Kevin Zhou of Galois Capital conducted a victory lap in the media after shorting Luna, the native token at Terraform Labs that collapsed in spectacular fashion, last May. “…And at some point, if everybody believes something, generally doing the opposite is very profitable,” he explained to one interviewer.
Alas, his contrarian skills did not hold him in good stead when it came to analyzing FTX. Today his firm announced that it was closing its flagship fund because it had fifty percent of its capital locked up at the bankrupt exchange.
In November, when Galois’s FTX holdings first came to light, Zhou admitted that he should have paid closer attention to warning signs – such as Alameda’s founders telling him that they spent close to half-an-hour or a couple of hours at the end of each day reconciling their accounting books and glossing over their errors to the next day.
A Profitable FTT Investment
It is not clear how much exposure Galois Capital has to FTX’s FTT tokens on its balance sheet. But we know that it has booked profits from its investment. According to this 2020 report at CoinDesk, Galois Capital purchased FTT, FTX’s native token, for $0.10 in April 2019 because of its prior close relationship with Alameda Research. It had already sold a portion of those holdings at a price range of between $0.80 and $1.94 by 2020.
The Financial Times reports that Galois Capital sold its bankruptcy claims for $0.16. The nature of those claims is unclear. However, if Galois Capital was still holding onto the remaining FTT tokens, then it still means a profitable deal for them. Galois has already made several millions of dollars in profit from trading other worthless tokens that proliferate crypto’s ecosystem.
On a different note, crypto seems to have the same cast of characters on tap for various problem scenarios. They might uncover (or commit) fraud one day and they might be the bankrupt (or aggrieved) party the next day.
Bitcoin Price Up Again
Bitcoin price briefly touched $25,000 last week. It has been flirting with that price for most of last week and has managed to stay in the $24,000 range amid a range of uncertainties. Regulators have stepped up enforcement action against crypto players. A less-than-expected decrease in consumer price inflation last week does not seem to have had much effect on its price even though it signals a longer cycle of Fed tightening ahead.
Institutional players are supposed to have exited crypto markets, leaving it thirsting for liquidity. Meanwhile, the hashrate, or the amount of computing power devoted to mining bitcoin, has surged in recent weeks along with the difficulty level of its algorithm. A simultaneous increase in both parameters means that the supply of new bitcoins to the market essentially remains flat. And yet, the cryptocurrency has charted a remarkable ascent this month.
The Stablecoin Effect
What, then, might account for the current bump in bitcoin price?
It could be stablecoins.
The supply for Tether, the world’s biggest stablecoin, has jumped from 68.1 billion at the end of the first week of February to 70.4 billion, as of this writing. In the past, Tether has been accused of manipulating bitcoin prices by increasing its supply. It is difficult to redeem Tether and a relatively easier exit route is through bitcoin, crypto’s most widely traded cryptocurrency.
Another stablecoin that might have affected bitcoin price is Binance’s BUSD. The stablecoin is already facing rough weather from regulators and is on a path to sunsetting its operations. Some say investors might be exiting their BUSD holdings into bitcoin.
Either of those scenarios – Tether redemption or BUSD exits – does not augur well for its future price action.