issues. In the past, we’ve had questions from investors about one counterparty. And as of today, we have no exposure to that counterparty.

… the people we lend to are some of the biggest names in the industry. As we stated, too, we had conversations and verified there was no contagion with them, had conversations with every single one of them. And since we limit who we lend to, to these parties, we’re really comfortable we did not have to call anything in and we had zero issues with any of our borrowers.”

Which counterparty could that have been?

Voyager released new financials yesterday afternoon, July 1, as part of its announcement that it was suspending withdrawals, detailing the 3AC-shaped hole in their numbers.

Is Voyager FDIC insured? No, but they’d like you to think so

If you had dollars on deposit with Voyager, you should assume they’re gone and not coming back.

Voyager tried very hard to imply in the large print that customer deposits were insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) if something happened to Voyager — and only admitted in the small print that they weren’t. Voyager tweeted on November 12, 2020: [Twitter; archive]

“Have you heard? USD held with Voyager is FDIC insured up to $250K. Our customers’ security is our top priority. Start growing your crypto portfolio today.”

But your dollars had already been converted into USDC. Voyager then used the USDC, a liability to you, as collateral for loans it took out elsewhere. The user agreement explicitly allows this: [Voyager, archive]

“Consent to Rehypothecate. Customer grants Voyager the right, subject to applicable law, without further notice to Customer, to hold Cryptocurrency held in Customer’s Account in Voyager’s name or in another name, and to pledge, repledge, hypothecate, rehypothecate, sell, lend, stake, arrange for staking, or otherwise transfer or use any amount of such Cryptocurrency, separately or together with other property, with all attendant rights of ownership, and for any period of time and without retaining a like amount of Cryptocurrency, and to use or invest such Cryptocurrency at Customer’s sole risk.”

Your dollars were transformed into Voyager’s USDC the moment you deposited.

Voyager has an omnibus account with Metropolitan Commercial Bank, where it deposited its customers’ dollars. An omnibus account is a single holding account for money from multiple investors. Voyager acts as the money manager of the omnibus account — and maintains full control of the money.

Pass-through FDIC insurance, which would cover the customers and not just Voyager, is a bit tricky. You have to meet several requirements. Fundamentally, the funds need to be a liability of the bank, e.g., Metropolitan, not the account holder, e.g., Voyager. [FDIC; Seward & Kissel LL]  

If Metropolitan failed, the FDIC insurance would cover Voyager up to $250,000. But Voyager’s customers were not FDIC insured. And Metropolitan is doing just fine. 

Voyager repeatedly and consistently led customers to believe their US dollar deposits were safe if Voyager failed.

Usually, Voyager just tried to imply that customer deposits were directly FDIC-insured — and then detailed in the fine print how this wasn’t the case. Occasionally, Voyager slipped up and claimed this directly, such as in this blog post of December 18, 2019: [Medium, archive]

“Through our strategic relationships with our banking partners, all customers’ USD held with Voyager is now FDIC insured. That means that in the rare event your USD funds are compromised due to the company or our banking partner’s failure, you are guaranteed a full reimbursement (up to $250,000). We’re excited to offer our customers an extra level of security, so they can feel more comfortable holding their USD with Voyager.” [emphasis ours]

Let’s say that again: “you are guaranteed a full reimbursement”

This claim was simply not true.

Metropolitan Bank has issued a statement on Voyager and FDIC insurance — we expect they’ve been getting a lot of calls from Voyager customers: [Metropolitan, archive]

“FDIC insurance coverage is available only to protect against the failure of Metropolitan Commercial Bank. FDIC insurance does not protect against the failure of Voyager, any act or omission of Voyager or its employees, or the loss in value of cryptocurrency or other assets.”

Several Voyager customers on Reddit were very confused about all of this. Many were trying to figure out how to file an insurance claim to get their cash back. Others were learning for the first time that their dollar deposits were not, in fact, safe. [Reddit; Reddit

Reddit user DannyDaemonic called up the FDIC: [Reddit]

“I called the FDIC earlier and they said Voyager Digital LLC was not a bank and was not FDIC insured. They said for future reference, LLCs cannot be banks, ever. So when you see “LLC,” any claim of FDIC insurance is false. They did confirm that Metropolitan Bank is FDIC Insured but just because Voyager Digital stated “each Customer is a customer of the Bank” doesn’t mean they were funding those accounts. It just means if Metropolitan Bank failed, any holdings Voyager Digital placed under your name there would be safe. But since it’s only Metropolitan Bank that’s FDIC insured, Voyager Digital failing wouldn’t trigger the FDIC insurance.

I imagine Voyager is allowed to withdrawal from those accounts to pay debt or make investments. It’s also possible, if Voyager Digital is insolvent, that they haven’t even been depositing cash into the Metropolitan Bank for quite some time.

It doesn’t look good.”

The precise law that Voyager seems to be playing fast and loose with is 18 USC 709 — “False Advertising or Misuse of Names to Indicate Federal Agency”: [Onecle]

“… or falsely advertises or otherwise represents by any device whatsoever the extent to which or the manner in which the deposit liabilities of an insured bank or banks are insured by the Federal Deposit Insurance Corporation…”

As of March 31, Voyager claimed to have $175 million in cash. At present, it’s not clear they have any cash. They said they had $355 million in cash “held for customers” as of June 30, per their press release. However, they haven’t spelled out liabilities, including “cash owed to customers.” What really matters to customers is the balance held at Metropolitan, and we don’t know what that is.

At this point, Voyager either needs to get another loan from FTX or declare bankruptcy.

If Voyager does need cash, they’ll have to sell their bitcoins and ether — driving down the prices of those. 

The purpose of CeFi is to mis-sell investments

The CeFi lenders who are collapsing right now, such as Voyager and Celsius, are in the business of packaging up extreme risk as a shiny product — so that they can mis-sell these to the public as retail-suitable investments.

DeFi is a bunch of wires on a lab bench — not a finished product. CeFi puts a shiny box around the breadboarded system held together with clips and lumps of explosive.

The CeFi companies then lie to their customers that the remarkable interest rates on offer can exist without a jaw-dropping amount of hidden risk.

The very stupid and very crypto thing is when their fellow crypto institutions think “this is fine!” and do things like putting all their money into 3AC, which put all its money into Anchor.

It’s supposed to be retail — and not institutional traders — that sees a 5%, 10%, or 20% interest rate and stops thinking of anything but the big number. Perhaps crypto companies need to be legally restricted to retail-friendly investments? Or we could send some of these guys to jail for fraud, that works too.

Crypto collapse latest: the DeFi dead and dying list

David and I just finished an update on the spreading DeFi contagion. David posted it on his blog, so head on over there and read it.

We recap the latest on Three Arrows Capital (3AC), Voyager Digital, Celsius, BlockFi, and more.

In 2012, Trendon Shavers (Pirateat40) ran a Ponzi scheme on the BitcoinTalk boards called Bitcoin Savings and Trust. At one point, BTCST held 7% of all bitcoins.

Pirate’s Ponzi had a pile of pass-through funds — which invested only in BTCST. There were even funds insuring against the collapse of BTCST … who put the insurance premiums into BTCST.

History repeats, but only the stupid stuff. 

Image: Night of the Living Dead, 1968

CoinFLEX gets Roger Verified — the mystery of the missing Bitcoin Cash

David and I just wrote up a story on CoinFlex — a small exchange that we hadn’t heard of until recently. This is a fascinating story, which I am sure will get more interesting. David posted the story on his blog.

CoinFLEX also turns out to run a huge dark-pool crypto derivatives exchange and/or repo market, serving some notable proportion of the wider crypto trading market. 

Mark Lamb, who runs the exchange, has found himself $47 million short. An ultra high net work individual owes CoinFlex money, Lamb says. Apparently, this individual turns out to be Roger Ver.

Lamb has come up with a way to solve the problem, and it all has to do with the magic of tokenization! You’ll want to listen to the entire Bloomberg interview.

CBC Radio interview: Could crypto investments become virtually worthless?

Last week, I spoke with CBC Radio One, a national business radio show in Canada. Paul Haavardsrud interviewed me. The show went live on Sunday. [Cost of Living]

Paul was a great host. He let me do most of the talking! Paul wants to know why crypto is crashing. I tell him it’s because the money is all gone. He asks, “Well, where did it go?” Excellent question!

Naturally, that led me to bring up Tether. I also explained that while bitcoin’s value may never drop completely to zero, it could become a lot more difficult to trade if liquidity dries up.

The show repeats on Tuesday, June 28, at 11:30 a.m. NT in most provinces. 

If you want to learn more about why the crypto bubble is bursting, read “How 2020 set the stage for the 2021 bitcoin bubble,” by myself and David Gerard, along with “The Latecomer’s Guide to Crypto Crashing.”

How 2020 set the stage for the 2021 bitcoin bubble

  • By Amy Castor and David Gerard
  • Be sure to subscribe to our Patreon accounts — Amy’s is here; David’s is here.

We often get asked by reporters: “Why are crypto markets crashing?” The short answer is because there’s no money left, and no more coming in. The long answer is more complicated.

Bitcoin peaked at $64,000 in April 2021 and again at $69,000 in November 2021. Many of the network effects that drove the price of bitcoin to those heights were put into place in 2020.

The same network effects are now working in reverse. Markets take the stairway up and the elevator down.

The 2017 bubble was fueled by the ICO boom and actual outside dollars entering the crypto economy. Bitcoin topped out just below $20,000 in December 2017.

The crash that followed over the next 12 months was like air being slowly let out of a balloon — much like the 2014 deflation after Bitcoin’s prior 2013 peak. ICO and enterprise blockchain promoters tried to keep going through 2018 like everything was fine, but the party was clearly over.

In contrast, the 2022 crash is like a wave of explosive dominoes all crashing down in rapid succession. How did we get here?

A long, cold crypto winter

Let’s start in early 2020. It was the crypto winter. Bitcoin’s price had spent two years bobbling up and down from infusions of tethers, and traders on BitMEX rigging the price to burn margin traders. (And, allegedly, BitMEX itself burning its margin traders.) [Medium, 2018]

But the dizzying price rises were peculiarly bloodless. There was little evidence of fresh outside dollars from retail investors — the ordinary people. The press would write how bitcoin had just hit $13,000 — but they’d also call people like us, and we’d tell them about Tether.

Throughout 2019 and into 2020, crypto pumpers were desperately trying scheme after scheme — initial coin offerings, initial exchange offerings, bitcoin futures, selling to pension funds — to lure in precious actual dollars and get the party re-started.

Then Corona-chan knocked on the door.

Act I, Scene I: Pandemic Panic

On March 13, 2020, the US government declared a pandemic emergency. The panic drove down stocks and crypto. Investors sold everything and flew to the safest, hardest form of money they could find: the US dollar! Bitcoin dropped from $7,250 to $3,858 over the course of that day.

It was an edge-of-the-cliff moment for bitcoin. Any further drop could force liquidations and create a ripple effect across dozens more crypto projects. For bitcoin miners, the price of bitcoin was now below the cost of mining.

Worse, only two months away was the bitcoin “halvening” — an every-four-year event when the number of bitcoins granted in each freshly-mined block halves. If bitcoin dropped too low in price, the miners wouldn’t be able to pay their enormous power bills. The crypto industry desperately needed to push bitcoin’s price back before May.

Tether spins up the printing press

Tether, launched in 2014, is an offshore crypto company that issues a dubiously backed stablecoin of the same name. Tether works like an I.O.U. — Tether supposedly takes in dollars and issues a tether for each dollar held in reserve. Since Tether has never had an audit, nobody knows for sure what’s backing tethers. The company has an extensive history of shenanigans — see Amy’s Tether timeline.

The issuance of tethers in March 2020, was 4.3 billion, but that’s when the Tether printer kicked into overdrive — minting tethers at a clip nobody had ever seen before. 

Tether minted 4.4 billion tethers in April 2020 — crypto’s version of an economic stimulus package. By May, Bitcoin reached $10,000, just in time for the halvening.  

Once the price of bitcoin goes up, though, there’s no way to turn off the Tether printing press. It has to keep printing. If the price of bitcoin goes down, people will sell, creating an exodus of real dollars from the system. So Tether kept printing, pushing the price of bitcoin ever skyward. 

In May, June, and July 2020, Tether issued a combined total of 3 billion tethers. In August, when the price of bitcoin reached $12,000, Tether issued another 2.6 billion tethers. In September, when bitcoin slid below $10,000, Tether issued another 2.2 billion tethers. 

By the end of 2020, Tether had reached a market cap of 21 billion. The printer kept going. In 2021, Tether pumped out 60 billion more tethers. By May 2022, Tether’s market cap had reached 83 billion. Bitcoin’s price peaks in April 2021 ($64,000) and November 2021 ($69,000) both coincided with an influx of tethers into the market. 

You can’t just redeem tethers. Only Tether’s big customers — it has about ten of them — can redeem. You can try to sell your tethers on an exchange. But you can’t just go up to Tether to redeem them for dollars. There were no redemptions of tethers, ever, until May and June 2022 — the present crash.

Curiously, Tether’s reserve as declared to New York in April 2019 contained $2.1 billion of actual money — cash and US Treasuries. But Tether’s reserve attestation as of March 31, 2021, still contained just $2.1 billion of cash and treasuries!

This suggests that the rest of the reserve over that time was made up of whatever worthless nonsense Tether could claim was a reserve asset — loans of tethers, cryptocurrencies, and dubious commercial paper credited at face value rather than being marked to market.

Dan Davies, in his essential book Lying for Money, marks this as the key flaw in frauds of all sorts: they have to keep growing so that later fraud will keep covering for earlier fraud. This works until the fraud explodes.

Tether marketcap, CoinGecko

GBTC’s ‘reflexive Ponzi’

Grayscale’s Bitcoin Trust (GBTC) played a huge role in keeping the price of bitcoin above water through 2020. It offered a lucrative arbitrage trade, an exploitable inefficiency in markets, that a lot of big players went all-in on.

GBTC was an attempt to wrap Bitcoin in an institutionally compatible shell. All through 2020 and into 2021, GBTC was trading at a premium to bitcoin on the secondary markets. Accredited investors would acquire GBTC at net asset value — some large proportion being in exchange for direct deposits of bitcoins, not purchases for cash, although all the accounting was stated in dollars. After a six-month lock-up, the accredited investors would sell the shares to the public at a 20 percent premium, sometimes more. Rinse, repeat, and that’s a 40 percent return in a year. 

GBTC functioned like a “reflexive Ponzi.” When Grayscale bought more bitcoin for the trust, that drove up the price of bitcoin, which pushed up the GBTC premium, which resulted in investors wanting more GBTC and Grayscale issuing more shares. 

Grayscale ran a national TV advertising campaign at the time, targeted at ordinary investors. The ads warned that disaster was imminent, inflation would eat your retirement, and bitcoin was better than gold — so you should buy bitcoin. Or, this shiny GBTC, which was implied to be just as good! [YouTube, 2019]

In a bull market, retail investors didn’t mind paying a premium — because the price of bitcoin kept going up. The market treated GBTC as if it was convertible back to bitcoins, even though it absolutely wasn’t. [Adventures in Capitalism]

Grayscale ultimately flooded the market with GBTC. When an actual bitcoin ETF became available in Canada, GBTC’s premium dried up. Since February 2021, GBTC has been trading below the price of bitcoin. As of March 2022, the trust holds 641,637 bitcoins. And they’re staying there indefinitely — leaving GBTC holders locked in on an underwater trade.

The rise of decentralized finance

Decentralized finance, or DeFi, didn’t directly pump the price of bitcoin in 2020. But DeFi was one of the stars of the 2021 bubble itself, and eventually caused the bubble’s disastrous explosion. All of the structures to let that happen were set up through 2020.

DeFi is an attempt to put traditional financial system transactions — loans, deposits, margin trading — on the blockchain. Regulated institutions are replaced with unknown and unregulated intermediaries, and everything is facilitated with smart contracts — small computer programs running on the blockchain — and stablecoins.

All through 2019 and 2020, DeFi was heavily promoted as offering remarkable interest rates. At a time of low inflation, this got coverage in the mainstream financial press. Here’s the diagram the Financial Times ran, depicting DeFi as a laundromat for money: [FT, paywalled, archive

The key to DeFi is decentralized exchanges, where you can trade any crypto asset that can be represented as an ERC-20 token — such as almost any ICO token — with any other ERC-20 token.

DeFi also lets you take illiquid tokens that nobody wants, do a trade, assign them a spurious price tag in dollars, then say they’re “worth” that much. This lets dead altcoins with no prospective buyers claim a price and a market cap, and attract attention they don’t warrant. If you put a dollar sign on things, then people take that price tag seriously — even when they shouldn’t.

You can also create a price for a token that you made up out of thin air yesterday and use DeFi to claim an instant millions-of-dollars market cap for it. 

This was the entire basis for the valuation of Terraform Labs’ UST and luna tokens — and people believed those “$18 billion” in UST were trustworthily backed by anything.

You can also use those tokens you created out of thin air as collateral for loans to acquire yet more assets. An unconstrained supply of financial assets means more opportunities for bubbles to grow, and more illiquid assets that you can dump for liquid assets (BTC, ETH, USDC) when things go wonky.

By September 2020, five hundred new DeFi tokens had been created in the previous month. DeFi hadn’t hit the mainstream yet — but it was already the hottest market in crypto. [Bloomberg]

The problem was that in 2020, to use DeFi you had to know your way around using the actual blockchain. Retail investors, and even most institutional investors, haven’t got the time for that sort of dysfunctional nonsense.

Retail was more attracted to the “CeFi” (centralized DeFi) investment firms, such as Celsius and 3AC, offering impossible interest rates. These existed in 2020 but didn’t gain popularity until the following year when the bubble had started properly.

A new grift: NFTs 

By late 2020, crypto promoters were searching for a new grift to lure in retail money, one that would have broader mainstream appeal. They soon found one. 

NFTs as we know them got started in 2017, with CurioCards, CryptoPunks, and CryptoKitties. NFT marketing had continued through the crypto winter — in the desperate hope that ordinary people might put their dollars into crypto collectibles.

The foundations of the early 2021 burst of art NFTs were laid in late 2020, when Vignesh Sundaresan, a.k.a. Metakovan, first started looking into promoting digital artists, such as Beeple — whose $69 million JPEG made international headlines for NFTs in March 2021, and officially kicked off the NFT boom. 

Late 2020 also saw the launch of NBA Top Shot, the only crypto collectible that ever got any interest from buyers other than crypto speculators. Top Shot traders were disappointed at how incredibly slow Dapper Labs was at letting them withdraw the money they’d made in trading — and became some of the first investors in the Bored Apes.

Coiner CEOs 

By late 2020, several big company CEOs started promoting the concept of bitcoin on the company dime. These included Jack Dorsey at Twitter, Dan Schulman at PayPal, and Michael Saylor at business software company MicroStrategy.

In October 2020, Saylor revealed his company had bought 17,732 bitcoins for an average of $10,000 per coin. Over the next 18 months, Microstrategy would plow through its cash reserves and take on debt to funnel more money into bitcoin, spending $4 billion in the process. Buying MSTR shares become the newest way for retail investors to bet on bitcoin. Saylor also put himself forward as bitcoin’s latest prophet and crazy god.

PayPal set up bitcoin trading in 2020, though only as a walled garden, where you couldn’t move coins in or out. Still, it made gambling on crypto more accessible to retail investors. 

Bitcoin miners start ‘hodling

By late 2020, we suspect there was very little actual cash in crypto. But bitcoin needed to continue its upward ascent. 

The biggest tip-off that the fresh outside dollars had stopped flowing was when bitcoin miners stopped selling their coins. Bitcoin miners mint 900 new bitcoins per day. They typically sell these to pay their energy costs — power companies don’t accept tether — and buy new mining equipment, which becomes obsolete every 18 months. At $20,000 per bitcoin, that would equate to $18 million, in actual dollars, getting pulled out of the bitcoin ecosystem every day.

In October 2020, Marathon Digital (MARA), one of the largest publicly traded miners, stopped selling its bitcoins. They took out loans, which allowed them to buy their equipment and hold their bitcoins. Marathon even bought additional bitcoins!  

Borrowing against mined bitcoins, and not selling them, reduced selling pressure on bitcoin’s price in dollars. US-based miners used this model heavily from July 2021 onward — taking low-interest loans from their crypto buddies, Galaxy Digital, DCG, and Silvergate Bank. Although, in 2022, the loans started running out and they had to start selling bitcoins.

This also set Marathon up for potential implosion when energy prices went up and the price of bitcoin dropped in 2022. Marathon is presently losing $10,000 on every bitcoin they mine. 

Easy money?

2020 was a weird year of market panics, bored day traders, and easy money — for some.

The Federal Reserve dealt with the pandemic panic by showering the markets with stimulus money. At the retail end, $817 billion was distributed in stimulus checks (Economic Impact Payments), $678 billion in extended unemployment, and $1.7 trillion to businesses, mostly as quickly-forgiven loans. [New York Times]

Bored day traders, stuck at home working their email jobs and unable to go out in the evening, got into trading stocks on Robinhood as the hot new mobile phone game. Car rental firm Hertz, a literally bankrupt company, whose stock was notionally worth zero, started going up just because Robinhood users thought it was a good deal. Instead of crypto becoming a more regular investment like stocks, the stonks* had turned into shitcoins.**

What isn’t clear is how much of this money found its way to the crypto market. At least some of it did. A study by the Federal Reserve Bank of Cleveland noted: “a significant increase in Bitcoin buy trades for the modal EIP amount of $1,200.” This increased BTC-USD trade volume by 3.8%! [Cleveland Fed]

But the trades only seemed to raise the price of bitcoin by 0.07%. And the dollars in question were only 0.02% of the money distributed in the EIP program.

* A cheap and nasty equity stock; the term comes from a meme image. [Know Your Meme]
** We are sorry to tell you that this is literally a technical term in crypto trading.

The final push over the line

A lot of channels into crypto were put into place in 2020. But the last step was to pump the price over the previous bubble peak of $20,000.

With that bitcoin number achieved, the press would cover the number going up — because “number go up” is the most interesting possible story in finance. That would lure in the precious retail dollars that hodlers needed to cash out.

The push started in late November, with deployments of tethers to the offshore exchanges. On December 18, 2020 — exactly three years after the previous high — bitcoin went over $20,000 again. And that’s when a year and a half of fun started.

‘10 NFTs That Were Sold at a Substantial Loss,’ and two other stories for Artnet News

I’ve been busy lately writing stories for Artnet News about NFTs and the NFT market. These stories aren’t paywalled, so you can read them: 

Fat Finger’ Errors or Bad Investments? Here Are 10 NFTs That Were Sold at a Substantial Loss as Crypto Markets Have Cooled [Artnet]

I looked at 10 NFTs that sold for a massive loss. Would it surprise you to know that several of them were Bored Apes? Lots of fat finger listings amongst the Apes. 

‘It’s Probably Gonna Be a Huge Cry Fest’: Plunging Crypto Markets Cast a Shadow Over NFT.NYC and Its Jittery True Believers” [Artnet]

This market analysis piece has quotes from NFT archeologist Adam McBride and investor Francis Kim. 

You may remember Kim — the Australian who lost a bunch of money margin trading on Binance and was written up in the Washington Post. Now he’s launching an NFT project while the crypto markets are crashing. He hasn’t made any money yet. 

“I feel like a victim in every story,” he told me.

‘I Am Very Sorry’: Takashi Murakami Apologizes to His Crypto Investors on Twitter as His NFT Prices Nosedive [Artnet]

Japanese artist Takashi Murakami tells his fans that he is so very sorry his flower NFTs aren’t going up in price. He is so sorry, in fact, that he is launching a new NFT collection. Maybe he’ll be double sorry? [Artnet]

Crypto collapse latest: the contagion spreads

David Gerard and I just wrote a newsletter. We had a Zoom call for an hour today, and we’d been collecting notes and trying to decide what to write next. Finally, we just decided to throw a bunch of stuff in a pile and call it a newsletter. You can read it on his blog.

So much is happening so fast that it’s almost difficult to keep up. We have a few ideas for more stories that we’ll be working on next. Stay tuned!

Also, if you are a patron, you qualify for free Bitcoin: It Can’t Be That Stupid stickers, if you ask. Just send me a DM on Patreon!

The tale of a whale who took Solend’s money

DeFi stands for decentralized finance, but don’t let the “decentralized” part fool you. These protocols are almost always controlled by a central party who calls the shots.

When you hand them your money, they can do whatever they want with it, when they want. Offshore crypto exchanges exhibit similar behavior.

On Sunday, Solend, a “decentralized” lending platform on the Solana blockchain, passed a proposal that would give them permission to take over the account of a “whale” — a large holder — who posed a threat to the price of SOL, the native token of Solana. 

The whale had deposited a large amount of SOL into Solend in exchange for a “loan” of USDC and USDT, two popular stablecoins, and then disappeared. Make no mistake: this was an exit, not a loan. The whale essentially sold a huge amount of SOL for a two highly liquid assets — at a substantial discount, granted, but that amount of SOL would have crashed the market otherwise.

The problem was that if the price of SOL dropped below a certain point, the Solend platform would auto-liquidate his funds, selling off a large chunk on a decentralized exchange. This would create cascading liquidations across the books of the decentralized exchanges, potentially driving the price of SOL to zero. 

Solend Labs made a bad loan and overpaid for the SOL. To fix this, they came up with a solution: set up a sham DAO and conduct a sham vote to take over the whale’s account and sell the coins over the counter (OTC) to avoid crashing the market. “Code is law” only applies until the big boys might lose money.

How DeFi works

In October, Solend raised $6.5 million from Coinbase Ventures, Solana Ventures, and Alameda Research, among others. The following month, the firm raised another $26 million worth of USDC in an initial coin offering, selling its SLND token. Investors and insiders got a percentage of SLND. [Crunchbase; SLND distribution]

Solend is one of the largest DeFi lending protocols on Solana. You deposit assets as collateral and take out loans against those assets, generally in the form of stablecoins.  

This isn’t true lending. True lending involves giving money to people who don’t have money in exchange for illiquid collateral, such as a car or a house, or something that is liquid but the lender cannot or does not want to sell, such as controlling shares in a company. In contrast, DeFi lending is giving people money against collateral that is a larger amount of fungible money. Another crucial distinction is that with true lending, you keep possession of the home, car or stock; whereas, in DeFi lending, the lender takes possession of the collateral, which you then cannot use in any way, not even for POS staking.

Traders use DeFi lending platforms to leverage long or short positions. It’s a form of gambling. If your bet goes south, you lose your collateral. Everything in DeFi is done with smart contracts, which are just simple and dumb computer programs, so liquidations are automatic — unless they’re not. 

In the case of Solend, a whale took out a large margin position. They parked 5.7 million SOL (currently worth $170 million) onto the platform to withdraw $108 million in USDC and USDT. The whale then vanished, and would not pay down the loan or respond to tweets from Solend’s pseudonymous founder Rooter. [Tweet]

This is one of the reasons we’ve seen such a proliferation of stablecoins in 2021 — they are used in DeFi lending. Retailers (the public) buy stablecoins and stake them on DeFi platforms hoping to earn higher interest than they can from traditional banks. The market cap of USDC was 4 billion in early 2021. Today, it is 56 billion.

The whale’s position represented 95% of all Solana deposits on Solend and 88% of all USDC the platform had lent out. If Solana dropped to $22.30, the whale risked partial liquidation — about $21 million worth of SOL — even though they didn’t seem to care. And the retail stakers risked losing their USDC. 

SOL is currently trading at $35, according to Coin Gecko. It still has a way to fall, but in the current market, the value of all cryptos only seems to be going down. 

Let’s let the DAO decide

To get itself out of this sticky situation, Solend Labs spun up a decentralized autonomous organization. The purpose of a DAO is to allow the community to vote on proposals. Solend’s governance token is SLND. The more SLND you hold, the larger influence you have on a proposal passing. DAOs typically aren’t created on-demand, but this one was. 

On June 19, Solend put the first proposal to its DAO: “SLND1: Mitigate Risk From Whale.” [Proposal, Solend blog]

“DEX liquidity isn’t deep enough to handle a sale of this size and could cause cascading effects. Additionally, liquidators will be incentivized to spam the network to win very lucrative liquidations. This has been known to cause load issues for Solana in the past which would exacerbate the problems at hand.”

… It’d be difficult for the market to absorb such an impact since liquidators generally market sell on DEXes. In the worst case, Solend could end up with bad debt.”

That last line is misleading. Solend already had bad debt. It was simply trying to fumble its way out of a horrible situation of its own making.  

SLND holders could vote as follows:

Vote Yes: Enact special margin requirements for large whales that represent over 20% of borrows and grant emergency power to Solend Labs to temporarily take over the whale’s account so the liquidation can be executed OTC.

Vote No: Do nothing.”

One yea voter (a SLND whale) provided 1 million votes out of the 1.15 million votes in favor. In fact, they moved a million governance tokens into their account, voted, and moved them back out again — not the greatest example of corporate governance. Users had only six hours to vote, and the voting site was down for three hours during the voting. Solend claims the Solend core team did not vote. Just some random person who borrowed 98 percent voting power. [Twitter; Twitter]

The Solend community was livid and Solend was getting all kinds of bad press over the incident, so Solend submitted a second proposal to invalidate the first and start over: “SLND2: Invalidate SLND1 and Increase Voting Time. [Proposal; Solend blog]

“We propose to: Invalidate the last proposal, Increase governance voting time to 1 day, Work on a new proposal that does not involve emergency powers to take over an account.”

This second proposal was also passed, largely due to the same SLND whale. 

The ‘future of finance’

Solend is currently experiencing a bank run, as lenders rush to get their deposits off the platform. If the money is borrowed, Solend can’t pay it back. The whale has almost completely drained Solend of any actual value and left it filled with assets that cannot be sold. [Tweet; Reddit; Solend dashboard]

The Solend platform did exactly what it was designed to do — lend money. The problem was that Solend massively overpaid for SOL. Put simply: the whale had trouble offloading a huge amount of SOL, so he offloaded it onto Solend, and they, in turn, are struggling to offload the SOL. 

DAOs are corporate governance but with a concussion. Automated voting is a terrible idea. Being able to borrow an overwhelming number of votes just for the vote is extremely dumb. This is exactly what happed to Beanstalk. 

Crypto boosters and VCs, such as Andreessen Horowitz, have been promoting DeFi as “the future of finance” and the foundation of “Web3,” which is nothing more than a way for people to create money out of thin air in the form of tokens, and for investors to cash out by dumping those tokens on the public.

Retailers deposited their stablecoins on Solend in the hope of making high returns. What they got instead was a whale that took off to sea with all of their money.

Updated to include the bit about the bank run.

Additional reporting by David Gerard.

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Bitcoin fell below $20,000 — and why it has further to go

Bitcoin broke below $20,000 last night. I got a message on Signal while I was sleeping. 

On June 18, 2022, at 6:51 UTC, the price of bitcoin fell from $20,377 to $19,245 on Kraken and then slipped to as low as $18,728 before catching its breath. As I write, it is now $19,174.

Ether also broke below $1,000. The buy wall was destroyed in a matter of seconds.

Bitcoin has now fallen below the previous all-time high it set on December 17, 2017 — officially marking the end of the crypto bubble. The party is over.

Two years ago, as bitcoin embarked on its incredible journey to $69,000 — a number it reached on November 9, 2021 — it was $10,000. At the start of 2020, bitcoin was trading even lower, at around $7,000.

Those numbers give you a sense of how much further bitcoin can fall. As dramatic as the run-up was to $69,000 when every bitcoin bro imagined bitcoin would shoot to the moon, the fall can be equally so, and that is what we are seeing now. 

Of course, everyone is asking, why did bitcoin plunge so quickly Saturday night? What pushed it below $20,000 so suddenly? Somebody is selling. Who needs to sell? 

Miners have to sell to pay their power bills. They mine 900 newly minted bitcoin per day. The bitcoin network consumes a country’s worth of energy. 

The miners have been borrowing money from their buddies, DCG and Galaxy, to cover business costs rather than selling since July 2021. But they can’t borrow any more dollars, so they’re dumping their coins. They also have to pay their credit bills when those loans come due. 

Who else is selling? Any number of crypto lenders, yield farms, and other decentralized finance firms that are running desperately low on liquidity — and there are many of them. 

Last month, Terra/Luna toppled over. This was DeFi’s Bear Stearns moment. Things seemed to settle down for a moment, but behind the scenes, a titanic shift had begun — the wrecking ball was in action. In the chain of reactions that followed, two other Ponzi schemes collapsed: Celsius and 3AC. Smaller outfits Finblox and Babel soon followed — and more are to come.

When investigators look back and piece together the causes of the crypto apocalypse of 2022, key factors will be huge VC money pouring into the space, the massive printing of Tethers — from 4 billion at the start of 2020 all the way to 83 billion earlier this year — and Grayscale’s Bitcoin Trust.

GBTC was an attempt to wrap Bitcoin in an institutionally compatible shell. As I wrote in “Welcome to Grayscale’s Hotel California,” GBTC’s arbitrage trade brought billions of dollars of real money into the crypto ecosystem.  

It also caused explosive growth in crypto leverage. Many of the firms that are collapsing now, looked to GBTC as a way to deliver ridiculously high returns. They would exchange their cash or bitcoin for shares of GBTC and after a 6-12 month lockup, sell those shares on the secondary market for a premium to retail investors. That premium averaged around 18% in 2020. 

It was a sure-fire way to make money until the premium dried up. GBTC has been trading below the price of bitcoin since February 2021.  

All through 2020 and into 2021, there was a massive retail inflow of cash chasing a “reflexive Ponzi” in the form of a GBTC arb situation. And all Ponzi schemes end the same way — they crash stupendously.

See also David Gerard’s post on the bubble pop.

Further reading: “The Latecomer’s Guide to Crypto Crashing,” by David Gerard and Amy Castor

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Scam Economy podcast: Crypto Jenga: Celsius and the Latest Crypto Crash 

Earlier this week, David Gerard and I did a podcast together for Matt Binder’s Scam Economy. It just went up this evening. [Youtube; Apple Podcast; Google Podcast, Spotify]

The interview is based on a popular story that David and I recently co-wrote: “The Latecomer’s Guide to Crypto Crashing,” which has now been translated into German and French, and soon, possibly Italian.

It’s as if the entire crypto space has been held together by a giant lynchpin, someone pulled out the lynchpin, and now everything is tumbling to the ground.

UST crashed, Celsius followed, and more recently, Three Arrows Capital has failed to meet lender margin calls. Small crypto funds are next to fall, as David spelled in his recent story on yield farm platform Finblox.

The network effects that brought bitcoin to its heights from 2020 to 2021 are now working in reverse.

The early history of NFTs, part 4 — Game sprites on the blockchain: CryptoPunks

CryptoPunks was one of the earliest crypto collectibles on the Ethereum blockchain, following Curio Cards by six weeks. 

The launch on June 9, 2017, didn’t go as smoothly as planned. A horrible bug in the code meant buyers could take the seller’s Punk — and their money back too!

Larva Labs, the firm behind the project, was able to fix the problem, but it came back to haunt them years later in the form of V1 Punks. 

This is an early draft for our book, which David just posted over on his blog. [David Gerard]

The Latecomer’s Guide to Crypto Crashing — a quick map of where we are and what’s ahead

Since November 2021, when Bitcoin hit its all-time high of $69,000, the original cryptocurrency has lost 70 percent of its face value. And when Bitcoin falters, it takes everything else in crypto down with it. 

The entire crypto space has been a Jenga stack of interconnected time bombs for months now, getting ever more interdependent as the companies find new ways to prop each other up.

Which company blew out first was more a question of minor detail than the fact that a blow-out was obviously going to happen. The other blocks in the Jenga stack will have a hard time not following suit. 

Here’s a quick handy guide to the crypto crash — the systemic risks in play as of June 2022. When Bitcoin slips below $20,000, we’ll officially call that the end of the 2021 bubble.

Recent disasters

TerraUSD collapse — Since stablecoins — substitutes for dollars — are unregulated, we don’t know what’s backing them. In the case of TerraUSD (UST), which was supposed to represent $18 billion … nothing was backing it. UST crashed, and it brought down a cascade of other stuff. [David Gerard; Foreign Policy; Chainalysis Report]

Celsius crumbles — Celsius was the largest crypto lender in the space, promising ridiculously high yields from implausible sources. It was only a matter of time before this Ponzi collapsed. We wrote up the inevitable implosion of Celsius yesterday. [David Gerard]

Exchange layoffs — Coinbase, Gemini,, and BlockFi have all announced staff layoffs. Crypto exchanges make money from trades. In a bear market, fewer people are trading, so profits go downhill. Coinbase in particular had been living high on the hog, as if there would never be a tomorrow. Reality is a tough pill. [Bloomberg; Gemini; The Verge]

Stock prices down — Coinbase $COIN, now trading at $50 a share, has lost 80% of its value since the firm went public in June 2021. The company was overhyped and overvalued.

US crypto mining stocks are all down — Bitfarms ($BITF), Hut 8 Mining ($HUT), Bit Digital ($BTBT), Canaan ($CAN), and Riot Blockchain ($RIOT). Miners have been borrowing cash as fast as possible, and are finding the loans hard to pay back because Bitcoin has gone down.


Crypto trading needs a dollar substitute — hence the rise of UST, even as its claims of algorithmic backing literally didn’t make sense. What are the other options?

Tether — We’ve been watching Tether, the most popular and widely used stablecoin, closely since 2017. Problems at Tether could bring down the entire crypto market house of cards.

Tether went into 2020 with an issuance of 4 billion USDT, and now there are 72 billion USDT sloshing around in the crypto markets. As of May 11, Tether claimed its reserve held $83 billion, but this has dropped by several billion alleged “dollars” in the past month. There’s no evidence that $10.5 billion in actual dollars was sent anywhere, or even “$10.5 billion” of cryptos.

Tether is deeply entwined with the entire crypto casino. Tether invests in many other crypto ventures — the company was a Celsius investor, for example. Tether also helped Sam Bankman-Fried’s FTX exchange launch, and FTX is a major tether customer.

Tether’s big problem is the acerbic glare of regulators and possible legal action from the Department of Justice. We keep expecting Tether will face the same fate as Liberty Reserve did. But we were saying that in 2017. Nate Anderson of Hindenburg Research said he fully expects Tether execs to end the year in handcuffs. 

Other stablecoins — Jeremy Allaire and Circle’s USDC (54 billion) claims to be backed by some actual dollars and US treasuries, and just a bit of mystery meat. Paxos’ USDP (1 billion) claims cash and treasuries. Paxos and Binance’s BUSD (18 billion) claims cash, treasuries, and money market funds.

None of these reserves have ever been audited — the companies publish snapshot attestations, but nobody looks into the provenance of the reserve. The holding companies try very hard to imply that the reserves have been audited in depth. Circle claims that Circle being audited counts as an audit of the USDC reserve. Of course, it doesn’t.

All of these stablecoins have a history of redemptions, which helps boost market confidence and gives the impression that these things are as good as dollars. They are not. 

Runs on the reserves could still cause issues — and regulators are leaning toward full bank-like regulation.


There’s no fundamental reason for any crypto to trade at any particular price. Investor sentiment is everything. When the market’s spooked, new problems enter the picture, such as: 

Loss of market confidence — Sentiment was visibly shaken by the Terra crash, and there’s no reason for it to return. It would take something remarkable to give the market fresh confidence that everything is going to work out just fine.

Regulation — The US Treasury and the Federal Reserve were keenly aware of the spectacular collapse of UST. Rumour has it that they’ve been calling around US banks, telling them to inspect anything touching crypto extra-closely. What keeps regulators awake at night is the fear of another 2008 financial crisis, and they’re absolutely not going to tolerate the crypto bozos causing such an event.

GBTC — Not enough has been said about Grayscale’s Bitcoin Trust, and how it has contributed to the rise and now the fall in the price of bitcoin. GBTC holds roughly 3.4 percent of the world’s bitcoin.  

All through 2020 and into 2021, shares in GBTC traded at a premium to bitcoin on secondary markets. This facilitated an arbitrage that drew billions of dollars worth of bitcoin into the trust. GBTC is now trading below NAV, and that arbitrage is gone. What pushed bitcoin up in price is now working in reverse.

Grayscale wants to convert GBTC into a bitcoin ETF. GBTC holders and all of crypto, really, are holding out hope for the SEC to approve a bitcoin ETF, which would bring desperately needed fresh cash into the crypto space. But the chances of this happening are slim to none.

The bitcoins are stuck in GBTC unless the fund is dissolved. Grayscale wouldn’t like to do this — but they might end up being pressured into it. [Amy Castor]

Whales breaking ranks — Monday’s price collapse looks very like one crypto whale decided to get out while there was any chance of getting some of the ever-dwindling actual dollars out from the cryptosystem. Expect the knives to be out. Who’s jumping next?

Crypto hedge funds and DeFi

Celsius operated as if it was a crypto hedge fund that was heavily into DeFi. The company had insinuated itself into everything — so its collapse caused major waves in crypto. What other companies are time bombs?

Three Arrows Capital — There’s some weird stuff happening at 3AC from blockchain evidence, and the company’s principals have stopped communicating on social media. 3AC is quite a large crypto holder, but it’s not clear how systemically intertwined they are with the rest of crypto. Perhaps they’ll be back tomorrow and it’ll all be fine. [Update: things aren’t looking good. 3AC fails to meet lender margin calls.] [Defiant; Coindesk; FT]

BlockFi — Another crypto lender promising hilariously high returns. 

Nexo — And another. Nexo offered to buy out Celsius’ loan book. But Nexo offers Ponzi-like interest rates with FOMO marketing as well, and no transparency as to how their interest rates are supposed to work out.

Swissborg — This crypto “wealth management company” has assets under management in the hundreds of millions of dollars (or “dollars”), according to Dirty Bubble Media. [Twitter thread]

Large holdings ready for release

Crypto holders have no chill whatsoever. When they need to dump their holding, they dump.

MicroStrategy — Michael Saylor’s software company has bet the farm on Bitcoin — and that bet is coming due. “Bitcoin needs to cut in half for around $21,000 before we’d have a margin call,” Phong Le, MicroStrategy’s president, said in early May. MicroStrategy’s Bitcoin stash is now worth $2.9 billion, translating to an unrealized loss of more than $1 billion. [Bloomberg]

Silvergate Bank — MicroStrategy has a $205 million loan with Silvergate Bank, collateralized with Bitcoin. Silvergate is the banker to the US crypto industry — nobody else will touch crypto. Silvergate is heavily invested in propping up the game of musical chairs. If Silvergate ever has to pull the plug, almost all of US crypto is screwed. [David Gerard]

Bitcoin miners — Electricity costs more, and Bitcoin is worth less. As the price of Bitcoin drops, miners find it harder to pay business expenses. Miners have been holding on to their coins because the market is too thin to sell the coins, and borrowing from their fellow crypto bros to pay the bills since July 2021. But some miners started selling in February 2022, and more are following. [Wired]

Mt. Gox — at some point, likely in 2022, the 140,000 bitcoins that remained in the Mt. Gox crypto exchange when it failed in 2014 are going to be distributed to creditors. Those bitcoins are going to hit the market immediately, bringing down the price of bitcoin even further.

Feature image by James Meickle, with apologies to XKCD and Karl Marx.

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Celsius goes Fahrenheit 451, and number goes down

David Gerard and I have been having fun staying poor. 

I just helped him write a post about how the gig is finally up for Celsius, the largest crypto lender, along with the impact that is having on the price of bitcoin and the crypto space at large. 

We posted it on his website, so head on over there and take a look. 

Don’t forget to subscribe to our Patreon accounts. Mine is here and David’s is here. We need your support for projects like this!

The Week in Art Podcast: ‘Crypto Crash: What Now for NFTs?’

Ben Luke, podcast host for The Art Newspaper, interviewed me about NFTs. The podcast went up Thursday. [Apple Podcast; Google Podcast; Spotify]

We talked about the NFT crash as reported in the WSJ last month and its art world implications. Ben also asked me about a story that had been going around about a “landmark” decision in the UK, where a judge said NFTs were property. I told him it was a bit overblown.

As a follow up, I wrote a blog post: “No, a UK judge didn’t actually rule NFTs are property.” 

I have done a lot of writing for Artnet News. They are fabulous to work for. This was the first time I’ve done anything for The Art Newspaper. 

No, a UK judge didn’t actually rule that NFTs are property

Crypto boosters love to stretch the truth. 

Earlier this year, UK lawyer Rachael Muldoon, who specialized in NFTs and crypto, broadcast the news that a judge had recognized NFTs as property in a “landmark” decision. 

The decision was “unprecedented” her firm 36 Commercial wrote in an April 7 blog post: [36 Commercial, archive]

“This is believed to be the first case of its kind in the world. There have been several instances in recent years of the High Court freezing stolen cryptocurrency, however, this case is believed to be unprecedented, with the courts taking the step of freezing NFTs as a specific class of cryptoassets, distinct from cryptocurrency due to their non-fungible unique nature.” 

The Art Newspaper featured a story on this with comments from Muldoon. Other media followed with their own coverage. I wrote a story on this myself for Artnet News, although I was careful to use the word “reportedly.” [The Art Newspaper; Artnet]

I’ve been wanting to clarify that Muldoon’s claims are meaningless dribble. The trouble was, we didn’t have the transcript from the March 10 hearing. Nor did we have the transcript from the March 31 follow up hearing.  

All we had to go by was Muldoon’s comments on the matter along with a press release from the plaintiff Lavinia Osbourne. [Osbourne’s press release]

In the UK, draft judgments get circulated to the parties in advance on a confidential basis. The judge has to review and approve a transcript before it gets filed with the court. 

Muldoon said the judge would be signing the judgment in the second week of April, and it would soon be made public. However, weeks went by and no transcript. I sent Muldoon and Osbourne repeated emails and got no response. I even tweeted about their non response, and asked people for help tracking down the court filings. Finally, on Tuesday, Muldoon posted the filing via her LinkedIn account. Now, three months later, we have the transcript from the March 10 hearing. [Judgment; LinkedIn]

However, we still don’t have anything from the return date hearing that took place on March 31. 

“This is the only approved judgment I am in possession of and as you will appreciate, I am unable to share anything further owing to legal privilege,” Muldoon told me in an email. 

In other words, she wants us to believe that something super important happened, but she doesn’t want to share the details. 

Breaking down the case

The official case title is: Lavinia Osbourne v. persons unknown and OpenSea. The hearing took place before High Court Judge Mark Pelling in London.

Osbourne, the founder of Women in Blockchain Talks in the UK, claims that she had two NFTs from the Boss Beauties collection stolen from her Metamask wallet. [Tweet]

They were worth about $5,000 total.

Osbourne received the NFTs as a “gift” from a third-party on September 24, 2021. The NFTs were taken out of her wallet on January 17, and she discovered them missing on February 27. 

Although phishing scams are common in the NFT space, Osbourne doesn’t spell out exactly how she managed to get her NFTs stolen. Even the judge says they were taken “under circumstances that were a little unclear.” 

The NFTs ended up in two accounts in OpenSea — the “persons unknown.” [Boss Beauties 680, 691]

Osbourne wanted OpenSea to freeze the accounts, so she hired Muldoon to go before a judge and get an injunction and order OpenSea to release information on the account holders.

I don’t know what good this would do. OpenSea is an unregulated exchange. It isn’t required to KYC its customers, so there is no reason to believe anything of value would be gained from gathering the account information to begin with. It also doesn’t custody or control users’ NFTs.

In any case, the judge said it made sense to consider NFTs property. There is a clear distinction to be made here — Pelling did not say NFTs are property. In ruling that Osbourne could proceed against the alleged attackers, he simply said it makes sense to consider them as such: 

“There is clearly going to be an issue at some stage as to whether non-fungible tokens constitute property for the purposes of the law of England and Wales, but I am satisfied on the basis of the submissions made on behalf of the claimant that there is at least a realistically arguable case that such tokens are to be treated as property as a matter of English law.”

Jake Hardy, a banking and finance litigator in London, told me the threshold being applied is “a good arguable case,” not a balance of probabilities as it would be in a full judgment. “The judge is not saying that her case is proven to the civil standard, just that it is arguable.” 

Hardy pointed out something else: This was a “without notice hearing,” meaning OpenSea was not told that the March 10 hearing was taking place, nor did they get a say in the hearing.  

If the court had proceeded to get an order in place, then that order would have provided for a second hearing, in which OpenSea would have had the opportunity to present its side of the story.

There are still open questions about the outcome. Was an order proceeded with? Did OpenSea attend the return date hearing, and is there a judgment from that? 

I am told by a source, whose name I won’t reveal, that OpenSea complied with the disclosure order to hand over information on the account holders. And that Osbourne subsequently voluntarily dismissed OpenSea as a defendant in the case. 

Releasing OpenSea as a defendant would have happened anyway, said Harding. They were only there as respondents to the Bankers Trust application. There are any number of ways that might have been resolved after the judgment. OpenSea could have refused to cooperate, they could have provided the information, or they could have simply said they had no information to provide. 

“You just cannot tell how much benefit the Claimant got out of this judgment without more information,” he added.

Hot air

The claims in the blog post from 36 Commercial don’t match what the judge said. NFTs are just property; the judge did not distinguish them as a special kind of property. For the purposes of this case, they just need to be property that can be owned and misappropriated.

As I noted in my story for Artnet, in the US, the IRS already considers NFTs property. NFTs have all the attributes of property, as you can transfer them to another person. It absolutely makes sense to assume NFTs are property. 

NFTs are also already property in the UK, separate from the underlying asset. Fungible tokens, like bitcoin and ether, are property too. In the case of an NFT, you’ve just bought a crypto-token containing a link. I’m not sure what Muldoon’s novel claim here is. 

The bigger issue — what’s missing from the discussion — is that there is no law or ruling anywhere that links NFTs to their underlying assets. Owning an NFT doesn’t automatically convey copyright, usage rights, moral rights, or any other rights whatsoever. All of that has to be spelled out separately in a written contract. Nothing about this case in the UK changes any of that. 

Despite the praise she’s getting from crypto fans (her followers on LinkedIn), Muldoon’s claims about a “landmark” NFT decision are just silly nonsense. 

Additional reporting from David Gerard.

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Initial Game Offerings: a failed Initial Grifting Opportunity

David Gerard and I cowrote another story — this one on initial game offerings. Since we alternate posts, this one is on David’s blog. 

If you haven’t guessed, an IGO is a way to drum up funding for a blockchain game. The problem is, play-to-earn never took off. Axie Infinity was the only P2E game that saw any action.

Jackson Palmer mentioned the phrase in his interview with Crikey: “We’ve had ICOs, DAOs, now it’s NFTs. Now I’m seeing initial game offerings as the latest thing.”

The grift is always evolving.

The early history of NFTs, part 3: Curio Cards 

  • By Amy Castor and David Gerard
  • This is part three of the first draft of an early history chapter for our planned NFT book.
  • We welcome corrections and nitpicking, so pick away!
  • Don’t forget to subscribe to our Patreons. Amy’s is here and David’s is here. We need your support for projects like this!
  • As an incentive, we’ve put the full interview with Adam McBride, mentioned here, on our Patreons for subscribers. It’s a great 3,000-word historical rundown.

Curio Cards: the first art NFTs on Ethereum

After the 2017 crypto bubble popped, the early attempts at NFTs faded into obscurity. But many were rediscovered in the 2021 NFT craze.

Buyers would scour the Ethereum blockchain for old NFTs, pick them up for a song, and then, once the discovery was widely broadcast, flip them for a handsome profit. This often required extra coding to get the old NFTs’ smart contract code to work on the OpenSea NFT marketplace — but there was always a “community member” willing to put in the work.  

In early 2021, most people considered CryptoPunks to be the first Ethereum-based art NFTs as we know them — but then Curio Cards was unearthed. Curio Cards was originally launched on May 9, 2017 — predating CryptoPunks by six weeks. 

Etheria, which launched only a few months after Ethereum’s mainnet went live in 2015, predated Curio Cards. But Etheria was a virtual world, and its NFTs were for plots of virtual land — not art. Still, even Etheria land would resell for big money in 2021.

Curio is a 30-card series featuring work from seven artists: Cryptograffiti, Cryptopop, Daniel Friedman, Marisol Vengas, Phneep, Robek World, and Thoros of Myr. It’s actually a 31-card series if you count the misprinted card #17 — called “17b” — as part of the series.

Like all NFT projects, rarity was the big selling point. Curio Card created between 111 and 2,000 cards of each image, for a total of 29,700 cards. The images are of everyday objects, like apples and acorns, mixed in with the occasional corporate logo altered to mention bitcoin. 

The idea of Curio was to put artists’ work onto a blockchain and display it in an online art gallery, so the artists could sell their work without a middleman taking a cut of the profits — 100% of primary sales went to the artists. This didn’t add up to much, though. Before 2021, the cards only sold for between 25 cents and one dollar, and even that was a difficult sale to make at the time. 

Bitcoin street artist Cryptograffiti contributed three pieces to the collection. As an activist, he used to make stickers related to bitcoin and banking and roam around San Francisco sticking them on bank walls and ATMs to show his disdain for modern finance. Curio Card #12 is a 1990s MasterCard logo with the words “MineBitcoin” in place of “MasterCard.”

Now-famous NFT artist XCOPY, who was unknown at the time, missed being included in the collection by a hair.

“You could put in your Google form to be part of Curio Cards, and he got it in too late and was denied,” Adam McBride, an “NFT Archeologist” who spends countless hours per day researching early NFT projects, told us. “If XCOPY was part of the Curio Cards, it would have been a whole different story.” The collection would have been even more coveted today. 

The initial founders of Curio Cards were Thomas Hunt, a bitcoin Youtuber known for the Mad Bitcoins show, and software developer Travis Uhrig. The two met at a bitcoin meetup in San Francisco. Hunt’s love of baseball trading cards gave him the inspiration for putting art on the blockchain: “I thought, why not combine my love for cryptocurrency with my love for collecting and make something fun?” []

Hunt and Uhrig brought in former child actor Rhett Creighton to help with developing the smart contract — the bits of computer code that would run on the blockchain. NFT coding standards, such as ERC-721 and ERC-1155, did not exist yet, so every detail had to be coded by hand, and each card manually put onto the Ethereum blockchain.

All three founders were big fans of Looney’s Rare Pepe project, which preceded Curio Cards. [Show me the Crypto]

As a kid, Creighton starred in Crocodile Dundee II. As an adult, he studied physics and nuclear engineering at MIT. Rhett Creighton was his stage name, a shortened version of his full name, John Everett Creighton IV. In 2017, he also used the name Everett Forth, before reverting to Rhett Creighton.

Creighton was known for his entrepreneurial spirit. He used Amazon’s Mechanical Turk, a crowdsourcing website for businesses to hire remotely located “crowd workers,” to game the initial allocation of the cryptocurrency Stellar. [Inside Bitcoins, Everett Forth]

Creighton also started his own cryptocurrencies. The privacy-enhanced cryptocurrency Zcash originally had a “founder’s reward” that paid a portion of all freshly-created crypto-coins to the developers. In November 2016, Creighton removed the founders’ reward — he considered it inequitable — and called the resulting cryptocurrency ZClassic. Unfortunately, without a founder’s reward, the developers had no way of making money, so the currency didn’t go anywhere. Creighton went on to launch another cryptocurrency, Whalecoin, in November 2017, based on Ethereum, with a 33% “development fund.” He quickly abandoned this also. He then started Bitcoin Private by forking ZClassic, and abandoned that as well.  

Creighton suggested that Curio make its own version of Ethereum for the cards. Uhrig pointed out this would leave his digital trading card idea “orphaned” on its own chain, so they stayed on the public Ethereum blockchain. [Start with NFTs]

Each card included a link to a copy of each image on IPFS in the contract. IPFS is a distributed file system that works a bit like BitTorrent — as long as there’s at least one copy out there to seed a particular file, you can access it. According to McBride, Curio Cards was the first to use IPFS, and the links were still active four years later when the cards were rediscovered. As with Rare Pepes, Curio cards ended up being a collection of individual fungible tokens, each tracked by its own smart contract with its own total supply. []

Curio Cards had a detailed business plan, with complicated smart contract coding. The creators wanted to create “FOMO” — fear of missing out — to ramp up interest in the cards. When a card launched, it sold for 25 cents in ether. The price would incrementally go up to a dollar over the following days.  The first ten cards (at least) had a distribution of 100,000 — but after 2,000 were bought, the rest were automatically burned. For later cards, the artist chose how many were created. As a result, every card had multiple smart contracts.

The cards could only be bought on the Curio Cards website — there were no NFT standards and no NFT marketplaces. The smart contracts were linked as “vending machines” from the website. You can create an NFT collection today in fifteen minutes that works to the standards, and be sure they’ll work in an NFT marketplace.

As Creighton was creating the contract for card #17, something went wrong, so he had to reissue the card. The misprint became “17b.”

“I don’t think anyone knows exactly what happened with 17b, but it was briefly released,” McBride said. “One person who is actually in the Discord was able to get, I don’t know how many 17b’s, before they realized their mistake and turned off the contract.”

Hunt and Uhrig tried to run Curio Cards like a start-up business. “I believe blockchain-based collectibles will be very big in the future,” Hunt predicted in a 2017 interview. Uhrig’s role was to pitch the idea to venture capitalists. But the idea never caught on. Nobody cared, and Uhrig could barely give the virtual cards away on a Discord channel. “It was a fun thing at the time, but kinda failed in a lot of ways getting any traction,” he said in an interview.  

​​Curio Cards lay dormant until March 2021, when @DieAping on Twitter (whose account has since been deleted) uncovered the old Curio “vending machines” on Github. These were early versions of the Curio smart contracts, still with active Curio Card contracts in them — though the links on the website to the smart contracts had been removed. [Tweet]

“For a while, people were just doing OTC trades through the Curio Discord, and that is just kind of trusting people,” says McBride.

In 2021, whenever an old NFT project was unearthed, you had to move quickly to get the tokens onto OpenSea. Some code would quickly be written to serve as a “wrapper” to interface the existing contracts to OpenSea.

The first rushed third-party wrapper created to get Curio Cards to work on OpenSea had a fatal bug: when anxious Curio Card holders sent their tokens to the contract, the tokens became forever stuck — “permawrapped.” [FAQ: Wrapping Old Cards]

As a result, Card #26 became the rarest card — only 105 were still tradeable — and the biggest bottleneck to getting a full set.  

In October 2021, a complete set of 31 Curio cards, including the 17b misprint, sold for more than $1.2 million in ether at the Christie’s Post-War to Present auction. Taylor Gerring, an early contributor to the Ethereum project, was the buyer. 

Despite early frustrations, the project turned out to be a success after all. [Tweet]

Feature image: Curio Card #23, “The Barbarian” by Robek World, depicting Curio founder Rhett Creighton.

Coinbase freezes hiring, rescinds job offers: ‘Coinbase ghosted me’

Coinbase is losing money. Its stock is in the toilet. Now, the largest crypto exchange in the US says it’s extending its hiring freeze and rescinding job offers.

L.J. Brock, Coinbase’s chief people officer, shared the grim news in a blog post on Thursday. It’s been only two weeks since the San Francisco firm initially announced plans to pause hiring. Yesterday’s blog post signals just how dire things have become:

“In response to the current market conditions and ongoing business prioritization efforts, we will extend our hiring pause for both new and backfill roles for the foreseeable future and rescind a number of accepted offers.”

The announcement comes on the same day Gemini said it would be trimming 10% of its staff. In a blog post, co-founders Cameron and Tyler Winklevoss attributed the layoffs to “turbulent market conditions that are likely to persist for some time.” 

Coincidently, a CFTC lawsuit also dropped on Thursday claiming Gemini misled regulators to gain approval for a bitcoin futures product it was pursuing in 2017.

Coinbase is struggling to turn a profit. Last month, it posted a $430 million loss for Q1 2022 after missing analysts’ predictions on both profit and revenue for the quarter. The exchange said it was bleeding users. 

The company’s stock price (Nasdaq: COIN) is down more than 70% since the beginning of the year and is currently trading at $74 per share. It’s hard to imagine that COIN was as high as $343 in November 2021. 

The tumble in Coinbase’s stock price coincides with the crypto markets. Bitcoin has barely been able to keep its head above $30,000, after losing 60% of its value since its November record. The stock market is also suffering. The tech-heavy Nasdaq composite is down 22% since January.  

‘Coinbase ghosted me’

Leading up to 2022, Coinbase planned to triple its workforce. The firm hired 1,200 people in the first quarter and had 3,730 employees at the end of last year, according to its latest earnings report. Now, it’s not even calling some people back after extending job offers. 

I spoke with one person, whose name I won’t reveal, who said Coinbase offered him a job as a security engineer in January. The man, who is in his 30s and has a decade of experience at FAANG companies, told me he had a verbal offer from Coinbase after an interview panel. But then he was ghosted and never heard from them again. 

“I honestly was only interested in getting a competitive offer to better my negotiation at other places I was interviewing,” he told me in a private message. “So grateful Coinbase ghosted me.”

Otherwise, had he gotten the offer in writing, he might have seriously considered taking the job, even as a no-coiner. The comp in the verbal offer was tempting. 

Coinbase offered him a $280,000 base salary plus a 15% bonus and $600,000 annual equity, for total compensation of $920,000, he said.

“We don’t do a four-year program where you vest 25% each year. We don’t have a cliff either, so you start vesting immediately on a quarterly basis,” Coinbase told him.

The company has performance multipliers and suggested that potentially, he could make $1.5 million annually. 

Coinbase has a 2% 401(k) matching program. As an employee, he would get one month off per year along with unlimited paid time off. That’s in addition to four companywide weeks off.

In January, Coinbase proudly announced that the entire company would shut down for one week at the end of each quarter so employees could “recharge.” 

Oh, and there’s a $500 monthly wellness stipend, in case you want to join a gym or take yoga.

After the interview, the would-be employee got an email from the recruiter saying that things went great and they wanted to extend an offer. The recruiter asked if comp would be okay before they put the contract together.

And then, nothing. 

It was just as well, he told me. “Because the equity would have cut in half, and the company will look far worse after the coming collapse.”

Other would-be employees aren’t so relieved. On Blind, an anonymous app for the workforce, someone wrote: “I was supposed to start jun 6th. My offer has been rescinded. This feels like a nightmare that I can’t wait to wake up from.” 

“Dodged a bullet,” a Coinbase employee replied. 

Why rescinding job offers is bad

Rescinding job offers at the last minute is a nasty thing to do to people, especially if they’ve already submitted notice at their current job, told their landlord they are moving, or put their home up for sale. 

It can also blacken the offering company’s reputation. Word gets out, and you’ll have a much harder time convincing people to work for you in the future. It also makes Coinbase’s financial health look worse like they’ve somehow managed to run out of cash running a casino.

Meanwhile, Coinbase execs aren’t doing too bad for themselves. In 2020, including stock options and bonuses, CEO Brian Armstrong made $59 million, Chief Product Officer Surojit Chatterjee made $16 million, and Chief Legal Officer Paul Grewal made $18 million, according to SEC filings

Hacker News is outraged. Coinbase did in any hope of hiring competent non-hodlers.

Here’s what Blotto_Otter on Something Awful wrote: 

“When I read stuff like this, all I can think about is when I started in public accounting right in the middle of the 2007/2008 crash, and out of all the unpleasant stuff most accounting firms did during that time — layoffs, hiring freezes, salary freezes and cuts, benefit cuts — the one thing they did not do was revoke job offers from people who had already accepted offers. They did everything but that because they understood that that is the one thing that will make your name mud when it comes to recruiting new hires in the future.”

Also, Coinbase could potentially get sued for reneging on job offers, if it extended a no-caveat offer and the would-be employee can prove they suffered losses. National Law Review wrote about this in 2019.

In its blog post, Coinbase said it was extending its severance policy to individuals it offered jobs and would notify them by email. Blind posted a copy of the rescind email, along with another email Coinbase sent to new hires two weeks ago telling them it would not rescind job offers. What’s next? Layoffs?

It’s just a shame Coinbase doesn’t put its job offers on the blockchain.  

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Former OpenSea executive Nate Chastain arrested for insider trading of NFTs

As David Gerard and I were discussing our next book post via Zoom, we spotted the DOJ had just dropped a press release announcing the arrest of Nate Chastain in New York. 

The former OpenSea exec was allegedly caught with his hands in the cookie jar. He was charged with two counts: money laundering and wire fraud. How much of NFT trading is real anyway?

We wrote up a quick blog post, which David posted on his blog.

Bloomberg’s Matt Levine may have to create insider trading rule #13: don’t do it on a public blockchain.

Stay tuned for our next NFT history post, hopefully, this week. Looks like we’ll be doing an entire post just on Curio Cards, one of the early art NFT projects on Ethereum. 

If you like our work, become a patron. Your support makes a difference! [Amy’s Patreon; David’s Patreon]

Early history of NFTs, part 2: Monegraph, Spells of Genesis, Rare Pepes

  • The following is part two of a chapter on the early history of NFTs for a book by David Gerard and Amy Castor.
  • Part one is posted on David’s blog. We are alternating. We thought we’d only have two parts, but now it looks like we have three. Stay tuned for CryptoPunks and CryptoKitties!
  • We welcome and encourage corrections and nitpicking!
  • Don’t forget to sign up for our Patreon accounts! My Patreon is here and David’s is here. 

Monegraph: A template for future NFTs

The template for today’s art-based NFTs — though they wouldn’t be called “NFTs” for another three years — was something that was quickly coded in the middle of the night in May 2014.  

2014 was the peak of popularity for the microblogging site Tumblr. People were right-clicking artists’ work willy-nilly and re-posting images online with no attribution.

Tech entrepreneur Anil Dash teamed up with artist Kevin McCoy at Rhizome’s Seven on Seven Conference in New York City, an event that matched artists and technologists. The two had only met 48 hours prior.

They wanted to help artists protect their work, so they came up with an idea for recording images on the blockchain. Their project Monegraph, short for “monetized graphics,” was built on the early bitcoin clone Namecoin.

Dash and McCoy quickly figured out that blockchains aren’t designed to handle large chunks of data. So as a last-minute hack, the pair put a URL in the Namecoin blockchain record that pointed to an image elsewhere on the internet. It was never clear how exactly this would protect artists’ work.

To this day, however, NFTs still rely on the same shortcut. When someone buys an NFT, they’re not buying the actual digital artwork, they’re buying a link to it — but on a blockchain.

Dash called out this issue years later: “And worse, they’re buying a link that, in many cases, lives on the website of a new start-up that’s likely to fail within a few years. Decades from now, how will anyone verify whether the linked artwork is the original?” 

At the time, Dash and McCoy’s idea went unnoticed. But in June 2021, when NFTs were making headlines around the globe, McCoy put “Quantum,” the first NFT created on Monograph, up for auction at Sotheby’s.

“Quantum” is an animated GIF image of an octagon with flashing concentric circles. Sotheby’s talked “Quantum” up as a “seismic genesis work” comparable to pieces by Picasso, Malevich, and Duchamp. Shortly before the auction, Axios ran an article with the eye-grabbing headline “Exclusive: The first-ever NFT from 2014 is on sale for $7 million-plus.” 

McCoy and Sotheby’s ended up selling the iconic NFT for less than that, but still, an eye-watering $1,472,000. 

Well, sort of. What was sold at Sotheby’s wasn’t exactly the original NFT.

McCoy didn’t auction off the Namecoin NFT of “Quantum” that he minted in May 2014. Instead, a month before the auction, he minted a new NFT on the Ethereum blockchain — and sold that. He held the copyright since it was his art, but it wasn’t the original cryptographic token. 

This would later become a sticking point, especially as someone else had jumped in to claim ownership of the original NFT of “Quantum,” while McCoy wasn’t paying attention. 

Namecoin requires owners to reclaim the “Namecoins” in their wallets roughly every eight months. In McCoy’s case, he allowed his NFT of “Quantum” to languish for 6.5 years, having all but forgotten about it since he first created it.

Seeing that an early NFT was about to go for big money — potentially $7 million, according to the Axios story — a Canadian company called Free Holdings Inc. seized the opportunity and registered as the new owner on Namecoin. After the auction, Free Holdings filed a lawsuit against McCoy and Sotheby’s for the sale.

The trouble is that McCoy’s original token on the Namecoin blockchain included the text: “Title transfers to whoever controls this blockchain entry.”

As the complaint stated: “While the blockchain records are self-evident, such records cannot defend themselves in the face of concerted efforts by a formative artist and auction house to establish a false narrative concerning what is presumed to be the first NFT.”

Nobody knows who is behind Free Holdings, but he/she is associated with the Twitter account @EarlyNFT. According to the complaint, @EarlyNFT tried several times to virtually tap McCoy on the shoulder in the days leading up to the auction by reaching out on Twitter:

“Would you mind enabling PM for me, @mccoyspace? There’s a matter regarding your ‘Quantum’ I’d like to discuss with you,” @EarlyNFT said in a tweet. “Kevin, would you mind allowing me to send you a private message… This concerns your NFT artwork with Monegraph back in 2014,” And: “I’m in possession of Quantum NFT (the record is found here…. “

McCoy never responded to Free Holding’s shoulder taps and continued to proceed with the auction. 

Sotheby’s called the lawsuit “baseless” and vowed to vigorously defend itself. We contacted @EarlyNFT, who told us that his lawyer is still waiting to hear back from McCoy and Sotheby’s.

Even before the auction of “Quantum,” Dash was horrified that his dream had become “commercially exploitable hype.” He walked away from the space. Whereas McCoy went on to establish Monegraph as a company along with co-founder Carlos Mendez. In September 2021, Monegraph launched “Readymade NFT,” a platform for galleries, auction houses, and artists to run their own small NFT marketplaces.

Spells of Genesis: Trading cards on the blockchain

In popular games such as Magic: The Gathering and Pokemon, players trade physical cards for real money. What if they could trade tokens for pretend money instead? 

Shaban Shaame promoted his game Spells of Genesis as a “blockchain-based game.” In 2015, his company Everdreamsoft raised 930 bitcoin, worth $350,000 at the time, by selling its BitCrystals token on Counterparty.

Players who reached a certain level could mint in-game cards and “blockchainize” their cards, turning them into Counterparty NFTs. They could then trade the NFTs on the Spells of Genesis website for BitCrystal tokens. The cards featured fantasy-themed artwork based on moments in early bitcoin history, including a purple-robed Satoshi Nakamoto.

The digital cards lived on the Spells of Genesis website. Only the tokens exist on the blockchain. Players were not trading cards, they were trading tokens.  

The BitCrystals token saw an uptick in price when the Spells of Genesis mobile game launched in 2017. After that, crypto traders lost interest in the game, and Spells of Genesis collectibles faded into obscurity. In 2019, Shaame froze the development of the project. Spells of Genesis restarted on the Ethereum blockchain in 2020. 

In 2021, the game’s collectibles found their way onto OpenSea. Today Shaame claims Spells of Genesis was the first “play-to-earn” game. He says that “without blockchain it is not possible to pay people in gaming.”

Rare Pepes: Hate symbols on the blockchain

Illustrator Matt Furie created Pepe the Frog, a cartoon character that appeared in the strip “Boy’s Club” in 2005. The comics showed Pepe and his buddies eating pizza and playing dumb jokes on each other. In the comics, Pepe used the catchphrase, “Feels good man.”

Pepe became a popular meme on the message board 4chan’s /b/ board. The Washington Post described /b/ as “an unfathomable grab-bag of the random, the gross and the downright bizarre.”

Ahead of the 2016 election of President Donald Trump, Pepe was co-opted by neo-Nazis on 4chan’s /pol/ (Politically Incorrect) board. They posted images of Pepe next to the World Trade Center’s twin towers, stuck swastikas on him, and had him saying things like “Kill Jews, man” — to Furie’s horror. 

This version of the Pepe meme spread to other social media sites, such as Reddit and 8chan. Pepe became so widely associated with the white nationalist movement that in September 2016, the Anti-Defamation League added Furie’s beloved Pepe to their official list of hate symbols

Variations of Pepe depicting the frog as different public figures came to be known as “rare Pepes.” They often had watermarks such as “RARE PEPE DO NOT SAVE,” to indicate that the artist had not yet made the image available for public use.

In October 2016, bitcoiner Joe Looney launched the Rare Pepe Wallet, an online exchange where any meme creator could mint an NFT of their rare Pepe on Counterparty, and trade it for crypto — specifically, a new coin called Pepecash. Rare Pepes are listed in the Rare Pepe Directory.

When crypto fans reference the earliest NFTs, they often leave out Rare Pepes due to their associations with white nationalism. But that was, in fact, one of the earliest NFT collections to gain any traction.

Through 2017 and onward, Furie fought tirelessly to reclaim Pepe from the alt-right — including lawsuits against white nationalists trying to co-opt the character.

After digital artist Beeple made $69 million selling an NFT of his scrapbook on Christie’s in 2021, Furie figured he too could place a pail under the free money spigot. In April 2021, Furie listed his first authorized Pepe NFT on OpenSea: “Pepe the Frog NFT Genesis.” The buyer paid 420 ether for the NFT, netting Furie $1 million at the time.

Later that year, Furie founded the Pegz DAO, or “decentralized autonomous organization” — sort of like an online venture fund. 

Furie’s DAO issued several series of NFTs of Pepe and related characters. One release was of 99 Pepe NFTs titled “FEELSGOODMAN,” linked to an image of Pepe relaxing peacefully in a pond with his green bottom protruding above the water. The promotion stated: “99 will remain in the PegzDAO, and ONE is being auctioned here.”

The FEELSGOODMAN NFT was bought by a man named Halston Thayer for $537,000 in crypto. Two weeks later Furie gave away 46 NFTs for free to members of PegzDAO — all representing an image identical to the one Thayer paid all that crypto for.

Thayer is now suing Furie for cheapening his investment. Thayer claims that Furie “led Plaintiff and others to grossly overbid on the NFT.” Thayer maintains that Furie’s release of the other NFTs devalued Thayer’s NFT “to less than $30,000.00, hundreds of thousands of dollars less than what he paid for this purportedly ‘unique asset’” — a valuation that Thayer does not substantiate. He claims “conspiracy and wrongful conduct.”

Kara Swisher promotes crypto for your retirement, compares it to early internet

As a journalist, you have to decide whether you are going to report the truth — or toss your principles aside and take the money. In the years I’ve been covering crypto, I’ve seen too many people opt for the latter. 

Still, I almost fell over backward on Monday when long-time tech journalist and NYT opinion writer Kara Swisher compared crypto to the early days of the internet. Swisher has been writing about the Internet since the early 1990s — she knows better!

Swisher said this in the course of defending an advertisement on her podcast for a cryptocurrency IRA — from a company that offered to put your retirement money into Axie Infinity.

Also, what’s a “conflict of interest”?

Electricity was only discovered in 500 BC, it’s still early days

Comparing crypto to the internet is how crypto boosters typically respond to critics. 

Normal person: “This stuff doesn’t work. It’s been around for 13 years, and it’s still absolute crap.” 

Crypto booster: “Crypto is like the early days of the Internet, give it time!” 

In fact, crypto is not like the internet at all. The internet was useful for real work from its first days before it was even called the internet, and people recognized its power and potential at every step. There were no bros telling everyone within earshot that it would definitely not suck if you gave it another 13 years. [David Gerard]

Retire on your altcoin pile

Swisher previously wrote for The Wall Street Journal and The Washington Post. She is the co-founder of Recode, now owned by Vox Media. In 2018, Recode launched the Pivot podcast.  

Swisher cohosts Pivot semi-weekly with NYU business professor Scott Galloway, who has also written several books. They talk about tech, business, and politics. 

In a recent podcast, Galloway read an ad for one of their sponsors — crypto firm iTrust Capital — and encouraged listeners to put crypto into their Individual Retirement Account: [Podcast]

“By now, you’ve probably heard all about cryptocurrencies like bitcoin. You might even already be invested in them. But did you know, you could also invest in cryptocurrencies through your retirement account? That’s right. With iTrust Capital, you can buy and sell cryptocurrencies from a crypto IRA and get all the same tax advantages as a traditional IRA. iTrust Capital allows you to invest in over two dozen of the most popular cryptocurrencies and unlike the stock market, you can buy and sell 24 hours a day. The iTrust Capital platform is easy to use and it only takes a few minutes to set up your account. Setting up an IRA is free and iTrust fees are low. It’s time to start taking control of your financial future with iTrust Capital, you can get all the tax benefits of a retirement account while investing in crypto. Visit iTrust Capital/Pivot to start investing in today.” 

Alan Graham called the pair out on Twitter for promoting this kind of reprehensible garbage. Crypto is a speculative investment. It’s built on bad tech, it’s volatile as hell, and people often lose everything in hacks and rugpulls. This is not something you want to be advising people to invest in, especially for the long term.

Swisher got defensive: “Last time I checked people had choice and this offered a range of investments. Also crypto is by no means over. It’s like early internet. Sorry if that bothers you but it is so.” [Twitter, archive]

iTrust does offer a range of investments — a range of highly volatile, underwater investments. I’m not so sure you’ll be able to retire comfortably on Axie Infinity tokens. 

When Graham pointed out that crypto is 100% not like the Internet, Swisher attacked bitcoin critics: “The crypto fanboys are bad but the skeptics are overplaying it.” 

Conflicts of interest are so old-tech, it’s a new paradigm now

You may be utterly unsurprised to learn that Swisher is a bitcoin holder. 

On December 20, 2017, just as bitcoin was hitting the peak of the 2017 bubble, Swisher casually mentioned her bitcoins on a Recode Decode podcast — which she also hosts — with The Verge’s Casey Newton and Spark Capital General Partner Megan Quinn. Newton pointed out the Vox Media ethics policy didn’t allow journalists to hold cryptos. Swisher just shrugged it off and continued. [Recode/Decode – 43:13; transcript]

In a February 2021 tweet, Swisher admitted to owning 10 bitcoins — with a face value at the time, and again now, of about $300,000: “Whatever. I own 10 Bitcoin from a brick ago from when I was doing a story when it first started, so don’t lecture me.” [Tweet, archive]

Swisher said she forgot where she put her bitcoins — maybe in a box in a storage unit? “I have no idea if I threw it out or not.” [Tweet, archive]

We all know how easy it is to misplace $300,000. Who even keeps track of change that small?

The New York Times has a rule against writing about your own asset holdings. This hasn’t stopped Swisher from writing about bitcoin and other crypto assets in the paper, with no disclosure. [NYT editorial standards]

Scott Galloway is a professor of marketing and a long-time startup guy, who writes about investment and startups. David Gerard quoted Galloway in his book “Libra Shrugged.” Galloway has skewered crypto before and thinks Robinhood is exploitative trash.

Galloway said on Twitter that he “felt awkward” reading something with crypto and IRA in the same sentence. But not awkward enough not to take the money.

What is iTrust?

Irvine, California-based iTrust Capital wants people to invest their retirement funds in all manner of bottom-of-the-barrel shitcoins.

iTrust’s favored market is crypto investors who don’t want to pay a ton of capital gains tax on their holdings. [Traders Magazine]

The very first crypto that iTrust list on their website is AXS, the native token of the blockchain game Axie Infinity. North Korean hackers recently stole $600 million in ETH from the platform. Axie has yet to compensate users for their losses. The AXS token itself has gone through the floor.

​​iTrust Capital has raised $128 million in funding over four rounds. Left Lane Capital and Ledger Prime are the most recent investors. [Crunchbase]

The firm is doing business as M2 Trust, a charted trust company in Denver, Colorado. They are fiduciaries, but they hide behind iTrust’s brand and disclaim responsibility as a broker. It’s shady of them to be promoting cryptocurrency as fiduciaries. 

iTrust says on its website it will store your retirement funds at Coinbase Custody, who notified the SEC recently that they will ransack your retirement if the company runs out of money. Coinbase treats Coinbase Custody just like trading funds — not like someone else’s separate money. [Bloomberg]

Why putting your retirement money into crypto is bad

The Department of Labor has told fiduciaries that putting cryptos into 401(k) risked their licenses in March. This isn’t a 401(k), though, so the DoL doesn’t have a say in it. IRAs are personal, and it’s a lot easier to put any old crap into them, making them perfect targets for crypto. 

The SEC has also warned investors about the dangers of putting money in cryptocurrencies. 

As I wrote earlier, crypto-asset manager Grayscale has been telling investors to buy shares of GBTC, advertising the fund as a way to get exposure to bitcoin without having to buy bitcoin.

Many investors bought GBTC for their IRAs in 2020, because they trusted in GBTC’s television advertising. GBTC is currently trading at 30% below the face value of the bitcoins it’s supposed to represent. Quite a few of these investors have written to the SEC, begging them to make GBTC into a bitcoin ETF — so their retirement won’t be underwater. [SEC Comments]

Galloway and Swisher are encouraging investors to take huge risks with their future. This is shamelessly irresponsible. Galloway in particular should know better.

Additional reporting from David Gerard

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New QuadrigaCX documentary: ‘The Mysterious Disappearance of the Bitcoin Millionaire’

A new QuadrigaCX documentary is out, and I’m featured in it. “Rich and Shameless” is a seven-part documentary series — one new “true crime” story per week — streaming on TNT. [Warner Media press release]

Episode 4, which aired this week, is the Quadriga documentary: “The Mysterious Disappearance of the Bitcoin Millionaire.” [TNT]

The bitcoin millionaire is, of course, Gerald Cotten, the former Quadriga CEO, who died mysteriously in India just as his Ponzi was starting to crumble. 

Here’s one of the trailers for the 42-minute show. [Youtube]

Childhood friend Scott Geroux describes Cotten as a “ghost” in high school. Cotten kept to himself and didn’t really show his cards or what he was thinking. There were no pictures of him in the yearbooks, other than class pictures. He wasn’t in any clubs, didn’t do any sports, didn’t go to dances. 

I suspect that’s because good ol’ Gerry was running Ponzi schemes from a tender age on TalkGold, getting tips from his mentor Michael Patryn, the future cofounder of Quadriga.  

The production company for the film is RAW TV, the same production company behind “The Tinder Swindler.” RAW is based in the UK.

I did the filming for this on March 8, 2021. RAW staff didn’t travel to the U.S. for the film due to COVID. Instead, they hired film crews in various cities. I was interviewed by video from Los Angeles — where they rented an entire house. It was a long day of filming, but lots of fun. 

A16z’s ‘State of Crypto’ report: A rehash of bad crypto market pitches

It’s been a terrible few weeks for crypto. The markets are tumbling. A major stablecoin turns out to be unstable. And the media are all reporting that the NFT market has crashed. 

Now what? You are the biggest venture capitalist firm in the crypto and NFT space. You need to keep the public believing in this nonsense, so you can dump your heavy bags. What do you do? 

You double down and regurgitate the same tired lies and propaganda you have been spewing all along in the hopes you can reel in some fresh suckers in the process. 

Andreessen Horowitz (a16z) released its 2022 State of Crypto Report on Tuesday, along with 56 slides.

The report was cobbled together by general partner Chris Dixon, content creator Robert Hackett, a former Fortune journalist, and two number crunchers, Daren Matsuoka and Eddy Lazzarin, to lend an air of actual research to the study. 

A16z has funded more than 50 crypto startups. In the NFT space, it has backed over a dozen firms, including NFT marketplace OpenSea, play-to-earn game Axie Infinity (which recently suffered a $600 million hack), investor pool PleasrDAO, and Yuga Labs, the company behind the Bored Apes Yacht Club. 

The Silicon Valley VC world is making a fortune off of the securities fraud-as-a-business model. It works like this: A crypto project comes out with a really dumb idea. The dumb idea is powered by a token! The token is an unregistered securities offering. A16z gives the project money and gets a pile of the project’s shitcoins in return. After a lockup period, it blatantly dumps the coins on the public via Coinbase, where Marc Andreessen sits on the board, along with a16z general partner Katie Haun. If the token isn’t busted by the SEC, a16z makes a bundle; if the token is busted by the SEC, a16z get all their money back as the injured investor. David Gerard explains the process in detail.  

The report compiles standard talking points for crypto VCs. You often see these points mindlessly repeated in mainstream media. You can think of Silicon Valley VCs as a pump-and-dump group. When you see Chris Dixon, Katie Haun, Alex Ohanian, Ashton Kutcher, and Guy Oseary all tweeting the same things, it’s part of a coordinated pump-and-dump. 

Here are the five primary lies a16z makes in its report:

Lie #1: ‘We’re in the middle of the fourth price-innovation cycle’

The crypto markets are crashing, but you shouldn’t worry about this. “Pay no attention to Mr. Market,” Dixon and friends write. Crashing prices are a natural part of the “price innovation cycle.” The numbers will go up in due time! 

A16z wants you to believe that the roller coaster of crypto markets is driven by technical innovation, rather than things like GBTC’s reflexive Ponzi or tens of billions of dubiously backed tethers sloshing around on unregulated off-shore crypto exchanges. 

In reality, crypto markets are driven by a series of grifts designed to lure real money into the cryptoverse. In 2017, we had the ICO grift. After the SEC put its foot down, new grifts evolved, including DeFi, NFTs, fractionalized NFTs, DAOs and their governance tokens, and P2E games. 

These grifts exist for one purpose: to create the illusion that tokens have real value. They don’t. Their value is purely speculative. When you go to sell, the only money you make comes from new investors — and there is a finite supply of suckers in the world, which explains why the grifts keep evolving. 

Lie #2: ‘Web3 is much, much better for creators than Web2’

Web3 is a meaningless buzzword a16z loves to kick around. They’ve written entire papers on it. 

In the fantasy world of Web3, which only ever exists in the future, everything will run on blockchains, so you should buy tokens today because number will go up!

A16z argues that Web3 platforms, such as OpenSea have a lower “take rate” for creators than Facebook, Twitter, and Instagram. (A16z led a $100 million round in OpenSea last year. After a $300 million round in January, the platform is now valued at $13 billion.)  

OpenSea takes 2.5% of every transaction on its platform, as opposed to Facebook, Instagram, and Twitter, which take 100% of creator value, the VC firm argues. 

Some of these things don’t belong together.

Talk about comparing apples to oranges. These things aren’t the same! OpenSea is a marketplace where people buy and sell tokens. The others are social media platforms. Better comparisons? eBay charges sellers 2-12%, depending on the category. Bandcamp takes 15%, which is very low for a record shop. But also, these are just sales. OpenSea is a trading platform. Coinbase takes 0.6% commission on trades below $10,000. 

Dixon et al also claim that OpenSea is better for creators because it pays royalties. You can get a percentage of secondary sales going forward. 

This is the crux of how Yuga Labs has made untold millions. Every time a Bored Ape Yacht Club NFT sells on OpenSea, Yuga Labs pockets 2.5% of the sale price.  

Ironically, despite the fact that they are getting hysterically rich, Yuga Labs pulled the rug on the actual artist behind the monkey cartoons. Lead artist Seneca told reporters that her payment was “definitely not ideal.” In a now-deleted tweet, she wrote: “Bored Apes rugged me.”    

As for other artists getting rich on royalties on OpenSea, there is no secondary market for them to make money on. It’s mainly wash trades. 

Lie #3: ‘Crypto is having a real-world impact’

Crypto peddlers routinely talk about how crypto will help undeveloped countries. “Banking the unbanked” is a phrase that a16z uses regularly. “Crypto offers a shot at financial inclusion,” it says in its report. 

Truth: Crypto has completely failed as a payment system. It’s too slow, too volatile, and too irreversible — one fat finger mistake, and your money is gone forever. 

In El Salvador, Nayib Bukele, the country’s authoritarian president, passed a law making bitcoin legal tender. However, nobody in the country is actually using bitcoin for payments. Instead, they almost all use a wallet (Chivo wallet) that updates the balance in a central database. And they are not even using that! 

A16z lists other examples of how crypto is saving the world:

  • Flowcarbon ($GNT) is “revamping carbon credits.” Truth: Crypto traders have been searching the carbon market for older, cheaper offsets to buy and tokenize. Climate experts are specifically horrified by carbon credits on a blockchain. These tokens are akin to collateralized debt instruments.
  • Helium ($HNT) is the “first legitimate, decentralized challenge to entrenched telecom giants.” Truth: Helium is a utility token ICO scam where you mine HNT to pay for long-range/low-bandwidth wireless connectivity. To start mining, you have to buy $80 worth of gear from a Helium-approved vendor marked up to $600. Some miners report making less than $1 per day. HNT has lost 85% of its value since November.
  • Spruce ($SPR) is “enabling people to control their own identities, rather than ceding that power to online intermediaries, like Google and Meta, who profit off people’s information through their data-mining business models.” I’m sure everyone wants their identities stored on an immutable blockchain!

A16z also talks up DAOs (decentralized autonomous organizations), which are neither autonomous nor decentralized. As with the Apecoin DAO, decisions are made by those who hold the most $APE, meaning Yuga Labs and a16Z. (Yuga Labs recently raised $450 million in seed funding in a round led by a16z. VCs got $APE in return.)

Dixon also claims NFTs “grant people virtual property rights across profile pictures, artworks, music, in-game items, access passes, land in virtual worlds, and other digital goods.” 

This is simply false. NFTs don’t convey any rights at all. Copyrights and ownership rights are only passed along in a separate written contract — something that doesn’t need a blockchain.  

Lie #4: ‘Ethereum is the clear leader, but faces competition’

Web3 is built on the myth that the infrastructure exists to support a plethora of apps running on blockchains. A16z writes: “Ethereum dominates the Web3 conversation, but there are plenty of other blockchains now too. Developers of blockchains like Solana, Polygon, BNB Chain, Avalanche, and Fantom are angling for similar success.”

Reality: Ethereum can’t cope with any of this. In 2017, Ethereum slowed to a crawl when CryptoKitties, a game where people trade cartoon cats, became popular. Last month, when Bored Apes Yacht Club sold 55,000 NFTs representing plots of virtual land for its Otherside MMO, people ended up paying twice the cost of the land in gas fees, and the network became virtually unusable for other projects. 

Nicholas Weaver, a former researcher at the International Computer Science Institute at Berkeley and CEO at Skerry Technologies, estimates that Ethereum has 1/5000 of the compute power of a Raspberry Pi, a tiny hobbyist computer-in-a-matchbox.

Ethereum has a goal to move to a proof of stake consensus mechanism to solve these problems, but the move has been six months away for years now.   

As for these other blockchains, they are tiny projects that haven’t been tested at scale. Solana gets clogged regularly too, with shutdowns of the entire network.  

A16z writes that “with Ethereum L1 as the hub, a significant amount of value is deposited into bridges.” (Slide 17.) 

Truth: Ethereum doesn’t work, so games are resorting to bridges, which are being hacked in record numbers. The $600 million in ETH that was once on the Axie-Ronin Bridge is now in the hands of North Korea. Bridges are smart contract pinatas. 

Bridges are a honeypot for hackers.

Lie #5. ‘Yes, it’s still early’

Once again, a16Z falls back upon this B.S. argument of comparing Web3 to the internet: “We estimate there are somewhere between seven million and 50 million active Ethereum users today, based on various on-chain metrics…Analogizing to the early commercial internet, that puts us somewhere circa 1995 in terms of development.”

Crypto is 13 years old. At that age, the World Wide Web was in peak dot-com bubble, and adoption was limited by access to bandwidth, not by lack of interest or usefulness.  

I doubt any actual investors will read a16z’s State of Crypto report. It’s a string of excuses to feed the media in the hope they can keep the music playing a bit longer. At some point, I predict that most of the shitcoins that a16z is peddling will trade close to their real value, which is nothing. And Web3 will become widely recognized for what it is — a joke. 

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The NFT market hasn’t crashed — it was never not crashed

I wrote a story this week on the NFT market for Artnet News. You can read it here. As always, there’s more to say on the subject!

After Paul Vigna at the WSJ announced that the NFT market is “collapsing,” dozens of other media outlets have been rushing to write their own stories on how the NFT market is crashing. 

Fortune’s headline read: “The NFT bubble is showing clear signs of bursting.” Decrypt wrote: “Bored Ape Yacht Club, Other Ethereum NFT Prices Plummet as Crypto Market Crashes.” And the LA Times reported that NFTs are crashing along with SPACs, meme stocks, and other risky investments.

Vigna pulled his data from Gauthier Zuppinger, the COO of, told me the data Vigna looked at was incomplete, “insofar as it came from the front end of our site, which was in the process of synchronizing data from Axie Infinity.” A popular P2E game, Axie-Infinity represents a large volume of active NFT wallets and transactions. To be fair, Zuppinger sent me this to show me the market isn’t quite as terrible as the WSJ reported.

However, if you look at what’s on Nonfungible’s site, which is clearly what Vigna was looking at, things look bleak. Aside from an uptick in NFT sales on April 30 when Bored Ape Yacht Club held its Otherside land sale, things have been slipping downhill since the beginning of the year.

Admittedly, the data on the NFT market is confusing. Some of the reports on Dune Analytics and DappRadar make it look like the market still has a fighting chance. Blockchain analytics firm Chainalysis published a report on May 5 on how NFT transaction activity has been “stabilizing.” 

NFTs are illiquid assets. It’s not easy to find a new sucker everyday willing to pay millions of dollars for a JPEG — not even a JPEG, but a token on a blockchain that points to a JPEG.

This is why we see situations like the one on Feb. 8, when a seller going by @0x650d on Twitter decided to “hodl” his collection of 104 CryptoPunks at the last minute. The collection was supposed to fetch $30 million at Sotheby’s — but there were no buyers.  

If you accept that the NFT market is crashing, you have to accept that the NFT market ever existed at all. 

The problem with NFT data is that most of it is coming from the NFT platforms themselves. There’s no way to confirm if what they are reporting is real. And there is good reason to suspect the secondary market doesn’t exist at all — it’s just wash trading, meaning the same money is going back and forth between the same people, to pump up the prices. 

Most of the activity on LooksRare, a marketplace that launched in January and went on to challenge power player OpenSea, turned out to be fake. In February, Chainalysis reported “significant” wash trading on NFT platforms. Their findings made international news. On May 4, the first day that Coinbase opened its NFT marketplace to the public, the platform had barely any users. This was after Coinbase boasted that 4 million were on the waitlist.

If you accept the NFT market is real, you have to be willing to accept that there are people on the planet who are willing to plunk down $350,000 for a Bored Ape NFT so they can go to a Yacht Club party in New York and a warehouse party in Brooklyn. 

You have to accept that Jimmy Fallon, Paris Hilton, Madonna, and dozens of other celebs believe that monkey JPEGs are a good investment — and they weren’t gifted these pricey tokens by friends in the entertainment industry, who also happen to be heavily invested in NFT projects. 

If you are still not convinced the NFT markets are fake, let me step you back to March 11, 2021, when all this nonsense first began, when an otherwise unknown artist named Beeple sold an NFT linked to a collage of his scrapbook at Christie’s for $69 million. It turned out that Metakovan, aka Vignesh Sundaresan, the person behind the purchase, had been pumping Beeple NFTs for months. 

Not only that, but the sale itself was a wash trade. Metakovan fractionalized a collection of previously purchased Beeple NFTs with a fungible B20 token and used the Christie’s auction to pump up the price of B20 and make millions.

“From the day the Christie’s auction began, on Feb. 25, to the close of the auction on March 11, the price of one B.20 token grew from $8.28 to $18.57,” the Washington Post wrote at the time. “The value of Metakovan’s stake in B.20 ― about 5 million tokens, according to his blog post — grew by about $51 million over that period.”

Monty Python’s John Cleese recognized the market was a joke early on. After Beeple’s “Everydays” sold, Cleese tried to sell an NFT of a scribbled drawing of the Brooklyn Bridge for $69.3 million. “I have a bridge to sell you,” he said. And yes, someone did buy that bridge — someone on OpenSea going by the pseudonym “JeffBezosForeskin” bought it for 17 ETH. He still owns it, likely because if he tried to sell it, he would get nothing. 

Crypto is crashing. Bitcoin — which is now fighting to stay above $30,000 — is down 60% since its November record. If crypto is crashing, NFTs should not be “stabilizing.” They should be writhing on the ground, gasping their last breath. 

But that won’t happen because the paramedics will soon arrive in the form of large backers. VCs, like A16z, who heavily invested in the NFT market wanted you to believe that NFTs were going to safeguard artists’ work. They told us we’d all use our NFTs in the metaverse. Reddit co-founder Alexis Ohanian, a member of the APE DAO Foundation, said a year ago: “the rise of NFTs and trading card boom is going to be HUGE for women’s sports.” His wife, tennis star Serena Williams, is one of the many celebs who mysteriously acquired a Bored Ape NFT. 

These investors will keep pumping these assets, they will keep tweeting about how stellar NFTs are, and they will fight to keep this market breathing, even if it means throwing good money after bad. 

NFTs will seemingly rise from the ashes, probably in the form of MMO games, more virtual land sales, or stories about groups of unfortunate people benefitting from NFTs. And then, predictably, NFTs will die again and ultimately return to their real value, which is nothing. 

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