FT : IMF head warns of ‘biggest test since second world war’

IMF head warns of ‘biggest test since second world war’
Kristalina Georgieva says Ukraine conflict is ‘devastating lives, dragging down growth and pushing up inflation’

The head of the IMF has warned at the start of the World Economic Forum in Davos that the global economy faces perhaps its “biggest test since the second world war”.

Kristalina Georgieva, IMF managing director, said Russia’s invasion was “devastating lives, dragging down growth and pushing up inflation”, and urged countries not to “surrender to the forces of geo-economic fragmentation that will make our world poorer and more dangerous”.

Georgieva’s warning came as Ukraine stepped up its bid to give its citizens hope of a brighter future, if the war can be won, with a $1tn package of reconstruction support, financed from confiscating frozen Russian assets.

Speaking to the Financial Times from the Ukraine House, which has taken over the centre of Davos, Switzerland, Natalie Jaresko, a former finance minister, said the world should support Ukraine’s ideas for reconstruction because “Putin has attacked us all”.

Delivering the message of Ukraine in Davos, the US-born Jaresko, who ran the finance ministry in Kyiv in 2014-16, warned that everyone in the world would soon feel the economic effects of Russia’s invasion.

“From the poorest nations with a food crisis, to the US and EU through oil and gas prices, and to all those wanting to stop climate change, we need Ukraine to prevail,” she said.

She said Ukraine needed hope that reconstruction was possible. “We need to shed the final vestiges of our Soviet inheritance, replacing energy inefficient buildings and communities not built for the people who live there, and build the best urban structures,” Jaresko said in a mission that would take “decades”.

There needs to be a “Marshall plan plus”, she said. “The key issue is to persuade the US and the EU to confiscate the Russian assets that have been frozen along with seeking reparations for the war.”

“I know this is not automatically legal, but we need to start the process now,” she said.

Jaresko has since been the executive director of the Financial Oversight and Management Board for Puerto Rico, helping to finance rebuilding after Hurricane Maria in 2017.

She said that with bombs raining down every night across Ukraine, the rebuilding costs were likely to be higher than Kyiv’s current estimates of $560bn to $600bn. “I’m putting this at £1tn,” she said.

It was vital to give Ukrainians hope that a decades-long process of renewal to build a different country would emerge from the violence of the past three months, she said.

In recent days, increasing numbers of economists have become alarmed that the world is sliding towards a recession, with Chinese production falling sharply as it battles coronavirus, Europe suffering from a cost of living crisis, the US moving from boom to bust and emerging markets facing food shortages.

Georgieva urged all countries to lower barriers to trade, help countries in debt distress and modernise cross-border payments systems. But she warned, “there is no silver bullet to address the most destructive forms of fragmentation”.

FT : EU aims to unify capital markets with live trading databases

EU aims to unify capital markets with live trading databases
Brussels believes a so-called ‘consolidated tape’ will make the bloc’s exchanges more attractive to investors

European policymakers are renewing their push for real-time databases of stock and bond trading information, in a bid to rejuvenate the region’s capital markets.

Brussels sees the projects as key to deepening and unifying the EU’s fragmented financial markets — making them more attractive, and safer, for international and retail investors.

Europe is currently a patchwork of more than 470 exchanges and trading venues, which gives investors plenty of choice but little ability to keep track of trading activity and make comparisons.

To overcome this problem, the EU aims to establish live databases — known as a ‘consolidated tape’ — that bundle together basic trading information from the bloc’s competing venues.

Previous efforts to create a pan-European capital market, comparable with the US, repeatedly foundered when they came up against national and commercial interests.

However, in recent weeks, France — while it holds the presidency of the European Council — has been trying to find a consensus between countries that could speed up Europe’s markets reforms, known as the Mifir legislation.

For some, that cannot come too soon. Authorities have estimated the total cost to investors of not having an accurate view of equity prices across the continent is €10.6bn. Efama, a trade group representing some of Europe’s largest fund managers, including M&G, Allianz and Fidelity, has warned that global investors will go elsewhere rather than trade in Europe.

“We are encouraged by recent momentum around the European Commission’s proposal for the reform of Mifir which represents a meaningful step forward in bringing a consolidated tape to Europe’s capital markets,” says Stephen Fisher, managing director of global public policy at fund manager BlackRock.

“We believe that a consolidated tape for equities, bonds and exchange traded funds, constructed in the right way, would increase transparency, protect investors, and improve the competitiveness of European markets for the benefit of Europe’s end-investors.”

With the EU already stung by the loss of the City of London following Brexit, the European Commission — the bloc’s executive body — has made establishing a consolidated tape a central feature of its market reforms.

The tape would record vital data, such as size and price of a deal. It would have separate components for stocks, bonds and ETFs, tailored according to each market’s characteristics.

The Commission wants a near real-time tape for the stock market, but is likely to accept a slower system for fixed income securities, where trades are fewer and often negotiated privately.

Operations would be run by private technology companies overseen by the European Securities and Markets Authority, the pan-European regulator.

These means of recording trading data have been a common feature of US capital markets for decades. But EU capital markets, when measured relative to gross domestic product, are half as big as the UK’s, which are little more than half the size of those in the US, according to London think-tank New Financial.


And, although European live databases were mandated in the EU’s 2018 Mifid rules, private companies have made scant progress in turning them into a reality.

Consolidated tape projects were blocked as private companies proved unwilling to share data cheaply, or the data provision was too slow, or not standardised.

Potential tape operators therefore concluded that it was impossible for them to make a profit, and abandoned their plans. But, undeterred by past experience, Brussels wants projects at least under way by the time of the next European parliament election — the first since Brexit — in 2024.

The need for a consolidated tape is arguably even more pressing in the fixed income market, because of its opaque private deals.

In April, research by investment data managers Finbourne Technology for the Association for Financial Markets in Europe (AFME), a bank lobby group, suggested this issue could partly be addressed if trades were published on a near real-time tape.

With the majority of daily corporate bond deals smaller than €500,000, the AFME research found that almost instant reporting would markedly improve fixed income market transparency. A tape would lift the proportion of transactions currently being reported real-time from 8 per cent to almost 70 per cent.

There would need to be deferrals on reporting larger and more illiquid deals, AFME said, as current Mifir proposals would effectively disclose a bank’s private activity to the market. It “would force [banks and brokers] to disclose their books to the market before they have unwound or hedged their positions,” pointed out Adam Farkas, AFME chief executive.

AFME argues that its demand for a deferral for some types of fixed income trades is not particularly onerous. Already, the Mifir proposals allow lengthy deferrals for sovereign bond trades.

Some progress is being made. The Dutch Authority for the Financial Markets has agreed high-level technical principles for a corporate bond consolidated tape with many of the industry’s biggest actors. These include Bloomberg, Flow Traders, Tradeweb and Efama.

Agreement regarding a tape for equities may present a bigger problem, though.

The Commission wants all trading venues operating in Europe to supply standardised information on deals to a tape, including those in private marketplaces run by banks and market makers.

But any revenues that a tape accrues would only be shared between regulated exchanges. None would go to the other marketplaces mandated to supply their data.

Efama says that is tantamount to a subsidy to exchanges: “The raison d’être of the tape is to support capital market functioning in the EU and thereby improve issuer and investor outcomes,” it notes. “It should not be designed to subsidise the operating models of intermediaries like the main stock exchanges.”

The cost to build and run a consolidated tape is also disputed. Adamantia, a Paris-based business management consultancy, has put the cost to build an equity tape at €17mn, with annual running costs of €16mn That is far higher than the EU’s projections of €2.4mn to build and €5.5mn a year to run. This could may make it an unaffordable project for small companies to take on.

Efama says regulators should cap the price for a tape to “a reasonable commercial basis” to encourage users. But, if no commercial company emerges, it is expected that Esma, the pan-European regulator, will run the tapes.

That leaves a question mark over when a consolidated tape might emerge. Brussels has a crowded legislative agenda and updated markets rules must compete for space with other financial services legislation governing insurance and sustainability.

Nevertheless, few lobbyists in Brussels doubt that a consolidated tape will arrive. The political will from the EU to introduce them is too strong, they say. Even so, every detail in their construction will be hard fought in front of regulators. Whatever the EU agrees, it is likely to disappoint some part of the market.

FT : Why seizing and selling Russian assets is dogged by legal issues

Why seizing and selling Russian assets is dogged by legal issues
Several EU capitals are pressing for Russian assets to be used to pay for Ukraine’s reconstruction

One idea that may pop up in the various forums ahead of next week’s EU summit is the idea of seizing and selling off Russian assets to pay for Ukraine’s reconstruction.

We’ll also look at what finance ministers meeting in Brussels today and tomorrow for their regular eurogroup-Ecofin combo are likely to discuss. One emerging prospect is the need for an extra EU budgetary top-up, given all the Ukraine-related expenditure, as the FT reports.

And with the World Trade Organization’s ministerial meeting fast approaching, we examine its checklist of reforms.

EU institutions (and some capitals) are engaging in the tradition of faire le pont (around Ascension day, for those observing), so we’ll be off on Thursday and Friday, and back in your inboxes on Monday.

To confiscate or not; that is the question
Valdis Dombrovskis, European Commission executive vice-president, struck an uncompromising note last week when asked about the idea of confiscating Russian assets to pay for the reconstruction of Ukraine, writes Sam Fleming in Brussels.

There was, he said, a principle of “aggressor pays” that applies, as he called for the net to be cast wide when it comes to examining the confiscation of both private and public Russian assets. “We must make Russia pay for the damage it is creating,” the Latvian commissioner said.

Behind the scenes, the topic is proving a divisive one between member states, some of which are wary of the legal and political tripwires the EU will encounter as it examines asset confiscation.

Diplomats last week debated whether asset confiscation should be discussed at EU leaders’ level as soon as this month’s European Council meeting, after the topic appeared on draft summit conclusions. Opinions varied sharply.

As a reminder, there are two main avenues for Ukraine’s allies to pursue here: either confiscating the frozen assets of Russian oligarchs who have been placed under sanctions, or seeking to liquidate some of the frozen assets of the Russian central bank.

The former route is less lucrative in terms of the money raised, but it may be legally easier to pull off than the latter, which would mark an extraordinary precedent and raise complications within international law.

The draft European Council conclusions would have EU leaders welcoming “efforts made with a view to providing for appropriate confiscation measures, including exploring options aimed at using frozen Russian assets to support Ukraine’s reconstruction”.

But in a meeting of EU diplomats on Friday a number of member states sounded wary about the idea of having a leaders’ debate on the topic, according to people familiar with the meeting, noting how delicate it is, as well as the need to ensure compliance with national and international law.

Among the countries that are cautious in this area is Germany, where even enforcement of asset freezes is patchy, because of constitutional law restrictions. The country’s fundamental law explicitly says that expropriation by the government can occur only “for the public good” and must be combined with compensation — which could open the door for massive compensation lawsuits from Russians hit with sanctions.

The upshot is that it is not yet clear if the wording will make it on to the EU leaders’ menu when they gather a week from now.

That said, the commission is pretty active in this area already. This week it is due to propose a new directive on asset recovery and confiscation, along with a council proposal on adding the evasion or violation of sanctions to criminal law.

The latter is important, because it is easier to engineer the seizure of assets as part of a criminal process, and not all member states currently have sanctions evasion on their list of offences.

WSJ : Sex, Money and Fashion: Luxury Label Balenciaga Fetishizes Suiting at the

Sex, Money and Fashion: Luxury Label Balenciaga Fetishizes Suiting at the New York Stock Exchange
The French brand showed its spring 2023 collection, which includes latex fetish bodysuits, at the iconic Wall Street landmark

Were the models at Sunday’s Balenciaga show the first people to wear latex fetish bodysuits on the floor of the New York Stock Exchange? Impossible to fact-check, yet it was certainly one of the riskier moments in the exchange’s 230-year history.

The French luxury label certainly chose a grabby location at which to reveal its spring 2023 collection. An off-calendar show, it is the first Balenciaga show in New York since 2003 and select pieces are to be sold immediately at the brand’s website and at its Madison Avenue store. Following a week in which the S&P 500 ended down 19% from its Jan. 3 record—nearing the 20% that would tip it into a bear market—the stack of fake dollar bills that served as the show’s invitation felt particularly poignant.

Showgoers were seated throughout the actual stock-exchange floor, a first for a brand and a coup for a French brand that illustrates Balenciaga’s muscle as a force within the Kering group. The show started with the ceremonial ringing of the floor’s bell and the typical agitation of the trading screens was heightened during the show when they began to flicker (an intentional disruption).
Backstage, after he greeted guest and sometime collaborator Kanye West, the brand’s creative director, Demna (who goes by a mononym), was himself wearing one of the collection’s constricting latex pieces. He said the pieces, which cover the entire head leaving holes only for the eyes and mouth, were about erasing the identity of the person wearing it. He admitted that it was quite hot, and that he’d be removing it as soon as possible.

Blotting the bits of his face he could with a tissue, Demna said the fetish bodysuits connected to the show’s NYSE location because “money is a fetish, probably the biggest one in the world in a perverted way.”

Demna said he wanted to show at “the epicenter of capitalism” because “I think money and identity are very, very connected in a weird way and not necessarily a very healthy way.”

For a brand that is committed to expanding its market in the U.S., it may be counterproductive to instigate a critique of capitalism. But as Demna showed at his fall 2022 show, a searing statement on refugees and Ukraine, he is not afraid to wade into moral and philosophical ambiguity.

In a practical sense those dark, tight fetish suits also served to stylistically unify a collection that held two distinct parts: a new “Garde Robe” subcollection of refined classic suiting and separates for all genders, and a collaboration with Adidas that spun the classic tracksuit into oversized, ironic funhouse versions of the classic. Pieces like a navy trench, pussy-bow blouses in beige and navy silk, and roomy blazers were surprisingly classic for a brand that is at the forefront of hype conceptually.

One top-handle purse shown is called, appropriately, “The Money Bag.” Oversized pumps for women and brogues for men may be a harder pill to swallow as I can’t think of anyone outside the clown community who wants their feet to appear larger.

Drawing a connection between the collection and the show’s location, Demna summed it up: “It’s all about the money, right?”

WSJ : Broadcom in Advanced Talks to Buy VMware

Broadcom in Advanced Talks to Buy VMware
The tech companies are discussing a cash-and-stock deal that could come soon

Broadcom Inc. AVGO -0.55% is in advanced talks to buy VMware Inc., VMW 0.80% according to people familiar with the matter, setting the stage for what would be one of the year’s biggest deals.

The technology companies are discussing a cash-and-stock deal that could come soon, assuming the talks don’t fall apart, the people said. VMware has a market value of $40 billion, while Broadcom’s is around $222 billion.

The deal discussions, which picked up pace in recent days, come roughly six months after computing pioneer Dell Technologies Inc. DELL -2.55% spun off its 81% equity stake in VMware.

Bloomberg earlier reported on the talks.

VMware has a strong position in the market for “hybrid” cloud, where large companies mix public cloud services like those of Amazon.com Inc. and Microsoft Corp. MSFT -0.23% with their own private networks.

Broadcom, a semiconductor powerhouse built largely through acquisitions, has been on the hunt for a deal to beef up its presence in the corporate-software market. It came close to buying the closely held software company SAS Institute Inc. last year before SAS’s founders had a change of heart. Its first big foray into software was its roughly $19 billion acquisition of CA Technologies in 2018.

The demand for cloud computing, which enables customers to rent computing horsepower rather than invest in their own, has exploded in recent years. Startups and other businesses that couldn’t support in-house IT departments were among the earliest cloud adopters, but now companies across nearly every industry rely on cloud services.

Dell completed the spinoff of its VMware stake in November. VMware shareholders, including Dell, got an $11.5 billion cash dividend. Dell used the funds to pay down debt and said the deal positioned it to grow in new markets. Michael Dell, the company’s founder, chairman and chief executive, remained chair of VMware.

VMware is roughly a year into a new regime after company veteran Raghu Raghuram took over following the departure of CEO Pat Gelsinger, who left to run Intel Corp.

VMware is set to report earnings Thursday, while Broadcom is set to report earnings next week.

A market downturn that has sent stock prices lower has made it harder to strike deals and finance them. Deal volume is down roughly 25% so far this year compared with last year, according to Dealogic. Microsoft Corp.’s roughly $75 billion acquisition of videogame heavyweight Activision Blizzard Inc. registers as the largest of 2022 so far.

>>> Morgan Stanley: We Are About To Find Out The Cost Of Remodeling A Global Eco

Morgan Stanley: We Are About To Find Out The Cost Of Remodeling A Global Economy

By Michael Zezas, Head of Public Policy Research at Morgan Stanley

What’s the cost of remodeling a global economy? What’s the benefit? Ready or not, we’re about to find out. Why? Because geopolitical events are accelerating important secular trends:
  1. The “slowbalization” of economic and national interests eating away at globalization; and
  2. The shift from a single economic power base and set of rules to a “multipolar world.”
While the sell-off in risk markets is getting attention now, our conversations with corporate decision-makers and policy-makers are increasingly taken up with how to deal with these two important and overlapping transitions. These decisions have long-term consequences, so investors need to understand how their choices may play out.
Our latest Blue Paper is a guide to navigating these secular trends, with frameworks we developed in 2019 ("The Slowbalization Playbook") and 2020 ("Investing for a Multipolar World", both reports are available to zerohedge professional subscribers). For the sake of your Sunday, here’s what you need to know, in brief:
  • Geopolitics are accelerating slowbalization and the multipolar world, providing more incentives to near-shore or “friend-shore” supply chains: To be clear, these trends didn’t start with Russia invading Ukraine or even US/China trade tensions. Services trade was already outpacing goods trade, and automation has been reducing the primacy of low-cost labor. But the incentives for companies and policy-makers to rethink globalization have been amplified by recent geopolitical developments. A bipartisan consensus emerged in the US around an existential need to outcompete China. The result in 2018 was tariff and non-tariff barriers (i.e., export restrictions), the latter meant to protect the US advantage in key technologies. We expect these barriers to endure and boost costs beyond the directly taxed sectors, like semis, to industries like auto batteries and AI that are adopting these new technologies. The pandemic served painful notice for some sectors that paying up for ”just in case” instead of “just in time” inventories might be the only way to avoid the supply chain bottlenecks caused by lockdowns, mask mandates, or other restrictions. And Russia’s invasion of Ukraine and the subsequent sanctions cut off exports of energy and agricultural products to Europe and other parts of the globe. Relying on allies rather than rivals yields supply chain security.
  • With transitions come costs and lingering inflation… Consider that Europe now is eager to build infrastructure to import natural gas from the US to avoid reliance on Russia. Or consider a hypothetical American multinational moving some of its production out of China to avoid new US export controls. This shift comes not only with a cost but also fresh uncertainties around labor and infrastructure in the new locale. Our equity research colleagues believe that profit margins could face headwinds in sectors like European chemicals, European and Asian midstream and downstream natural gas utilities, auto OEMs, consumer staples, portions of leisure, and transportation.
  • ...but transitions also drive opportunity. All this "geopolitical capex" has to drive capital somewhere. Some geographies and sectors are likely beneficiaries: For US and European companies, friend-shoring is more attractive in countries with larger labor pools, competitive wage costs, and trade agreements with key end markets. In varying ways and to varying degrees, Mexico, India, and Turkey are recipient candidates. And regardless of the location, building these new supply chains will almost surely drive a pick-up in demand – and profits – in sectors like semiconductor capital equipment, automation, clean tech, defense/cybersecurity, industrial gases, cap goods, and metals/mining.
Of course, this transition is a multi-year project. And as in any remodel, we expect many hidden costs and benefits to emerge along the way. We’ll keep updating our playbook, and you, as we move through the process.

WSJ : Saudi Sovereign-Wealth Fund Buys Stake in Royal’s Investment Firm

Saudi Sovereign-Wealth Fund Buys Stake in Royal’s Investment Firm
Public Investment Fund agrees to pay Prince al-Waleed bin Talal $1.51 billion for 16.9% of Kingdom Holding

Saudi Arabia’s sovereign-wealth fund bought a stake Sunday in a firm owned by billionaire Prince al-Waleed bin Talal, further intertwining the government with a high-profile investor who was once detained by the state over corruption allegations.

The Public Investment Fund agreed to pay Prince al-Waleed $1.51 billion for 16.9% of Kingdom Holding Co., a figure based on the closing price on the last trading day before the transaction was announced, according to a filing with the Saudi stock exchange.

Prince al-Waleed will retain a majority 78.13% stake in Kingdom Holding, with 5% of the company listed on the exchange, the filing said. An executive at PIF, which is tasked with transforming the Saudi economy from oil dependence, will join the investment firm’s board, the company said in a separate filing. Kingdom’s shares rose 10% in trading Sunday.

Prince al-Waleed, 67, owns a stake in Twitter Inc. and has recently backed Elon Musk’s bid to take over the social-media company.

The prince was the highest-profile detainee in a 2017 roundup of businessmen and royals in Riyadh’s Ritz Carlton Hotel. He was asked to hand over $6 billion in assets to secure his freedom, The Wall Street Journal reported at the time, though details of his settlement were never made public.

It couldn’t be determined whether this transaction was related to that settlement. A spokeswoman for Prince al-Waleed said the deal was a “commercial transaction” and referred to the stock exchange filing. A spokesman for PIF declined to comment. The Saudi government didn’t immediately respond to requests for comment.

The purchase by PIF, whose chairman is de facto Saudi leader Crown Prince Mohammed bin Salman, deepens the connection between the Saudi state and Prince al-Waleed at a moment when the investor has again become publicly vocal after a quiet few years following his arrest.

Prince al-Waleed in a tweet initially rejected Mr. Musk’s offer last month to buy Twitter, a company in which the royal and his company have held stakes for years.

But the Saudi prince, who is a nephew of Saudi King Salman bin Abdulaziz and a cousin of Prince Mohammed, later tweeted that he had connected with his “new friend” Mr. Musk, who he said would be “an excellent leader” for Twitter and maximize its value.

Prince al-Waleed agreed to retain a stake in Twitter valued at $1.9 billion as part of Mr. Musk’s takeover, which the entrepreneur has said was on hold.

Saudi Arabia has a checkered relationship with Twitter. In 2019, U.S. federal prosecutors charged two former Twitter employees and a Saudi national with spying on some users of the social-media platform who were critical of Riyadh and providing that information to the kingdom’s officials.

Saudi Arabia, in the past, has been accused of aggressively going after the regime’s detractors and using Twitter to push positive messages about the kingdom.

The Central Intelligence Agency in 2018 concluded that Jamal Khashoggi, a journalist critical of Saudi Arabia, was killed under order of Prince Mohammed. Saudi Arabia denied the claim.

Prince al-Waleed became prominent on Wall Street in the 1990s when he bought a stake in a predecessor of Citigroup Inc., a bank that has become more active in Saudi Arabia in recent years. With the backing of Prince al-Waleed, Citi has become one of the main financial institutions supporting Prince Mohammed’s economic transformation.

>>> Dr. Ashish Jha, W.H. COVID-19 response coordinator: Daily case number is now

Dr. Ashish Jha, W.H. COVID-19 response coordinator: Daily case number is now above 100K/day and we should be wearing masks in indoor spaces"; A new generating of vaccines are needed - ABC Interview
- Monkeypox is concerning and I would not be surprised if we detect additional cases identified in the next few days and weeks
- Expects a US FDA decision on authorizing Moderna's Spikevax (mRNA-1273) vaccine for children under age five within the next few weeks

The information : Panic at the Discord

Panic at the Discord
A stablecoin crash sent the crypto world into a tailspin last week. As the industry mops up the mess, 12 investors, founders, traders and DAO members describe the carnage.

he crypto party was as raucous as ever—and then someone turned on the lights. After a year of record-high token prices and newfound support from legacy financial institutions like Fidelity and BlackRock, reality bit hard the second week of May when the algorithmic stablecoin terraUSD (known as UST) crashed, taking down some $400 billion in crypto market cap with it.
The events that led to the meltdown have already become crypto industry lore—“the biggest ponzi death spiral collapse in the history of crypto, by a factor of 16,” according to one anonymous trader. They are, for some, an object lesson in the dangers of investing in poorly understood coins. For others, they are just the latest excuse to buy the dip. The UST token, launched by Korean entrepreneur Do Kwon’s Terraform Labs, was pegged to the U.S. dollar using a complicated supply-and-demand algorithm linked with the luna token. Over the past year and a half, UST became the third largest stablecoin on the market, as traders increasingly used it to shield their currency from the volatilities of popular coins like ether or bitcoin. Luna’s total value, in turn, swelled to over $40 billion.
But when the token’s $1 value stumbled last week after a series of large UST withdrawals, UST and luna owners panicked, sending the price of the UST token as low as $0.20 and luna practically to zero. “Welp, lost $50k in a night,” wrote one user on the terraluna Reddit group, where dozens of traders chronicled their own devastating losses.
As of this writing, UST and luna have been declared all but dead (although eccentric founder Kwon is still fighting the good fight on Twitter, proposing a “terra 2.0” chain), and cryptocurrency prices are down across the board. There’s an undeniable chill in the air, with traders bundling up for a “crypto winter” of reduced investing and trading that could last months or even years. (The last winter toiled on from 2018 to 2020.)
But if there’s anything you can count on, it’s crypto maximalists’ optimism in the face of financial ruin. Venture firm Andreessen Horowitz is euphemistically calling the post-luna environment a new “‘price-innovation’ cycle,” waxing poetic about how “winter thaws in the heat of summer.” Entrepreneurs, usually with a weary smile, are declaring the upcoming months a time for productivity. “This is when the building happens,” said Leah Callon-Butler, director of tech consulting firm Emfarsis. “Some of the biggest success stories to come out of this recent bull run were built in the last crypto winter.”
After all, industry veterans have seen the market faceplant before. Ask longtime crypto fans about 2014’s Mt. Gox hack, which saw the loss of almost half a billion dollars in cryptocurrency, or the 2016 hack of The DAO, when 3.64 million eth was stolen (currently worth about $7 billion). Sure, those fans’ voices might waver when describing past catastrophe, but plenty held firm and lived to get filthy rich another day.
Will the latest crypto crisis echo the previous ones? We asked 12 front-row observers of last week’s market crash to tell us what they’re going through. (Interviews have been edited for clarity and length.)—Margaux MacColl
“Things are so crazy that you don’t know what normal is.”
Anisha Sunkerneni, investor at Cyphr, an early-stage venture firm
Last week was so chaotic and catastrophict? Like UST and stablecoins being depegged? That’s not supposed to happen, period. Things are so crazy that you don’t know what normal is. People are just glued to their phones and the markets. What if something else crazy happens?
I actually met some other VCs at a social thing last week. There were these two camps of people: some just in shock, like, holy shit, we have to figure out what to do. Then there’s the camp of people that are like, “This week was really painful. We’re just not going to talk about it.” I’m sure they’re not in actual denial, but it was definitely a shock to the entire ecosystem.
So many [venture] funds put their money in these stablecoins like UST. Are they still a billion-dollar fund, or are they 200 million now? That directly impacts the capital available to deploy to the entire ecosystem. If founders aren’t able to raise and founders aren’t able to build, is that going to slow down the pace of innovation in our space?
It just feels like it has a much more far-reaching impact than simply eth or bitcoin crashing.—As told to Margaux MacColl
“Within hours, all the NFT project’s Discords turned into literal support groups.”
Karma, anonymous core team member of Galactic DAO, a decentralized autonomous organization built on the terra blockchain
For the first few days, nobody believed truly that terra was gone. People believed it would return. So we didn’t want to act too rashly, because if we took the DAO’s treasuries and swapped it into another stablecoin and then UST returned, the entire Galactic DAO community would be incredibly angry with us for wasting funds.
At some point, however, we understood that this is all a house of cards coming down. We didn’t want to be accused of withdrawing or doing anything with this money against users’ wishes. So before we withdrew any money from UST, we first posted a proposal on May 12 asking members to vote on it. But we saw that the vote was progressing too slow. If we waited longer, we would not be able to save any money at all. The core team just went ahead with it a few hours later. We transferred the money out to ethereum and then swapped it for another stablecoin. It was an executive decision.
We had $1.6 million in the treasury when luna was worth around $120. The majority was in luna—however, we had $400,000 in UST. Out of that $400,000, we managed to save $136,000. The rest is almost worthless now. It’s very, very painful.
Within hours, all the NFT project’s Discords turned into literal support groups. Basically a $40 billion ecosystem was wiped out within 48 hours—that’s not something anyone can process on their own. Especially because, for most of these people, this is not a hobby. This is a way of living. This is a mindset of fighting for decentralized finance. For many people, their world fell apart. —As told to Margaux MacColl
“Ijumped ship a little bit sooner than most. By Monday evening, I had exited.”
Emery Andrew, CEO of Kado, a payment processor for stablecoin transactions
There were a couple of signs early last week that the terra peg was starting to go under a dollar. By Sunday evening [May 8], transactions had started to fail—that was really the first red flag, before even crypto Twitter popped. And then over the course of the 48 hours between Sunday and Tuesday, it just really avalanched.
As crypto builders, you’re usually investors in the space as well. I jumped ship a little bit sooner than most. By Monday evening, I had exited. The price of luna was still above $10 at that point. By the next morning it was $1. By the following morning it was $0.01.
We didn’t expect this. Nobody could have—I mean, there were risks, but nobody expected it to be as fast as it was. We were very fortunate that, before things got out of hand, we’d already implemented incident response policies to ensure that our customers would be protected. We take that very, very seriously. Trust is one of those things that you build up over time, like a drop in the bucket. But, you know, you can kick the bucket over in one go.—As told to Jillian Goodman
“Everyone is panicking because they’re like, OK, this means either only the terra ecosystem collapses or everything collapses.”
Eshita Nandini, analyst at Messari, a crypto research firm
The tweet I saw on Monday [May 9] was that terra’s bitcoin wallet was completely empty. They moved all the reserves and everyone was like, what’s happening?’
Then there were rumors of, oh, it’s happening to other stablecoins. It was kind of a manic moment because there were so many rumors and so much misinformation. Everyone is panicking because this means either only the terra ecosystem collapses or everything collapses. There was a risk of bitcoin collapsing too.
I think it confirmed in everyone’s mind that we’re going to head towards a bear market. Like, what’s our plan? What are we going to do? Are our jobs OK? I have a lot of friends who are just freelancing their lives away on Web3 and working for DAOs, so I think they’re a little bit more panicked.
Everything just moves so quickly. People are building new projects. People have jumped to the next new idea. Like terra crashed, and they’re onto the next thing. They’re back to their jobs and they’re back to building whatever they’re building. So I kind of appreciate that, but it also feels like each month is so excruciatingly long. So much happens—if you miss out on something, it feels like you’ve really missed out.—As told to Margaux MacColl
“Idon’t know if there will ever be an accounting for this. If there’s not, then inevitably, people in crypto will do it again and again and again.”
Cory Klippsten, co-founder and CEO of Swan bitcoin, a bitcoin purchasing platform
You can go back through my tweets. I’ve been calling terraUSD out for two and a half months or so.
In one respect, I’m glad that bitcoiners learned a lesson here. I don’t care about different alt coins at all unless they try to wrap themselves in the bitcoin flag. I call it orange washing. So if they try to pull a bitcoin affinity scam, which is like, I love bitcoin, buy my shit coin, which is exactly what Do Kwon did with [the Luna Foundation Guard, the nonprofit managing the luna token], then it’s going to garner my attention, I’m going to dig in. Otherwise I don’t care.
I don’t know if there will ever be an accounting for this. If there’s no penalties [for propping up projects like terra], then inevitably people in crypto will do it again and again and again. Because if there’s no consequence whatsoever, then just do it again. Why wouldn’t you if you made money on it?—As told to Aidan Ryan
“I felt like I’ve been taking crazy pills for the last two years.”
KathleenBreitman, co-founder of the Tezos blockchain
My poor husband, Arthur (who co-founded the Tezos blockchain), will hear about a project and he’ll look into it in earnest, and you know, sometimes he’ll say, “Oh, that’s a good idea but I wouldn’t have done it that way.” And then sometimes I feel like I could hear him pull his hair out from the other room because he looks up something like the terra pitch, and he’s like, “This is obviously a Ponzi scheme!”
I felt like I’ve been taking crazy pills for the last two years. In game theory, you have this concept of a repeated game, where if you know that you’re going to see someone over and over again, you treat them a little bit differently than someone who you might just have one transaction with. And I don’t think a lot of people in this space have been treating business as a repeated game.
I hope that this is an inflection point because a lot of the positive momentum going into crypto last year masks a lot of really terrible engineering and really pernicious marketing practices. And if the bright silver lining of this downturn is that, at the very least, people become more suspicious, then I’d say that’s a great outcome.—As told to Aidan Ryan
“It was a very expensive trip to New York to sit in the hotel room and trade.”
Alexander Blum, managing partner at Two Prime, a crypto derivatives trading firm
Both my chief investment officer and I had flown out to New York for client meetings during the week. And we were just in our hotel rooms the entire time, watching charts and trading, and slept, you know, two or three hours each night. Somebody on the team was up at all hours. It was a very expensive trip to New York to just sit in the hotel room and trade.
The thing is, when the price starts to fall, nobody knows how far it’s going or how severe the issue is. Everybody on Twitter thinks the world is ending. So you have to filter things out, just look at the statistics, and not freak out or get emotional about things.
There was a lot of adrenaline. With crypto, there’s no Bloomberg terminal where you know exactly what’s going on. So it’s stressful just to make sure you’re keeping up with, you know, quick decisions that are being made that might affect the price of the market. That, plus sleep deprivation is, yeah, really stressful.—As told to Akash Pasricha
“We actually have real-world expenses. So we were like, huh, we probably should have gotten some out before.”
Devin Lewtan, co-founder of Mad Realities, a crypto media company that produces the dating show “Proof of Love”
We had our initial NFT sale, [which raised 172 ethereum]. So that’s been sitting in our treasury until we find it’s time to actually convert it into U.S. dollars and put it towards the production of “Proof of Love.”
When we saw the price of ethereum go down, we’re like, OK, we have less in the treasury in U.S. dollars than we did before. Right now, 172 eth is worth about $340,000. And for a while it was hovering around $500,000. For a lot of DAOs, that doesn’t matter. Like, one eth is one eth. But for us, we actually have real-world expenses [like the show’s set design or film cameras]. So we were like, huh, we probably should have gotten some out before.
For the most part, I would say that we feel pretty unfazed. As builders, you feel less affected by a bear market because you are building and aren’t distracted by the hype of bull runs. And so for us, it’s actually a really nice time to build without any distraction and just kind of work towards the larger goal rather than try and ride some wave of the moment.—As told to Margaux MacColl
“In just 10 days, we were up 60 percent.”
Suman Saurabh, head of quant research at crypto fund Phobos Capital
I’ve been talking to other colleagues who were working at different hedge funds. Everybody is losing money. But we have done pretty well.
We started fully systematic trading very recently at the end of April and we’re still in the testing phase with execution. The model had only been tested on a small amount of money. There was a time when I worked 16 hours a day for 7 days a week, but that phase was the pure startup phase. Now we have gotten to the point where the machine is doing things.
The model adapts to the current scenario with minimal lag. We see that when things have gone south in the market, the model itself changes to some other parameters that work well. On May 1, the market started going down. When we found the bottom of this meltdown, literally one and a half days later we went long for a brief period, when some coins like Solana rallied 40%. We entered long and exited again and went short again because the market was back in a meltdown situation. I call this the “smart switch.” Around May 11, in just 10 days, we were up 60%.
Our year-end target that we communicated to clients was to reach a 50% return on investment. I don’t want to say we will keep making this amount of money but the model is doing what it is intended to do. When there’s a meltdown, it captures that very beautifully; when the market is good, it captures that very beautifully. —As told to Becky Peterson
“Just get on the sidelines for a week or two and let things settle down.”
Scott Freeman, co-founder and partner at JST Capital, a crypto trading firm
We went into the weekend before the UST meltdown very concerned about the markets, honestly. We started having discussions with our clients and our traders. And then when markets really started getting choppy late in the day on Saturday [May 7], we went into full crisis mode.
We had people working around the clock, reaching out to clients, explaining to them what we’re seeing in the market, understanding what their positions are and what their concerns are. We actively encouraged clients to de-risk early in the week. And our message wasn’t just to get out of UST and luna, it was: Look at every stablecoin position you have, understand what’s behind that stablecoin, and understand if you really still want that. Just get on the sidelines for a week or two and let things settle down. These markets were too uncertain and too hard to predict.
Honestly, the whole week was a blur. Whether I was at home or at the office, it was 24/7. We were up until 10, 11, 12. And then the phone rings at 2 or 3 in the morning. When the week ended, Friday at noon, we were exhausted. I went home and took a nap.—As told to Akash Pasricha
“The conversations that I’ve had with people who are OG crypto, they’re just riding the wave.”
Mark Basa, director at Hokk Finance, a company building decentralized finance products
I expect things to crash—until they get good. My game is 5, 10 years. Our token [hokkaido inu] is shit right now along with everything else, but we don’t really care because our thing is not to market a meme token. Our long game is to build a decentralized finance ecosystem, which young people in crypto can use and big blockchain companies can use.
If you’re new to crypto, you would look at this crash and you would not want to buy. When stocks dip like this, it feels like the end of the world is coming. But this is crypto and it hasn’t yet found its place. We don’t even have 1% of global transactions yet happening on crypto, so I think that this is a really good time to build things if you want to build in crypto now.
You have to really, as the term in crypto is called, ape it. You have to change your mindset, knowing you have to lose quite a bit before you win. The conversations that I’ve had with people who are OG crypto, they’re just riding the wave.—As told to Annie Goldsmith
“All I can say is I hope people just remain optimistic.”
Medha Kothari, a research partner at Variant, an early-stage crypto-focused investment fund
I think the bear market is the best time to invest—the quality of projects is just so much higher. Also, I focus on infrastructure investment, a lot of scalability stuff, things that require a lot of time and focus and concentration. We saw a crazy consumer boom in the last year, especially in the NFT space, and usually whenever that happens, the infrastructure has to catch up. So I think for those builders, this is the best time to build without distraction. I’m really pretty excited about it.
A lot more people lost a lot more money than the last two bear markets, which is super unfortunate. All I can say is I hope people just remain optimistic, remain fundamentally absorbed in the technology and the philosophy, and everything will work out OK.—As told to Jillian Goodman