holy crap i literally just got wiped out this is despite wearing dragon chain armor boy there are lessons in this loss that i really hope that you take with you forever this is a loss that is really a 99 loss that should have been avoidable after all warren buffett tells us the number one rule of investing is don't lose money and the number two rule of investing is don't forget rule number one well i failed on number one and on number two now i was fortunate to sell all of my cryptocurrency and my profit less technology companies or smaller cap companies in january to avoid an additional 70 to 80 losses that would have exceeded the white about that we're about to talk about but the reasons that i got wiped out in this particular investment completely wiped out are big lessons now first for you to understand this you need a bit of background do you remember the tara luna stablecoin meltdown it was a stable coin with a value at one point of almost 60 billion dollars 60 billion dollars is four times the amount of money that kathy wood manages it is half the size of amd amd is a 120 billion dollar company tara luna a stable coin got to 60 billion dollars that's a lot of money and all of it disappeared and when that disappeared and that stable coin melted down crypto brokerages lost massive amounts of money lending their money to uncertain entities like three arrows capital that just vanished with that 1.18 billion dollars under management and led these crypto brokerages to near collapse or as some might say no collapse now you know what's really sad about this is watch this watch this three-minute clip from march of 2021 15 months ago when i described what could happen to stable coins and companies that i nicknamed like voyager digital and crypto phi nicknames i gave voyager digital and block fi who are making waves of their own today listen to the clip uninterrupted we think hey it's pegged to the dollar it's pegged to the dollar one uh one to one and if it's pegged to the dollar one to one it's kind of like having cash except it's kind of like a high yield savings account but that's the problem it's not it's a loan if they made you sign a document saying you agreed to lend this and you could lose all of it people probably would be less inclined to do this but that's all in the fine print they just say hey sign up and earn interest on your cryptocurrency it sounds so wonderful they don't make it clear that this is actually a loan now that doesn't become a problem because right now your gusd doesn't fluctuate in value because it's pegged to the dollar and the markets are working normally prices are going up you've got nothing to worry about because as prices go up there there usually isn't stress in the markets right so when does this become a problem well let's say sally says you know what i'm going to get some margin i'm going to buy bitcoin for 100 i'm going to get 25 of margin from voyager here and i'm going to have 125 invested in bitcoin now let's say bitcoin goes from 55k to 5k that's a big drop it's about 91 right well this is going to go down 90 to about 12.50 what happens now well now sally gets wiped out sally got destroyed and this could be a flash crash this could be a day sally instantly gets destroyed because you have smart contracts that instantly take your money away give it to voyager the problem is voyager is left with an asset that's worth a whole lot less than what they thought it would ever be worth so now they only have 12.50 they just lost money when a company or an institutional investor loses money and this happens at scale amongst hundreds or thousands of different client accounts because we have no idea how many people are margin we don't get that kind of transparency from the system we don't know we don't know how often this gusd is lent out over and over again we have no idea let's say voyager goes bankrupt okay voyager goes bankrupt because they're like wow we just tell all these margin losses well cryptofy is probably going to have some issues as well but i'll tell you the first thing that's going to happen kevin and michael are going to be like oh crap please let me have my gusd back and all of a sudden we're gonna see a lot of people instantly demand redemptions they're gonna want yo give me turn my gusd into dollars right now the market's crashing i'm freaking out okay now and i know some of you are gonna think kevin come on the same stuff happens in fractional reserve banking hold that thought okay i'm going to put a little note down here fractional reserve banking we're going to talk about fractional reserve banking hold that thought because there's a massive difference quite a few actual massive differences here so what happens now now you've got two people who think they have 100 of gusd in the bank they're like i want to redeem okay well what happens gemini and crypto if i say hey look we're in a crisis right now no redemptions literally no redemptions they could do that it's happened before look at bitfinex bitfinex a chinese company uses tether as their stablecoin and in october of 2018 they stopped allowing deposits and so nobody was able to convert uh us dollars or chinese dollars or whatever euros into tether and the one-to-one peg of the tether collapsed it went down as low as 85 cents to one dollar and there was no market crash bitcoin was stable around six thousand dollars when that happened no credit no crash no collapse and tether loses 15 percent boom like that but wait a minute it's pegged to the dollar okay you think kevin and michael are gonna be able to go to the fed and go yo i demand my usd no fed's gonna laugh you they're gonna laugh you out of the bank like get out of here we we did not bestow our trust on the gusd you tried to inherit trust of the usd you tried to inherit the sovereign banking the uh the backing of the full faith and credit of the united states via a stable coin but it doesn't work that way quick example i have let's say a thousand of these erasers and i say hey i will always pay you one dollar for this eraser right here because the value of this eraser is pegged to the dollar cool who are you trusting the us government or me you're trusting me if i go bankrupt worthless same could happen here you get institutional bankruptcies the value of those underlying coins which are corporate controlled these this is not government control they're corporate controlled usdc is a consortium they're private companies that control usdc gemini private company that controls the gemini coin it's not a government the government cares about the people corporations care about themselves so i was acutely aware of the danger of stable coins so much so that people in the comment sections regular told me that i was just a fudder when it came to stable coins that they're always redeemable for either in the case of tara luna juan luna or in the case of things like usdc one dollar well today folks are sending me a lot of tweets saying things like it looks like your prediction from 2021 may be playing out and they're showing me charts describing exactly the issue that i explained from the video of march of 2021 unfortunately i couldn't even protect myself now for those of you wondering about this chart you know with usdc on it personally i don't believe that usdc has massive issues until bitcoin gets closer to sub 10 000 probably around 5 000 then this chart from usdc could play out as well so there's there's still more damage to be done to cryptocurrency valuations but there's something propping up cryptocurrency valuations right now that might not last very long we'll talk about that as well but let's go back to me so what did i do after march of 2021 well i did exactly what i said i would do i would stay away from stable coins i'm like hell no no stable coins for me that is just lending money and lending money is stupid see i come from a real estate background and my understanding is that when you lend money you might not get your money back so i didn't want to be a lender i wanted to be the broker i wanted to be involved with like hey we'll make you make the loans but i don't want to be the lender and this is interesting because not only am i a licensed real estate broker but i used to be a licensed loan originator a licensed mlo who brokers loans and so this kept me researching the issue and looking for opportunities to invest in this market without being in stable coins so i interviewed people whom i thought would know better than me here's me with the ceo of block five you know we're not we're not building a business that's focused on extracting as much value as we can today or tomorrow we're really thinking about a relationship with our clients over the next five 10 20 years and so that's what's important to us so you know i think our our scale and capitalization and experience in risk management is something that really stands apart from other uh folks uh that operate in this market nice so yeah i mean that's interesting because uh when the market crashed there in march there's no fed coming in to bail out the crypto market right there's no lender of last resort it sounds like that was almost you guys so you guys were liquid yeah i mean look we're the we're the largest um and and we you know we think of ourselves as uh certainly a company that's interested in growing more client relationships and offering more products to our clients and being successful from a uh from a capitalistic perspective but we also view ourselves as a company that's a you know uh an increasingly important part of this crypto ecosystem and that comes with uh certain responsibilities here's me with the ceo of voyager digital would you say then the vast majority of the money that you're lending out is going to these these larger institutions that are doing this trading it's it's not like you know joe the ice cream vendor is getting my bitcoin and if you know it's it's a cold winter day he's going bankrupt i have risk yeah we don't do any of that we're not we're straight to these big institutions that was the it's the risk parameters we've set as a public company and why it's easy to see it in our disclosures and our financials you know we just uh put out our december financials got posted on canadian cedar the other day on monday as did on the otc market so people can see all the data and like i said it's only big institutions because we don't want to carry that risk for our consumers here's me with the crypto analyst at kathy woods arc invest why can blockfi or some of these other companies voyage or whatever why can they pay me six percent interest just for holding bitcoin there is this is this bit connect all over again is this a ponzi what's going on here yeah that's a good question uh i i would say a few things that the first is there's a there's a mis a misperception between offering annualized rates and annual rates so like what's funny is like the six percent annualized it's at any given time but you're going to see massive fluctuations that might end up converging towards two or three percent over the year um the second thing is that you know there is huge custody risk um and people are taking massive risks by custodying it um in um you know a in in in sort of a counterparty and so i mean we and we've seen we've seen like hacks and leaks um in security leaks uh from users who end up trying to generate yields by going to these more esoteric products um with block fi specifically um again i'm not i would say i'm not the perfect person to speak but i i've like followed zach prince who's their ceo and and they've done they've done tremendous things they're doing uh they found an inefficiency in the market um and i think because we're so early and crypto first companies aren't actually as integrated into the traditional financial system as what we might see um you know in a few years there's still some significant arbitrage opportunities uh that users are capitalizing on and they all told me the same thing yes there's counterparty risk for the stablecoin but you have to trust the institution you have to trust how good and protected blockfi is going to be when we just issue margin calls blockfi one of the you know most critical pieces of technical infrastructure that we've built is our risk management infrastructure which one's 24 7. it's connected to liquidity and when prices are volatile in either direction it issues warnings and margin calls and ultimately liquidations to folks who have borrowed from us and those liquidations occur before the value of the loan is higher than the value of the collateral voyager lends to safe people like three arrows capital if there's ever a problem it's the borrower who will get screwed because they'll just get margin called and again i should have reminded myself of what i said in march of 2021 because i even said the words let's say voyager goes bankrupt okay voyager goes bankrupt because they're like wow we just have all these margin losses and now guess what's happening voyager got an emergency bailout loan and it's limiting withdrawals from its customers like i said redemptions would get stopped they're like i want to redeem okay well what happens gemini and crypto phi say hey look we're in a crisis right now no redemptions literally no redemptions they could do that it's happened before blockfi got an emergency bailout loan from sam bankman freed the founder of ftx and tara luna is at zero now usdc is still fine but the path to destruction is written if btc keeps falling in my opinion is usdc breaks as well at btc 5k until then bailouts from companies like ftx his founder sam bankman freed or binance can keep crypto afloat they're basically acting like the federal reserve which remember when i said you're going to wish you had a jay pal who is referred to as the lender of last resort well guess what cnbc is now calling the founder of ftx yup the lender of last resort just like jpow but even sam bankman free doesn't have a money printer like jaypal so that means his support is more limited than what jaypal can do sam bankman freed might be able to help prop the crypto economy up around 19 000 bitcoin as a strong support but what happens when his support stops what happens when true panic spreads because there's no sam bankman free to make sure voyager digital can allow people to at least remove some of their money from the platform tbd but how did i get wiped out already i couldn't even make it to the end and i was the one ringing the bell of the warnings so how the hell did i get screwed well after talking to the ceo of voyager blockfi and other crypto analysts i thought the safest investment was in the institutions the worst case the people lending their stable coins would get screwed but the brokers transacting it would be fine you lend the money lender gets screwed broker still keeps the commission well that real estate style thinking got me wiped out because in may of 2021 i agreed to invest in block fi as a venture capital investment i invested four hundred twenty thousand six hundred ninety dollars into blockfi which is more than other people invested when they say they did things like starting a bank or buying a bank you could do that with little investments like 25 50 100 200k no i didn't even talk about my investment and i've still put hundred 420 dollars into block five here's my wire and cnbc just released a wonderful article saying that block fi is now in such distress because of the three arrows capital margin call and that margin call not working out and that good old risk management from blockfi not working out so you know uh i think our our scale and and capitalization and experience in risk management is is something that really uh stands apart from other folks that operate in this market blackfy is now being sold for less than 99 of its prior valuation potentially all to sam bankman freed for just 25 million dollars and all the venture capital investments are wiped out well folks it looks to me i can pat myself on the back i was 100 percent right my fundamental analysis was absolutely correct except i still lost everything these are these are these are laughs of pain see three things went wrong this was a venture capital funding which meant i had no liquidity i wanted to be liquid in crypto so i tied myself up into venture capital which has no liquidity see once you're in a fund you're locked up in fact i regretted my decision as early as september of 2021 when i grew concerned more concerned about stable coins but i was told that my money wasn't in shares themselves that i just had ownership interest in a fund that owned the shares uh in block five and therefore i could not sell my shares on equity zen a place you can sell shares number two i ignored the collateral damage that would occur if my stablecoin belief was correct this was a huge blind spot i was correct about stablecoins collapsing but didn't realize that they would take the ship down with them this was a large blind spot and i paid the price dearly for that number three i didn't follow up on the red flags of the companies being able to explain their yield strategies numerous times in interviews i complained that it just seemed odd that they were able to pay people six to ten percent on stable coins yet they somehow weren't taking larger risks elsewhere well by being blind to these three issues i couldn't even save myself.