The Government as a Crypto Scammer

Treasury is FTX. The Fed is Alameda Research

Michael W. Green writes,

FTX appears to have raised capital beyond the venture capital previously highlighted by issuing its own “token” called FTT. Functionally, this is the same as selling unregistered, non-voting equity shares. It’s very similar to what Mark Zuckerberg did at Meta or Evan Siegel did at Snapchat: They issued super-voting shares that left them in control of the enterprise regardless of the views of shareholders. Self-minted crypto tokens, which is what FTX did, go one better. They fail to confer any governance or ownership rights to the holders. They exist only as prices on digital exchanges. 

By simultaneously owning FTX, the exchange, and Alameda Research, the largest trader and market maker on the exchange, SBF was able to dictate the price of the FTT token and create the illusion that the value of the FTT token—and, by extension, FTX and Alameda—was substantial.

…As the crypto boom turned to bust, the need to support FTT amid unbearable losses across the crypto universe led FTX’s affiliated trading arm, Alameda Research, to buy far more FTT than it sold. That left its balance sheet composed almost exclusively of FTT tokens.

Let’s retell this story using entities of the U.S. government. The Treasury is like FTX, issuing tokens that it calls bonds. The Fed is like Alameda Research, taking these tokens on its balance sheet to try to support their price.

You’re going to say, “Wait. The Fed is issuing its own tokens, called money. The analogy does not hold.”

But Quantitative Easing did not work by issuing money. Instead, the Fed borrowed from banks, by paying interest on reserves and doing “reverse repos.” Just like Alameda Research, it took a levered position in Treasury tokens. Now the Fed is bankrupt. It has to be bailed out by the Treasury (you and me). Unlike FTX, the Treasury can still get away with issuing tokens.

Unlike SBF, Ben Bernanke is not being watched by authorities in the Bahamas. Instead, Ben is getting ready to deliver his Nobel Prize lecture.

Obama, Trump, Biden, and the deficit spenders in Congress gave out trillions in tokens, using your future earnings (and your children’s). Like SBF, they claimed to be engaged in altruism.