During the stock market panic of 1907, the banker John Pierpont Morgan Sr. invited the heads of the biggest banks to the gilded library in his mansion on 36th and Madison Ave. He cajoled participants to put up capital to stem the panic.
During the stock market collapse of 2008, Treasury Secretary Hank Paulson convened a Friday night meeting at the New York Federal Reserve on Sept. 12th with the heads of Goldman Sachs, JPMorgan Chase, Credit Suisse and others to do something similar.
During the 2022 collapse of crypto exchange FTX…
There is a playbook for financial panics where the powers that be convene in private – typically meeting late into the night – to hash out a plan to re-instill confidence in public markets.
It’s fascinating to watch the playbook re-written in the internet age for crypto.
Yesterday, with rumors swirling about FTX and other platforms, key participants led by Blockchain consultant IBC Group convened an open call on Twitter Spaces to reassure participants and field questions.
So obviously, the bankruptcy filing of FTX isn’t in the same league as 1908 or 2008.
And obviously, the SEC, bankers, regulators ARE paying close attention.
But it’s striking that in an era of “decentralized” finance, one response you get is a “decentralized” meeting on the Internet hashing out in public issues as they arise in real time.
At one point, the host, IBC founder Mario Nawfal, interrupted to read breaking news headlines from the Financial Times. It was wild.
Then, in the middle of the call, CZ, the founder of Binance, the largest crypto exchange, drops in to opine on the situation and answer random questions.
This is the guy EVERYONE wanted to hear from RIGHT THEN and he shows up. The crisis started a week earlier when CZ tweeted that he was selling assets held by FTX.
Imagine in the middle of the 2008 meltdown if Paulson did an Ask Me Anything forum on Reddit.
Most of the questions CZ got were related to a Nov. 6th tweet in which he said that “in light of recent revelations” they were selling tokens created by FTX. That triggered a virtual bank run.
That tweet was widely interpreted as an intentional torpedo into the broadside of a competitor.
Time (and real reporting by journalists) will surface the truth.
On this day, though, CZ said he hadn’t really given it much thought, which is also amazing.
A Binance colleague suggested CZ should disclose their plan to sell and argued a tweet would be the most effective way. So he tweeted it and then left to meet a friend.
CZ said the decision to sell the FTX coin was not due to some inside information. He made a simple calculation based on the money he could see FTX spending.
Being in the same industry, he said they could estimate FTX’s revenue and knew how much capital they raised and also many of the really big expenditures, such as naming rights for the Miami Heat basketball stadium and hiring celebrities to endorse the product.
CZ said he figured either a) FTX has some source of private funding or b) their trading operation was unbelievably good. CZ doubted both and decided to sell.
A week later we live in a new world for crypto.
Over the weekend, Elon Musk posted: “FTX meltdown/ransack being tracked in real-time on Twitter.” He also tweeted that Twitter “feels increasingly alive.”
He’s not wrong that Twitter thrives on these kinds of events.
Late last night, the embattled former head of FTX, Sam Bankman-Fried, posted two tweets. One contained one word: “What” and the other one letter, “H”.
Both triggered scores of internet memes.
As usual, Trung Phan was my favorite. He put “H” into Google Translate to get:
“I can’t believe VCs gave me $2B+”