Odd Lots - The Ex-Jane Street Trader Who's Building a Multi-Billion Crypto Empire

Episode Date: April 1, 2021

The crypto market has come a long way in recent years. But it's still far less efficient than your typical established market. To understand more about crypto market structure, we spoke with Sam Bankman-Fried. Sam is a former international ETF trader at the prop shop Jane Street Capital. Now he's building a crypto empire with his hedge fund Alameda Research as well as his own exchange called FTX. He talks us through his path into the industry and how it works more broadly.See omnystudio.com/listener for privacy information.

Thanks for listening to OddLots. Follow the show on Amazon Music for more future episodes or just ask Alexa play the podcast, OddLots on Amazon Music. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real. Lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a very big. It's a very big. It's a lot. It's a firm. It's a few. It's a few. It's, commitment to your clients. We're talking top grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com slash audio. That's vanguard.com slash audio.

All investing is subject to risk vanguard marketing corporation distributor. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthal. And I'm Tracy Allaway. Tracy, do you remember the conversation that we recently had with Doug Seafood, the Virtue CEO? Yeah. That was a great conversation. Doug's funny.

Yeah. No, that was a really fun one. Obviously, that was a discussion about high frequency trading, electronic market making, and listed equities. And when striking is ultimately, I mean, these are like profitable. businesses. But, you know, they're in that business just scraping for like pennies or fractions of a pennies. Like these are pretty efficient, these are pretty efficient markets. It's hard to ring more profit out of, out of them. It's definitely a volume business. You're making like a penny

on the trade from a tiny, tiny, like difficult to see spread. Right. There's so many different players in this, everyone's trying to get their margin. And so, You know, I've said it before, you know, U.S. listed equities in particular and probably elsewhere, too. It's like they're pretty efficient market. Yeah, I think that's right. I mean, I think, well, we also just had an episode on the U.S. Treasury market. And I think you'd probably say stocks and maybe U.S. treasuries are the most liquid markets out there. Corporate bonds, not so liquid. We've talked a lot about that on the show. So one thing we haven't actually talked about, I realize, is we've done a few episodes about like crypto and Bitcoin, but we've never really talked about like market structure in the space as far as I know, or at least not in depth. And my impression is even though the sort of like industry of this ecosystem that's been built around it, several years old now, I think it's safe to say completely still on the other side of the efficiency spectrum from. the space that like the virtues of the world or the Citadel securities of the world are playing it. Yeah, I think that's a fair assessment. I mean, for one thing, you have just tons of platforms.

The market is completely fragmented. And then you also have these big regional variations where like the price of Bitcoin can be one thing in Korea and then a different thing on a platform in the states. There are a lot of arbitrage opportunities, I think, but also I can't imagine. imagine what it's like trading in that environment. I think you probably have to think about costs and platform risk and other things a lot more than you would for certainly for equities. Right. So you have these sort of like massive different, you know, all these different platforms, huge spreads potentially at times between what an asset trades at one place or elsewhere, different regulatory regimes, different currencies, different banking systems. In theory, though,

those costs create big opportunities for savvy traders. Yeah, and we've heard some stories about people making millions, possibly billions, just by arbitraging like a simple regional spread. Yeah. So today we're going to talk about crypto market structure with someone who I think is basically the perfect guest to discuss it because he previously was in the world closer to the sort the market-making world that we talked about with Doug. We're going to be speaking with Sam Bankman-Fried.

He is the CEO and co-founder of the Crypto Exchange, FTX. He's also the CEO and co-founder of the crypto hedge fund, Elimita Research. And previously to that, he was in the market-making business, I think trading ETFs at Jane Street, which is one of these trading shops that competes in that space of, you know, high-tech market making for regulated listed assets. So has really seen both ends of the spectrum, the perfect guest to talk about crypto market structure with us. Sam, thank you so much for joining us. Yeah, thanks for having me. So Sam, I've, you know, read a little bit about your work. I take it you got, you know, not this boom, but the last sort

of like crazy cycle for crypto 2017, I think is when you sort of made that switch over. I think you were at Jane Street at the time. Talk to us first about sort of like your background. How did you first get into finance and how did you find your way into the world of before we even get into crypto and make that jump the world of the world of trading? Yeah. It's interesting. You know, sort of in retrospect, looking back on it, it seems like, so weird and contingent how some of these things happened, but also like kind of, it inevitable isn't quite the right word,

but like, you know, it worked out like kind of remarkably neatly given that. But, you know, the context is, so I went to MIT, you know, sort of a math nerd,

albeit a math nerd who was sort of coming, you know, into the middle of their college experience, having kind of reckoned finally with the fact that like, I wasn't going to become a math, professor. And I mean, there are probably pretty compelling arguments that that wasn't going to be true. But realizing that I didn't really like doing academic research with maybe a little bit of a hole in the plan. So I sort of like didn't really know I was going to do with my life.

The one thing that I did sort of know was that I wanted to find out how I could have the most positive impact on the world. I sort of been into utilitarianism for a very long time and recently started getting into effective altruism, which is basically this movement of like, you know, if you're trying to figure out how to impact the world, like try and quantify things, try and try and figure out what the most efficient way of doing that is, you know, what the ways that, you know, gives you the most bang for the buff and was kind of playing around with a lot of possible careers that were kind of all over the place, had some conversations to people and basically they said, you know, you go to work for one of these, you know, charities or organizations that you think are good or you could kind of donate to them. And, you know, frankly, given like, you know, you your strengths and weaknesses, you know, maybe, maybe you're going to be able to donate more to them than you'd be able to contribute working directly for them. And certainly I thought about that. It seemed like a pretty plausible argument. And so I sort of started looking into for the first time, well, okay, like if that's my goal, if my goals figure out, or at least maybe kind of like short-term

goal, how can I make as much money and donate it as possible? Like, where would that lead me? And sort of one of the obvious, you know, obvious things to look at was, well, how would finance. You know, I kind of heard that's what happens there. I didn't really know a whole lot else about it. But, like, frankly, it really was just like, I don't know, it's sort of like in my junior year, didn't know what to do. And like, just like applied for some internships. You know, I don't know, some friends had her to Jane Street. They said like, you know, not really good things. So I just like, you know, sent in a resume, you know, really low conviction. And then just like interviewed there and really liked the interviews and found them really engaging. And then

sort of one thing led to another. turned at Jane Street Capital, you know, after my junior year, really liked it. And, and then went back full time when I graduated. So what were you doing at Jane Street exactly? And I guess what was the opportunity that you spotted in crypto? Because, you know, it took a while for a lot of finance people to jump into that market. But you did, did it fairly early on. So what did you see and how did your Jane Street experience inform that decision? Yeah, I mean, I think at Jean Street, really, the goal was buying low and selling high. I know. But, you know, I think that there is sort of like something there of like people think of like to use these, you know, quant-prom firms on Wall Street.

And either they can sort of this old style, you know, gigantic men in suits, talking really loud, being grabbing shares of stock from each other on, you know, the stock exchange floor, Or they think of sort of a bunch of nerds with like, you know, equations you could not fathom, you know, I mean, Jayser is much more on the second end than the first end. You know, we were a bunch of nerds basically trading trading stocks. But, you know, the truth is that like a lot of it is not sort of like this incomprehensible garbledygook. A lot of it is like really straightforward, simple trade ideas just done really carefully with a lot of supporting, you know, evidence. and ringing everything you can out of the trade optimizing it as much as you can thinking hard about it. You know, so I was trading international ETFs there, which are, you know, ETFs are funds,

which contain other equities and the funds themselves trade on exchanges. And there's this classic arbitrage of, well, you can sort of price the ETF based on, you know, the sum of all the stocks that it own, you know, and you can sort of, you know, create and redeem back and forth between them. and, you know, if the ETF is trading below the stocks, you can buy the ETF and sell the stocks. And if it's trading both the stocks, you can buy the stocks, you know, merge them into the ETF and then sell the ETF and do an arbitrage. So I was trying international ETFs, which are those types of products, but where the stocks don't trade on, you know, on NISI, where they trade on foreign stock exchanges, on, you know,

green or, you know, Indian or, you know, UK stock exchanges. And it's basically the same thing except incredibly messy and complicated and intricate because you get all these nice properties that fallout when you're trading U.S. ETSs that you don't with foreign ones. And just one to start is the ECHF itself is trading, you know, what, 9.30 to 4 p.m. New York time five days a week. You know, you take an ETF on Korean stocks, right? And those Korean stocks are trading, you know, I don't know, whatever it is, like 80s,

to 3 p.m. or whatever, Korean time, five days a weekend, those don't really even overlap. So whenever you're trained the ETF, right, it's this fund of stocks that haven't traded for 12 hours. And you can't just say, well, do the arbitrage because stocks aren't trading, no price for them. And so that sort of opens this gigantic, you know, can of worm of like, how do you think about these ETFs, how do you price them, and how do you understand exactly what they hold, and how do you understand the liquidity of the underlying stocks. How do you understand the fund itself, the mechanisms behind it? And basically just becomes a sort of like, you know, somewhat intricate modeling problem. And I, and that was sort of, you know, what we did was basically

provided liquidity in those international ETFs. And particularly we kind of specialized in providing liquidity when it wasn't trivial. You know, not doing the single easiest trade because anyone can do that and that's super crowded. But trying to do even just the second easiest trade through the hardest trade, but trying to be out there 20, you know, not 24-7, but whenever U.S. markets were open, have as much liquidity as we could in those products, given the constraints and the uncertainty of, you know, what they represented. And yeah, that's sort of like what that desk and, you know, which the desk guys on, you know,

specialized in. So when you say that like the second easiest trade, what do you, what exactly? Exactly, do you mean by that? And I'm glad, you know, it's funny. I've actually wondered about this exact question before. Like, okay, a Korean ETF is trading during American hours when the underlying shares have stopped trading. So, like, what is this based on, you know, price relationships? Like, you know, there's probably like some historical correlation between what the S&P does and what the Cosby does the following day and sort of like imputing what those stocks would theoretically be doing during that time based on, what the trading of other equities are happening. Like, talk about that a little bit more. Yeah, totally. And I think that you're talking about really good things there. And I think that's sort of another takeaway there is like, how do you start?

It's not by, you know, waving a magic wand and using native words. You start with literally the most sort of like intuitive, straightforward things you can think of. You know, it's like, if you kind of think hard about this and have a lot of context and then you're just like, I don't know, maybe I tried this way. You know what, honestly, that's probably a good start, you know? you're probably going to do a lot better than someone who doesn't do that thing and doesn't do anything at all. But, you know, whatever, 20 people can do that who have the setup and the liquidity and the, you know, capital and everything like that. And so then you have to do better. You know, that's okay, you know, you've done better than just no modeling. But, but there's, there's enormous amounts of extensions that you can build on that.

And it's all about acknowledging you're never going to be perfect, but trying to get, you know, as good as you can. So can you talk a little bit more about the crypto transition? Like, what was the opportunity that you spotted just to circle back? And what was, I guess, the shared skill set that you thought could be applied to the crypto market? You know, when I left Key Street. And by the way, I really, really liked it there. Maybe the most notable thing about it was how much I liked it, how much a lot of the people there liked it. It was just a really good place.

and it probably still is in just a number of different dimensions. And when you just look at things like, you know, like employee satisfaction compared to competitors, you know, my sense is that just off the charts. And again, you know, in many cases, just for kind of straightforward reasons. You know, it's just like does a good job of treating its employees well, giving them responsibility when it makes sense and, you know, guidance when they need it and, you know, all that. So anyway, you know, I really liked it there.

But after about three and a half years, basically just felt like it was time to try my own thing. And I think the core of that came from just thinking about, you know, going back to why I started the first place, which was how can I figure out how to have as much positive impact as I can on the world. And, you know, as much is more than just like a good amount. And so I really started thinking very quickly about like, all right, is this the best thing I can be doing? And basically it came away feeling like I have a lot of things I want to. try it's my life. I don't know what's going to end up being the right thing, but at least one of them might go extremely well. And maybe not. There's a lot of risk in that. But so be it. And so, you know, left and sort of like start trying things out. And one of the first things

that I looked at was like, you know, all right, like, it's not the most imaginative thing ever. But how about crypto? And this was late 2017. It's when crypto was really going through that first gigantic public boom. And, you know, this was the time when it had sort of the mass retail appeal more so than ever before or after, you know, to this point where you pass two people on the street and you see them talking with each other. And you're like, they're probably talking about it.

I remember that. Yeah. You know, it's everywhere, right? And it wasn't even clear why she's completely captured the public's attention. and imagination. In 2017, I mean, you know, the, the enormous price increase obviously was like a large part of that. It had a lot of the hallmarks of something that might be, you know, really an efficient system with, you know, a big need for liquidity, which is basically gigantic demand all of a sudden, growing really rapidly, you know, lots of volume, lots of retail

users, and not a lot of time to build up institutions, not a lot of time to build up liquidity, not a lot of time to build up systems that worked seamlessly. You know, it sort of felt like the thing that was decently likely to have very large volume and price discrepancies and just like not really enough liquidity prior to providing to that. So like, can you give a little comparison between a 2017 what you were seeing in trading internationally ETFs versus the spreads that you were saying in crypto? And then also like, you know, how 2017 spreads in crypto compared to 2017. 2021 spreads encrypted?

It's obviously whatever. There's, you know, always whatever, different situations have different spreads, blah, blah, blah. But, but okay, fine, ballparking it. I think you look at sort of like the, like, lowest margin trades you find in finance, that the really purest HFT trades and the most competitive ones, what to spread on those? So I've never really done pure HFT, but my sense is that the answer to this is, you know, you're talking about like a tenth of a penny to a hundredth of a penny

or maybe even a thousandth of a penny. where a penny is like about a hundredth of a percent on on the average stock. And so, you know, you're talking about like something even getting to like the one one million of the price level, one 10,000th of a price. So it's really, really slim margins, right? And it's the kind of things that like seem like how can you make any real amount of money on that well. Like you create, you know, 5% of all volume of everything in the world every day.

That adds up. Then you get to sort of this like scale of like want trades with, you know, what I was doing sort of being, you know, an example where the right unit to talk about it and it's like a basic point. And, and that's the hundredth of a percent. And it's not to say everything had exactly that amount of margin, but that was, that was sort of the order of magnitude that like the industry talked. They're sort of talking like, are you making like one one hundredth of a percent? Are you making half a hundredth of a percent? Are you making like three one hundredths of percent? You know, and in a hundredth of percent, you can think of it approximately as something

like a penny on the average store. So, okay, now that's sort of like roughly the sort of margins that you're thinking about, right? And, you know, occasionally you'd see things a bit bigger. Occasionally you'd be trying to scrape out anything you could. But whatever. That's sort of like the level at which things, at which competition tended to get. And then you get to crypto 2017. And it just had things I have never seen before or after, things that were just completely bananas.

And I'll give, you know, they're all over the place. It was sort of like a whole industry filled with implausibly big spreads. But to give, you know, the biggest that I've ever seen, basically. And biggest in terms of obviously, you know, you can make 10% on a trade if you don't mind the total size available being $7 ever. Right. Right. And that's like sort of not interesting, right? You like buy a stick of gum and sell it to someone who kind of wants to stick a gum right now.

But the real thing is finding trades that are really good and really scalable. And so from that perspective, for late 2017, early 2018, there's this really highly publicized thread, and it's often called the Kimsey Premium. And what was, it was the price of bitcoins on Korean exchanges. And at its heart, there is huge demand for crypto all over the world, but it wasn't equal everywhere. And there's even hugeer demand in a number of countries, including Korea, than in many others. So you saw just massive net buying of, a lot of, crypto from Korean users. And the Korean one is also restricted currency. It means you can't just freely sell it. You can't freely get it out of the country, trade it for USD. You had all these

Korean citizens trying to sell their Korean won for Bitcoin. And no one who could do much with the Korean one. You know, it's not like other people just like selling bitcoins and deal with the current and get stuck with it. That spread got up to like 50% at the PKK, which say that Korean Bitcoin started trading at, you know, $15,000, while everywhere else in the world, it was $10,000. So that is a completely insane sprout. But, and this was the big catch, you get back to this restricted currency thing, where, sure, you could turn, you know, 10 U.S. dollars into $15 worth of Korean wand doing this. But then it's stock.

You're not regularly allowed to just really turn that Korean wand back into U.S. dollars. And so, you know, if you really wanted to buy a lot of consumer goods in Korea, you could do it. But you can't sort of easily loop that arbitrage through. You get stuck at one end. And a lot of people tried to do this trade. Many found a way to do it for small size, very, very hard to do it for big size, even though there are billions of dollars a day of volume trading in it because you couldn't offload the Kranwan easily for non-crypto. And so it's sort of a complication to it. And no one is known to crack that for massive size.

You know, there are a lot of people who are known to have cracked it for small size. No one's known to have really been able to maximize the hell out of that one because of the regulatory concerns. And this was sort of like the interesting thing. Down the road, there were these Japanese exchanges. And on the Japanese exchanges, like on the Korean exchanges, they're huge inflows. Huge net buying. Crypto is trading at a really big premium. But the Japanese yen, unlike the Korean won,

is not a restricted currency. It's a free currency. You can sell it. You can trade it. You can do whatever you want with it. And that, it wasn't trading at quite the same premium, but it was trading at a 15% premium or so at the peak instead of 50. Okay, 15, it's not 50.

It's a lot. And there is a billion dollars of volume trading in Bitcoin against Japanese yen each day. And you could actually do that trade. You could actually buy Bitcoin for $10,000, send it to a Japanese exchange, send it, sell it for 11,500 a worth of Japanese yen, and then sort of, you know,

turned that yen back into dollars, send it back to the States and cycle anew. It took about a day to do that trade, given the wire transfers involved, but it was doable and you could scale it, making literally 10% per weekday, which is just absolutely insane, right?

That is 10%, that's a thousand times what you make on, you know, traditional trade. but you're able to do it for like hundreds of millions of dollars of volume per day. You could actually scale it. And so you can start doing that math. And I'm sure some, you know, you may be doing that as I speak and multiplying those numbers. And yeah, that's the right map.

I don't know what to tell you. And then you can ask like, how could that possibly be? Right. Right. How could you possibly see a trade that inefficient? Why wouldn't that get competed away, right? And the answer is, well, think about what you actually realistically need to do. I told you you could do this trade.

I didn't tell you how. What you need to do to do it? What goes into this trade? What's the recipe? And well, okay, first of all, step one is you start out with a U.S. bank account and you wire money to Coinbase. And then your US bank account gets shut down because J.P. Morgan Chase doesn't want to deal with crypto. Okay.

So now you're back to the drawing board, right? And so you try again and somehow you solve that step. I don't know how. You send it to Coinbase and then you realize you have a thousand. thousand dollars a day of withdrawal on it from coinbase and you just sent your entire hedge funds capital there and it's going to be 30 decades before you can get any money out and their support ticket queue is is three months long so okay so now you solve that problem right you you buy your bitcoins you send them to a japanese exchange and you realize that in order to get

verified there you need to be japanese but you're not Japanese in fact maybe you couldn't be Japanese to get some of the other things you needed so okay now you have to somehow be Japanese and not Japanese. And you solve that. And then you try and send it to the, oh, God, now you realize you need a Japanese bank account to send it to. And it needs to be a domestic bank account in Japan. And you need to, again, be a Japanese resident to get one of those. So you get a bank account. And then you realize they're not, they don't like crypto either. So you need to solve that. And then you finally get all these pieces and you go to them, you're like, yes, I would like to do a wire transfer please. Yes, it would be, you whatever, like 15 million US dollars to this random.

bank account in America from this random bank account in Japan, different owners. Same wire transfer it did yesterday. Yes, that's correct. Yes, it's always in the same direction. I acknowledge that. Yes, it's international. And they're sort of like this is literally the sketches that you can possibly do. Like, like, think about like every day, this random guy walks in, sent it to an seemingly unrelated bank account across the world, always in the same direction, always changing currencies, right? And sort of like that, no business has that, right? They're like, it's obviously just money laundering. And you're like, no, it's arbitrage.

You're talking to like a teller at Japanese bank. You know what I mean to speak Japanese, right? So, okay, so they're trying to explain like, no, you buy it this price. You have to transfer it on the blockchain. And they're like, sorry, you said you trade stocks, but in Japanese. So, okay, so whatever. So you solve all these problems, right? And then you realize that you have $2,000 to your name.

And so you're going to be making $200 a day. And that's pretty cool. But it wasn't the fortune you thought. As now you're trying to raise $200 million of capital. And you know this trade won't last that long. So you've got about a week to build a $200 million hedge fund that's doing random international cryptocurrency trades in 2017. And everyone's like, yes, obviously I will not fund your hedge fund.

That sounds incredibly risky. And you're like, no, it's arbitrage. Don't worry. And they're like, sure, I'm a hot 10% per day returns. Yeah, I've heard that one before. But okay, fine. And somehow you then get your $200 million of capital. And now, now what?

Like, now would you make $20 million a day? The answer is yes, you do. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real. Lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard.

At Vanguard, institutional quality isn't a tagline. It's a commitment to your client. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com slash audio. That's vanguard.com slash audio.

All investing is subject to risk vanguard marketing corporation distributor. So, I mean, you just laid out the very fragmented nature of the market with the different platforms and also with its interaction with the traditional banking system. You laid that out really well. But I have a slightly weird question, which is about like the nature of crypto trading itself and how it maybe differs to stocks or bonds or more traditional financial assets. So, I mean, it seems like when big. Bitcoin really takes off. It's usually because the price is going up quite a lot. And people are

talking a lot about holding and waiting for it to go up even more. So I'm curious, like, how do you reconcile the hoddle or huddle concept with having a liquid two-way market? Like, how do you get that activity going? It's really interesting. And there's a lot of really weird dynamics in crypto, and you hit on one of them, which is how incredibly, I mean, there are lots of ways to phrase it, but one of them is like, you can phrase it as how incredibly bullish the crypto ecosystem is on the crypto ecosystem. Right. Everyone's bullish on the thing they believe in, the thing they're spending their time on generally,

but not to this extent. This is sort of like much more so than you find with stocks. And then also, like, how about sell side liquidity, right? if people want to buy Bitcoins and no one who holds Bitcoins is willing to sell their Bitcoins, who are you buying it from? And, you know, both in sort of like a, how do you ever find people to buy it from, but also like a day-to-day where the offers coming from, where the market makers, if all the Bitcoins are owned by people who are just toddling and not, you know, then, I don't know, you actually, if you trace that down and start to

uncover some interesting thing about crypto. And the ecosystem. So one thing is that everyone is bullish inside of crypto, on crypto, and actually is massive impact on the ecosystem because any way that people can find to get longer, they will. And so you see these weird things where futures are always trading it, not always, but on average, trading at big premiums in crypto, where people are willing to pay 40% a year to borrow dollars in crypto,

generally to use it to buy more crypto. And anything else that serve as synthetic interest rate or forward type product reflect, will generally reflect this, you know, forward-looking premium. So that's sort of one thing, and that plays into these concepts of yields quite strongly. But another thing is, as you said, like a lot of the real supply here is not circulating. It's not really circulating, right? It's sort of some guy who's just not going to sell. And so you look at crypto and the trading volume divide by market cap is actually quite high. compared to other assets. And the market cap is also even lower than it looks. Like,

it's even more extreme than that because a pretty large number of holders of crypto are just not trading it. They're not selling it. They're going to keep it no matter what. And so you actually have this really large amount of volume traded relative to the effective liquidity in the products, both buy side and sell side. And you get these really. giant market moves, partially as a product of that. There's a video of you online that's really interesting where it shows you acquiring a bunch of Bitcoin that someone had dumped on the exchange Binance. And you, like, walk through this trade.

We're like, I guess someone made a terrible trade or they were not very sophisticated and they sold a bunch of Bitcoin on that exchange and it depressed the price and you recognize this. I thought it was an interesting video. One question I have is so, A, how much more efficient is the market these days than it was when you first started trading? But B, there's a part where you talk about part of the slowness that you had in scooping up some of those bitcoins that were just dumped was you were waiting for your tether to arrive at Binance. And that took a little while because you didn't have cash on hand at that exchange. How much also, you know, talk about that trade, but also like how much.

of the premium that you can collect has to do with, to put it in better, better ways, like sort of like counterparty risk. And I'm not, I'm not one that, you know, setting aside all the sort of conspiracy theories about Tether, you're dealing with like a lot of sort of like either unregulated or underregulated entities that are not at all, like, say, the exchanges that a Korean ETF or a Korean stock is. So you have to like rely on these entities in order to complete the trade. Talk to us about those calculations and how they play into both the risks, but also the profit opportunity. Absolutely. And I think what I would say is basically that I think those things do play huge, huge roles in the ecosystem for the reasons you outline, which are,

you see these big premiums sometimes open up. And the reason is like, you know, how can there be like a three percent arbitrage for $100 million of size? All of a sudden, pop up, right? That seems like a lot. And part of the reason, part of the answer there is roughly, you know, in order to close it, you need to have $100 million of tether sitting on finance, how many people are doing that right now, you know? It's like, and there's no cross-marketing between exchanges. There's no central clearing firms or brokers. And so it's not just, you don't even just need $100 million in crypto, you know, $100 million at every single exchange. if you're going to wait for any one of them to go crazy.

And so it's really capital intensive. And also you have to worry about counterparty risk. And the big thing I'd say about counterparty risk is it's not so much that like with all good trade, they're actually not nearly as good as they're actually not nearly as good as they look because secretly you're being paid 3% in order to assume two and a half percent worth of counterparty risk. Rather, what's going on is if you take a really outside point of view, right, A point of a sort of relatively uninformed one of this space, you're sort of like, look,

there's counterprey risk all over the place. I don't know what's sketchy and what's not. Like, you sort of like using your instincts, but all of these traits have these weird forms of counterpity risk. And you have just sort of like, you know, from a low information perspective, doing the math and deciding that it is all counterpity risk. But there's no edge after that. From a high information perspective, right, if you really know this space deeply, then it's

a bit different. Because then you can sort of be like, okay, but I actually know that in this particular case, the counter-party risk is very close to zero. And the edge is still quite high. And other people aren't doing it because they can't distinguish this from the cases where the counter-party risk is real. And so I think really the answer to that is the specter of counter-party risk holds a lot of liquidity out of the ecosystem. And then there's a lot of money to be made if you can really figure out and pinpoint when there is and isn't a ton of edge and when there isn't isn't a ton of actual countercarity risk. I want to go back to that liquidity point because I think you yourself have been described as one of the biggest whales in crypto. I think

someone called you like the Moby Dick of crypto whales. And I saw one estimate that you can move like 10% of the market when you make a trade. Well, first of all, how big do you think you are? And how does that liquidity risk affect your trading strategy? Like, how do you offset that or how do you manage around it? Yeah. So, you know, the first thing that I'll say, I mean, you know, first things that I, you know, I was a full-time trader a few years ago in crypto, building out Alameda.

You know, I'm now spending, you know, my time focusing on building out FTCS, the crypto exchange I founded. So I'm, you know, have been, um, a lot less involved in that. But, but recently, but the other thing is that, you know, Alameda's core, core model is acting as sort of a liquidity fighter in an arbitrage firm. And what that means is that like if you trade large volume, the core trade, and this isn't say every trade, but the average core trade is sort of just a delta neutral hedged position, you know, it's, it's whatever it is, you know, selling a future against buying spot or something like that, something where you're keeping your book hedged in neutral.

And so that's sort of one of the big things there, which is like I, you know, if the risk is in some sense a lot lower if you don't have a net position on, right? But that's not trivially true. And in particular here, you know, a thing that I would add to that is roughly like, you know, well, the nature of crypto that's sort of like cross exchange. and not, the exchanges don't talk to each other, adds this interesting new twist of risk to it, which is you have to manage your position on each platform, on each wallet, and you see the global view, but no one else does of your book, right? And so you have to deal with exchange-specific

liquidity risk. And you have to worry about cascading liquidations on a particular product blowing that one out and not anything else. And you have to make sure that your, book and your capital and your positions can withstand those moves. And it's one of these like, you know, you have to make sure that, you know, you can hold your position for, you know, longer than the market can stay crazy, so to speak. If you're doing an arbitrage, and eventually, right, you can just lock in your gains. And there's nothing anyone can say about that. As long as you can make it to that point to expiry or whatever, but you can sometimes see gigantic dislocations. And sort of the biggest one, the industry seen was on, you know, the probably the bloodiest day

in any market, maybe in the history of anything. which is March 12th of last year, when all global markets were in free fall. You know, COVID was causing just panic. And equities were down 20% or whatever. Crypto was down like 60% that day. It was a massive move. You know, you've gone from like 9,000 to 4,000. You know, one way to think about what happened was like it went from 9,000 to 6,500 or something like that.

And then it triggered $2 billion of liquidations of people who had leveraged long positions in futures products that were now close to going underwater. And so the exchanges began closing down the customer because they put on margin positions. They didn't have the margin for it. And as they started closing these positions down, they had to sell off the leverage longs. And that caused more selling pressure. That drove markets down more, which meant even more. people had to be liquidated, there's this danger that can happen, which is really weird and wacky. And it's when this ratio gets above one, which is like the impact of liquidations, you sort of look at like how much you move price when you, when you, you have a location of a certain size.

And how much, how large of liquidations that triggers. And if it triggers larger size than it took to get there in the first place, you have this exponentially diverging, growing set of liquidations and crashing. And rather than like things calming down, things directly just crashed to zero, you know, in an exponentially increasing way. And obviously it's not exactly what happens, but it is sort of what happened. And you saw them Bitcoin crash from 6,500 to 3,500 on some exchanges as just cascading liquidations did their thing. So I'm really glad you brought up this day last March because this leads into a sort of bigger question I've been having. So obviously, like, that was just this insane selling across all markets,

everywhere and everyone wanted liquidity, everyone wanted cash. And it clearly sort of on that day, it was very clear how the global demand for liquidity was intersected with both crypto and traditional traditional financial instruments. And, you know, this was sort of seems like it was kind of a new phenomenon. Because I have to imagine that like back in the old like 10 years ago during the Mount Gawks days when it was just a handful of sort of like weirdos who were trading Bitcoin there, like, it was probably like pretty disconnected from anything that was happening in the quote, real world, so to speak. So it's clear that like, and you know, on FTCS, and I want to get into this in a minute, but you also have actually, you trade tokenized forms of equity. So I'm

curious about like how much these linkages are emerging between what's happening in, say, the NASDAQ and what's happening in Bitcoin. It feels like it's happening. You can see on days lately, for example, there have been some really ugly days in the NASDAQ, the tech sell off, and it kind of looks like on those days, like Bitcoin gets caught up in the downtraft. What is your perspective and view right now on sort of these like cross-crypto asset linkages and the degree to which there is this sort of emerging correlation and feedback between the two that probably didn't use to exist? Yeah, totally.

And you know, if you go rewind like 2018. You had big arguments about whether stocks in crypto were positively or negatively correlated. And a lot of people like, you know, Bitcoin is the flight to safety asset. Like when stocks crash and people don't trust the financial system anymore, they're all going to turn to Bitcoin with sort of like a thing you heard a lot. Yeah. And then other people would say, no, it's sort of like a risky asset. It's going to be risk on asset and positively correlated.

And you could look at historical data. And, you know, you could maybe try and draw conclusion from it. But really, the sort of like summary was that, I don't know, it wasn't. totally clear. You know, there certainly wasn't extremely strong or consistent positive or negative correlation. It just like wasn't clear what the answer was going to be. So it's sort of like really the answer historically. And then after March 12, that, everyone was like, okay, no, we know the answer now. It's positive. That's fun. Positive correlation. And so what happened there was, you know, basically when when people are trading crypto, there's a question of what do they see it as? What is the real

trade that most people are doing when they're buying Bitcoin. And at least recently, the answer hasn't been that they're betting against economy exactly or companies or things like that. First of all, it's been much more intertwined with currency and with worries about inflation and money printing. And so, in fact, like you can see some of the positive correlation coming from that, people feeling like, well, you know, if it's sort of like, you know, fiat currency hyperinflate, then stocks will go up and crypto will go up and gold will go up and everything will go up, measured into hyperinflating crypto, fiat currency. So that's a part of what's going on here is just sort of like expectations of future inflation,

basically. But there are other things too. And, you know, it's clear that at least right now, people see crypto as something with huge upside potential and huge volatility. And that's the sort of thing that does well in risk on markets, not risk off market. Because, you know, it's sort of like when you've got a lot of money to play around with and you're looking for something to do with it, something with huge upside sounds really appealing. And you're willing to take the risk that it goes to zero. But, you know, when everything's crashing, you've just lost all your money, you know, a lot of people are just sort of

going to put in what they're, they just think is going to be safe. So I think that's sort of like, Like, why my best guess about why it seems like that correlation has become just really robustly positive. There's one other thing I would say too, though. In the last year, equities have started to look a little bit more like crypto. And I mean, you look at GameStop, right? And I mean, I think for a lot of people like, this is nuts. I've never seen something like this before. There's like these short squeezes.

And like people are getting liquidated. And like the markets can't handle it. The liquidity's falling apart. And what's driving it is not rampant disagreement on the business model. It's like people shit posting on social media and then getting together and then Elon Musk sort of like acting as a stand in standard bearer for it. And you're sort of like this has like nothing to do with like analysts publishing reports on on Apple's future dividends stream. You know, from someone who've been in the crypto ecosystem, I just like, oh no, there's a word for that. it's a it's a shit coin there's thousands of them we see it every day that's normal that's how the

market works for all these assets like game stop was behaving like a sort of illiqued cryptocurrency the shit coinization of equity markets exactly and it's like this moment and i think the beautiful moment of this was the moment that robin hood banned buying of game stop do you guys know what happened next what happened um gamestop um gamestop because you could only sell it, not buy it. Okay, not chalking on Robin Hood. So everyone was either, you know, sort of selling their GameStop or being forced to or couldn't buy it and had money.

And so they stopped buying GameStop. And instead, they bought what is in retrospect, the only possible answer to this question. Like, as soon as you hear it like, oh, of course that's what they bought. Um, they bought Doge. Yeah. So as soon as GameStop started crashing, Dogecoin 10 X. And it's just like absolutely beautiful. of like, yes, that is exactly what this is.

Like, GameStop and Dogecoin are like very, very similar product. This is the idea that like a stock can basically be a token for gambling, right? Like you're just speculating at that point whether it's going to go up or down based on popular interest. Right. You know, you're speculating whether it's going to go up or down based on whether you think people think it's going to go up or down. You know, and I think that one of the key insights here, which is really powerful and spooky at the same time, is let's say that Apple, you know, the Apple's no news in Apple, but someone just sells a lot, whatever, liquidations, who knows, something doesn't have any bearing on the company directly. And Apple's market cap crashes from, what is it now, like one or two trillion dollars, and it crashes down to a billion dollars tomorrow, right? What happens next if Apple crashes. to a billion dollars. I'll buy it because their cash flows are so high that I'm not worried about I'm not worried about yeah. Right. You just Google like Apple earnings. They'll take themselves

private at two billion or something. Exactly. I'm Googling it right now here, Apple earnings and you know, Google is claiming that their revenue was $100 billion. You know, let me see if I can figure out what their earnings are here. Apple was whatever, you know, revenue of $100 billion and guessing their earnings were, you know, $50 billion or something. right. So, so you're sort of like, okay, so you're telling me that for a billion dollars, I can buy an entire company and that company is going to make, right, what is this like 50 times that in the next year? Like, I'll be sale by, right? Warren Buffett just comes and it's like, I'll take it all of it now. And so there's just sort of this lower bound to what equities can

trade at, which is like, you know, their discount, time discounted, future cash flow, um, adjusted for risk and, you know, how long it's going to take to realize it. And, you know, you know, whatever else you want to kind of tack on there. But now flip script around, right? And instead of Apple, you're talking about GameStop. And instead of going from a trillion to a billion, you're talking about going from 100 million to 100 billion, right? So it's market cap, you know, a thousand X is in a day. And it's clearly not because GameStop is going to be selling a lot of games this year. And now you can ask like, what do you do, right? Like, what's the trade there? And the problem is, well, it's not actually really clear, is it? Right? I mean, you could sell it,

right? You'd be like, this thing will make $17 from the next year. And like, it's never going to make more than $17 ever, which doesn't even really have much of a business left. And now it's got $100 billion market cap. That's the best short sale ever, right? You could short sell it, but it's not like, it's not like you can short sell it and then be like, ha ha, earnings were low. Please give me money now, everyone. Like, that's not how. how it works. There's no strict arbitrage in the selling direction. If it just never goes down, if it just always trades at this insane premium to earnings, you're never going to make money. You're just going to slowly be bleeding to borrow costs and the dividends you owe each year

as you slowly look sillier and sillier. And so while things can't trade in theory that much below their future cash flow, there is no upper limit to what they can trade at. And if things start to diverge on the upside, you know, the global liquidity fighters can't you step in and fix it. Like, it's not to clear what that means. Eating well shouldn't be complicated, but somehow it turns into recipes, prep, clean up, and half your Sunday gone. Factors solves all that. These are fresh, ready-to-eat meals designed by dietitians, delivered to your door and ready in just minutes. No prep, no cleanup, no excuses.

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call tokenized equity and there's listed company sort of like, I don't know, I think it's like, you have like Tesla futures trading and square futures trading and this is sort of the even weird apart, you have had, and I think you have now, equity trading of companies that aren't trading. So I understand, like, say, like Tesla futures, because you could, you know, there's a link between the price of what you could get it on. But you have, you have Coinbase equity trading on FTX, but there's no actual venue right now for Coinbase trading yet because they haven't gone public. How does that work? And how do you head your exposure in that kind of situation. I don't really get how like you can make a book. So,

so the first thing to how it works, there's two different models for it, but, but though they're ultimately economically very similar. And, and the way to think about is basically one version of this. And let's pretend for now that you happen to know for sure Coinbase was going to go public sometime in the next three months, right? You know, it's not public yet, but it will be. You know, for whatever reason, you're 100% confident in that. Then what you could do is you could say, okay, here's a coinbase. future, it's going to cash settle to the price of one coin-based share on June 1st or on August 1st or whatever, whatever point is safe, right? And the point is that even if it's not trading now,

if you know it will be trading, then you can always do something like cash expire it to, you know, to whatever price it ends up trading at. That's sort of one way to think about what you can do with this. And another thing, which is, you know, economically very similar, is you could say this converts into one actual share of Coinbase stock once it lists. Either way, it's something between a stock and a future on stock and query what the difference even is if you can't actually do anything with stock today. So that's the way to think about things like the Coinbase market. And we had an Airbnb market.

And I think we're going to have another one of these coming out soon. So anyway, that's sort of like, you know, that's how you can think about these like pre-IPo markets, so to speak. And, and then you ask, like, the second part of your question, right, which is like, how the hell do you hedge that? Because it's not trading, right? It's not like, like someone wants to go buy, you know, if someone goes on Robin Hood, right, to buy a share of Apple, I mean, fine, you know, Robin Hood, whatever, hands it to some, you know, PFOs it out, some HFT firm, that then goes and buys it on NASDAX. That's all five. You know, that work.

But then you say, okay, but point base is not trading anywhere. So there's no, you know, even if you've got Citadel there, where are they going to buy this? And part of the answer, you know, there's two possible answers to this. Neither of them are perfect, but both of them theoretically were. And one of them is, well, you know, basically in order to sell this, you need to actually own equity. Right. That would be one model is that, you know, you have to be like an existing equity shareholder to sell this. to short this, quote, and then you're basically converting your equity into the tokenized

equity. And, you know, that'll sort of settle out once it lists. And so, and you're sort of backing the shares by actual equity. Of course, then in order to get any liquidity in this, you need to, like, you know, find someone who happened to be, you know, a big VC in Coinbase. The other thing that you do is, is the cash settled futures model. And again, this is all playing off of, you know, either treating this as a cash settled future or trading it as a, you know, as a physically settled thing once it lists. With the cast settled futures model, what you say is, you know, whatever it's fine. Like, you know, this is just going to settle to whatever it'll settle to. And you need to post collateral, right? You know, you need to post, if you want to go long or short this, you need to have

some dollars in your account. And, you know, you'll make or lose money equal to the difference between what it trades out when it lists and what you buy or sell it at. at now. And so then anyone can be a liquidity fighter. They just need to post collateral. And now that doesn't answer the question of how they could do this in a riskless way. And the answer is probably they can't. They can't just arbitrage out of this. And that makes it harder to get liquidity, but they can still trade it. They can do what they think is a good trade. You know, if they see this trading at a $10 trillion valuation, they can just short it. They're pretty sure they're going to make money. And so it's not the most liquid thing in the world, but you can do it.

And those are basically the two models. I have what I think in normal circumstances or for traditional financial assets would probably be a very boring question. But in relation to the crypto market, I'm hoping it's more interesting. But like, how do you manage taxes? I'm really curious. Yeah, both for FTX and for the hedge fund when you were running it. Like, if you think that it's difficult to even open a bank account that's dealing in crypto, I can't imagine what it's like to actually try to, you know, work with the government on

crypto profits or losses. Yeah. And, and of course, then, you know, I think the answer is it's about what you think, which is to say a complete total mess. And so what do you do? Well, you know, you can get part of the way there easily, right? Like, it's sort of like, you know, if you like in the middle of the year, you buy a Bitcoin point for 10,000, you sell it for 11,000. You just clearly got $1,000 of gain somehow, right?

So to some extent, you can just treat it as trading, whatever trading is trading. And similarly, if you've got an exchange, right, and you know, you make $1,000 of revenue from fees earned on your exchange, that's, that's okay, you know, you've got $1,000 of revenue, you know, and if you don't have expenses, you book that as profit. So to first order, some of this is easy. Some of it's just a straightforward answer. But once you dig under the hood to some of the weirder cases. What you learn is the same thing you've seen for Fault regulation, which is, you know, the answer isn't known in a lot of cases. There's, there's a lot of cases where it's just like, world isn't ready for that yet, you know? Here's one case, which I think is pretty

clearly something the world needs to think through a lot harder than it has, which is, let's say that you get a locked token from some like defy staking or air drop type system. Right? you aren't allowed to sell this token for years. And you sort of forcibly got this. You didn't purchase it. You got it for free. Okay, what's that mean for taxes? And did you just realize a lot of gain, you know, equal to the price of an unlocked

token market when it was forcibly air dropped on you? Maybe. I don't know. I mean, you can't not get that gain. You can't sell it out for dollars to pay the taxes. Law. You can actually kind of forcibly bankrupt someone if you really think this, right? He's like forcibly airdrop them like a billion dollars marked to market of tokens that the blockchain won't let themselves for two years and then let them have fun with their tax bill.

Right. So, okay, so as soon as you start to get into the weirder cases is when it becomes clear that, you know, actually this is really complicated. And like there's going to have to be a lot of new thinking about how to treat these things and the world isn't there yet. I know we're like sort of running short on time. I have like a few, can we do like a little like short lightning round questions where I just ask you a few quick things? So here's one question. There's a lot of stable coins now. Can you explain the persistent dominance of tether in this market, given, you know, there's all kinds of always concerns about it and legal questions. What is it about their role in the crypto ecosystem that's so hard to dislodge despite the existence of many competitors? It's a good question. And a lot of people have this question.

And if I understand your question, right, you're not saying you know them to be a fraud or anything like that. I don't. I actually think most of the fraud arguments aren't compelling, but I do know also that there's other more regulated ones. Right. Exactly. It's like, even if you don't think it, if you think it's basically totally fine, it's like, okay, but there's also something that no one even has ever thought was a fraud. Right. Like, like, where's the bar here really? Like, so part of this is just historical. Part of the answer here is, well, it was first. And it was the first stable coin in crypto, at least first one fraction. and what that means is that a lot of people started using it. It became listed on all the exchanges. It wasn't just listed in the way that random tokens are listed on the exchanges. It was the only way that these exchanges made sense.

I think it's like a crucial part of the history of tether is back in 2017, if you want to have an exchange, a spot exchanging crypto, right? And you want to have like a quote-unquote Bitcoin USD market, how would you do that if you didn't have a bank account? And of course, you probably didn't have a bank account because it was really hard to get a bank account if you're in crypto. No one wanted to give you one. And it certainly no one wanted to get you on if you said you're going to be putting customer deposits in it from, you know, and all of a sudden you start talking about all the messy things in running exchange.

And it just sounds so much worse to a bank than it did when you were a trading firm. What you do then, right? Like the answer is you listed tether. You had a Bitcoin tether pair. And if people want to get dollars on, you're like, go talk to tether. put your dollars into tether and then come here. And so because a lot of the industry just grew up with tether as the answer to how you got dollars and that that gives it a huge built and advantage. That's one piece of it, but there's another piece too, which is quite important. There is a big

east-west divide here. And in the west, you'll generally hear people saying like, all right, we got one regulated stable point held in a U.S. bank account, like audits from U.S. auditing firms. and like got another one which like it's not clear, if it's been audited really, it's probably not regulated. There's like rumors of fraud. It's offshore. Maybe it's in the Bahamas.

I don't think any government can really regulate it or control it. Like I don't know, which of those sounds like like like, like, you know, lower risk. And surveillance like, okay, no, obviously it goes like, you know, USC or whatever, right?

But then you go to China and, and you say, okay, you got two different stable coins. One of which is I was in an untouchable offshore bank account that they're sort of like uncertainty surrounding. And another of which is a highly government regulated bank account, you know, with like lots of people looking at it and auditing it, which of those sounds safer. And they're like, geez, you're telling me that in one of these cases, the government has access

to this bank account and the other they don't. Like obviously, I'll take the one the government doesn't have access to, please. And this is sort of a weird big part of it is that this notion of being government regulated is a good thing and as a, as safety, you know, so omnipresent as to be obvious in the West. In a lot of countries, like, government regulated doesn't mean safe necessarily, right? Like, sometimes that, that's even maybe the opposite, right? Right. Right. And, and so I think that's another piece of this is that a lot of people are like, oh, geez, like, you know, give me the tether please. Like, you're telling me that, like, No one, not even a government or auditor, can confirm for sure what's in this bank account.

That is so much safer. Like, the worst thing I could do would be to put this in a bank account ever knows about. This is a very short question. There is a report that FTX is going to sponsor the name of the Miami Heat Arena. Is that true? So, there's a – sorry, I'm just thinking about what can be said now. How are you going to say that? There's a board vote scheduled for tomorrow.

It's a basic answer. And, you know, after that, there will be, you know, actual final confirmation on this. But, but, yeah, I think it is now public that that is the intention. Cool. With the toe on FTX, with the, since you trade crypto and equity, do you see people doing cross-asset trades themselves there, like arbitraging square against Bitcoin and stuff like that? We do see some of it. It's super cool.

It's not large size. I'd be super excited if it were huge size. But it's one of my favorite things to see. and you can even use them as margin for each other. You can buy micro strategy and use it as collateral for Bitcoin future. You can buy Bitcoin uses collateral for a micro strategy or a micro strategy short. They're all, we cross margin everything, including fiat currency, crypto and equities. We do see some of that.

You know, we see Bitcoin run up after hours. And then sometimes we'll see, you know, micro strategy move. We'll see buyers of it. And, you know, the actual stock won't be trading in other venues because most places aren't 24. step in. Right. Sam, so great to have you. This is like such a fascinating area. I think this is one of the most fascinating crypto discussions I've ever had. So really appreciate you joining us and we'll come maybe in a year or something. We'll talk about how much more the industry is matured because there's still just like a million things I want to know. Oh, thanks. Thanks so much, Sam. Take care, Sam.

I really did think that was probably one of the most interesting crypto conversations I've ever had. I mean, I guess I'll say this. I like talking to a lot of people in Bitcoin. I find it to be a very fascinating world. But, you know, the sort of typical conversations, the government's printing all this money and they're going to want to like buy fiat, it gets a little repetitive. So actually like talking about market structure and how to exploit these seem. huge obvious arbitrage trades, but how difficult that is in practice. Super interesting topic. I totally agree. I am legitimately excited about crypto market structure now in a way that I

didn't necessarily think I ever would be. But the other thing that I thought was really interesting was Sam's point about the equity market resembling crypto more and more. Like Bitcoin sort of like open the floodgates to people becoming comfortable with trade. you know, basically a token that's not attached to anything specifically. And I think like we've seen a few stocks like GameStop like AMC that started to take on that characteristic as well. Like people were just trading a number on the screen. And that's really new for the market, I think.

And it's a really difficult one for the existing stock market structure, the way it's organized to actually deal with, which is why GameStop was such a huge. deal in was it January? February? I can't remember January. Yeah. And I also I also feel like this like the existence of exchanges like FTCS and we didn't ever really get into like its own situation that much. But like FTX has a token that itself now has like an $11 billion market cap. And so this is like a pretty substantial platform that Sam, Sam is built and the ability to do like these sort of like, you know, he said it's small still, but the ability to do like cross crypto equity trades. It just feels like this like melding of what we call like the crypto world

versus the traditional world is only going to get more, going to get more notable as time goes on. And it really started last March like in that huge crash, but it just feels like they're getting more and more interlinked. Yeah. Well, that's the other thing I was thinking about. So if you're doing that sort of cross trading, It feels like you're adding a lot of leverage and perhaps unappreciated linkages into the market. Like all these coins basically come from nothing. And so if they're going to be tied to traditional assets, like, again, that's something that I don't think has really happened that much before. No, but it also seems like how can, you know, there has been a lot of selling of Bitcoin as a diversifier.

And it's hard to see how that persists. as they get more linked because, you know, again, going back to last March, when you need liquidity, like sure, intraday, whatever, things would be different. But people want diversification for the big moment. And in the big moments, the question is often comes down to like, do you have liquidity or do you need liquidity? And so as you sort of like get these interlinkages where it's like the world's falling apart, we got to gross down and you're going to sell some S&P, and you're going to sell some other stuff and you're going to sell some Bitcoin. feels like we're going to have that those linkages are about to get even tighter than they are. You know, it would be interesting is if we got a big market sell-off because of like some massive inflation shock or scare and then see what Bitcoin does.

Yeah. That's like the ultimate question for Bitcoin. That would be like the real test, I think, of the thesis because, yeah, that would be, that would be interesting. Okay. Shall we leave it there? Let's leave it there. This has been another episode of the Oddlots podcast. I'm Tracy Allaway. You can follow me on Twitter at Tracy Allaway. And I'm Joe Wisenthall. You can follow me on Twitter at The stalwart. Follow our guest, Sam Bankenfried. He is at SBF underscore Alameda.

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