This video will be broken up into two major parts: One, how to spot fraud in the crypto banking environment, Number two: What the hell is CZ at Binance doing? And how did we potentially get duped? Now we got to talk crypto and the disaster of Silver Gate Now, you might not care about Silvergate, but you should learn the lessons of what happened with Silvergate because it's a complete disaster and it's really important to pay attention to if you're an investor because I want to show you how fundamental analysis could actually do you dirty when you're looking at a business like Silvergate. Now, personally, I think you could say similar things about the fundamentals of things like: Open Door Okay, but holy moly. Molly We gotta look at Silvergate because these numbers are something else. First, Silvergate ticker symbol Si is actually down 62 percent this week.

That's because they've warned of bankruptcy and they're actually a big player in the crypto. World Why are they a big player? Well, first, Silvergate. A little bit of background. They were a small Community Bank in California Nobody really knew about Silvergate, but in the crypto craze, they pivoted to being a crypto.

Bank Essentially where essentially what they would let people do is, they would say hey, look, you want to exchange, You want to run a crypto exchange. Why don't you deposit the cash that you get as an exchange with our bank and you know we'll go invest that money And you let people basically, uh, you know you give them crypto, You take their dollars, they deposit the dollars with us. We're FDIC insured. Great.

We allow 24 7 transacting so we'll make it easier for you basically to have an on and off ramp for crypto. which is basically a way for you to say I've got dollars I Want to buy some Usdc? They're kind of one of the players in the background where let's say you do that through a coinbase or whatever kind of platform. Essentially, when you transfer your cash in coinbase or whoever could take that cash, throw it into the Silvergate Bank. That way it's at a bank and they give you the uh, the Usdc or whatever It is right? And so Silvergate pivoted to a crypto.

Uh, it's nearly crypto. Bank Uh, and they blew up because of this. They also came out with something known as Send Leverage Scn Leverage and basically let their exchanges borrow U.S dollars in exchange for crypto assets. Yeah, oops.

But anyway, Send Leverage was really a way for, uh, Silvergate to be a bridge of liquidity for the crypto. Market Because think about it, if you have an FDIC insured bank that can essentially borrow money from the Federal Reserve banking system, lend it to exchanges who are then potentially speculating on crypto assets much like the likes of Blockfire, Voyager or whatever, Well, then what do you have? Yeah, up having a potential Bagel oopsie dupsy and that's exactly what ended up happening. So Send Leverage was essentially this. this lending a tool that a Silvergate had that allowed their exchanges to draw on potentially up to 1.1 billion dollars in commitments to do whatever they want.

Think about it, almost like a credit line to the crypto industry. Uh, and again, when, uh, when when Silvergate took these sort of Ious? In other words, hey, we'll lend you dollars. These Ious were then backed by crypto assets. but then whatever deposits that Silvergate also had uh, on hand to back the lending they were doing.

Those deposits didn't only go into safe things like the reverse repo Market or the treasury market. They went into wild things like mortgage-backed Securities which you might think, oh well. why would it be bad that a bank throws money into mortgage-backed Securities Well, guess what's happened to the bond? Market Over the last, well, like six to 12 months, it's been plummeting. That's why yields have been going up because the value of bonds has been plummeting.

So in other words, you have a company, an actual bank, a bank chartered company that used to provide liquidity for companies like FTX Coinbasecircle.com Crypto.com Crack in Gemini CBO Like you name it, I Mean you're talking about somewhere around 94 crypto exchanges and up to 894 different crypto institutional investors. They were the one of probably the biggest banks to serve crypto institutions Circle was even one of the customers. which is wild because Circle is the backbone of Usdc. and if all of a sudden, your crypto dollar sort of on and off ramp goes away, then what's actually backing the stable coins? That's a big head scratcher right now because if you're getting rid of the off ramp to get back to Dollars Are you potentially putting at risk the backing for stable coins? And the answer to that is yes, you potentially are.

Now that's not to create fear, uncertainty, and doubt. You know everybody says, oh, don't worry, everything's fine with the stable coins. But what I really want to show you is how things can go from fine to not fine very quickly. Now we should know that already.

But take a look at this. This is Silver Gate's third quarter SEC Filing of their financials. And what's interesting here is when you jump into their third quarter financials, what you'll actually find is they have about 700 million dollars of other Investments on their assets on the assets part of their balance sheet. Okay, this is supposed to be like safe keeping money that they have right.

Assets are supposed to have value, right? Because this company, this bank is telling the SEC hey look, we have assets with these values. This is good. We're Gucci right? We have more assets than liabilities, right? But wait a minute. What are these assets? Well, let's zoom in a little bit.

here. these assets are: quote other assets, derivative assets, intangible assets other Investments loans held for sale and Loans held for investment. Ah well. what happens when those loans fail because the crypto exchanges fail? Uh oh, you got to take write Downs on your loans available for sale or for investment? What happens when those other Investments like bonds or whatever lose value? Uh oh, your balance sheet goes poopsie dupsy really dang fast Now I want to show you that transition? Okay, that's that's the interesting part about this again.

Whether or not you like Silvergate or care about Silvergate I think it's so important from an investor point of view to go. Holy crap like look at this. Here's a company that says okay, this is like let me show you I'll show you an orange the extent of the fundamental analysis most people do. Okay, so most people, they literally do this: Total assets 15.4 billion dollars, total liabilities 14 billion Well, A is bigger than L, so that's a win.

That's like most of the fundamental analysis I feel like like that probably exceeds 99 of the fundamental analysis. That actually happens because most people probably don't even open up the financials and that's okay. That's why I try to do that here because I get it. It's tedious.

A lot of work. but then the people who do it's like well ask to succeed. Liabilities looks good to me. It's like you got to look at this and go like what in in the course member live streams That we do, we do something known as like the Kevin stress test and we take companies in any kind of asset that is just not like clearly cash or treasuries we just minus.

We're just like let's just assume it's worthless because what are you gonna do like your intangibles are worthless if you're going bankrupt? What if your derivatives are just like option contracts and YOLO speculation or your mortgage-backed securities plummet like they have been? Well now you got a problem. see. And when you have almost 700 million dollars here of other Investments and another 1.4 billion dollars of loans held for sale, you might be setting yourself up for some big old write downs. And this is what people forget is when they look at assets, they forget that at some point the companies may have to do what's known as a fair market value adjustment.

And that's kind of exactly what happened in the Q4 report. In the Q4 report. This company. wait.

let me go back to Q3 really quick just to show you the comparison. Okay, so Q3 Go to their income statement, which is right here. Look at their net income. Okay, the net income for this company was 43 million dollars last year and that's in the quarter.

So 43 million dollars on the quarter? That sounds great, right? 43 million dollars in a quarter? That maybe annualizes out to about 120 million dollars a year of potentially net income, right? if they kept having that kind of Q3 Last Q3 they were at 24ish million dollar or uh yeah, million dollars of net income. So just under about 100 million dollars of annualized income, right? Okay, well. what happened in 2024? Uh, or 2024.? What happened in Q4 2022? Oh good lord. Net loss attributable to shareholders was One billion dollars.

That's like eight to ten years of potential income when things were actually going okay. And why is that? Well, it's because of massive write Downs that they've had on some of their assets. You go through some of this here. You actually, uh, where did I highlight it? Uh, you can.

What they basically do is they go through and they show you the breakdown of the various different loans that they had, whether they were commercial or residential, reverse mortgages, uh, losses that they've then adjusted for for their real estate loans, losses that they've taken on their, uh, their their derivatives. here. take a look at this. Losses on Securities Oh yeah, here's the losses.

Page Look at this. look at this. This is insane. Losses on Securities 885 million dollars losses on derivatives.

Uh, seven ish. or uh, eight point Seven billion or million dollars impairment of intangible assets. A 200 million dollar write down. So you take these losses and impairments.

It's basically showing you their balance sheet was just a bunch a funny money before their balance sheet was basically clickbait because all of a sudden you look over here and it's insane. Look at this other. Investments Uh, they're well, this is other. Investments Let me see here.

where's the Securities one? Securities Here we go. Security is available for sale. Look at this. Securities Massive write down Right here.

You can see this: Uh, you've got loans available for sale. Look at how their loans available for sale got written down. This one. not that bad.

Loans for investment went down from 467 to 408, but loans held for sale went from 924 to 181. I Mean Massive Massive write Downs Other assets got written down what is this like? 30 percent, 275 to 202.. So it just shows you how you have to be really skeptical. A skeptical about the balance sheets at companies.

and in my opinion, this is a huge lesson in fundamental analysis that when you're fundamentally analyzing a company, you have to understand the bones of what they're actually doing because the backbone of their actual balance sheet can be complete trash. and that's actually legal with the SEC to have that kind of massive transition in a boundary. So it's no surprise. Now it looks like they're potentially going bankrupt.

It's no surprise, there's fear that maybe Circle is potentially at risk. Whale alert by the way, showed that coinbase meant to 200 million Usdc. It almost feels like people are trying to move on chain and away from Banks USD to Usdc. Volume is up 25 compared to normal, but again, it's raising the question of like, okay, well, if if people are like moving more into Usdc, how are you potentially going to withdraw in the future? If if you're breaking the off ramps, you're kind of getting more and more insulated into crypto or I should say isolated would be the better word right where.

It's kind of like here's crypto. Here's the US dollar world and it's kind of like you've got this tectonic shift where uh, dare I say there's this sort of cataclysm happening. Not to make a World of Warcraft reference where basically there's this earthquake and and the two tectonic plates if you will, are just moving apart, right? That's scary. Now it's worth noting that this is obviously different from like algorithmic stable coins which were basically just a Ponzi scam.

These supposedly are still actually backed by real dollars somewhere U.S Banks, however, though, are kind of like I don't know if we want any kind of crypto related deposits. although some people are seeing that as an opportunity. Uh, signature? Uh Bank uh here intending to wind down 10 billion dollars of crypto related deposits, their total deposits are eight. uh, 88 billion dollars.

And and basically what you're doing is you're limiting dollar liquidity, Hedge funds and crypto institutions are now potentially looking at Swiss banks to try to fill that void. You've got a regulatory disasters that are now even leading CZ over at Binance to suggest who you know? maybe we should pull out of uh buying Voyager And that's because of all of the sort of hotbed of financial pain uh, and and regulation that's coming. the sort of cataclysm you're getting more and more of this. Gosh, maybe we just want to stay away from the regulation because it's actually hurting us I Mean, look at this here.

You get a Binance Voyager deal. Crypto Potato official provides an update. This is what a U.S Judge responded to an SEC attorney who failed to provide specific arguments. Deliberative is one thing, but what have you done? If there are reasons to be concerned here, I need to hear specifics.

So a judge is fresh, so frustrated with the SEC in the Uh Binance takeover of Voyager that the judge is freaking out at the SEC because the SEC is so gun shy they don't even really know how to say no. And so now you have CZ casting doubt on ever even being able to want to complete the Voyager acquisition deal which I personally don't trust CZ as much as I can throw him. CZ I've talked about many times before and I know people get mad at me when I talk about it. but look, I do my best to propriet perspective.

not always right, but I like to provide perspective personally. I think uh CZ it's very convenient to. Let's just say he says oh yeah, we're gonna buy out f TX which basically stabilizes the crypto markets collapse long enough for them. Then when CZ feels okay we're good, he can just rug pull out of the FTX deal because it bought them time I Don't actually think CZ ever had any intention of buying out FTX and quite frankly I don't think he has any intention of buying Voyager digital either.

I Think what they're doing is they're saying oh yeah, we're great. We're gonna buy everyone out. One of the reasons they're doing that is because it stabilizes the entire crypto Market The second reason they're doing that, in my opinion, is because it prevents people from feeling like they have to take their money out of Binance because oh well, the finance is buying everyone up. Maybe they're the stable ones, they'll be the last one standing.

That could be true. It could be totally true that Finance ends up getting through this as the last man standing I Still don't trust them, but it's possible they could survive now. It's worth also looking at some of the drama that's going on with Cece uh Forbes Just put together a piece that was, uh, not too fantastic for CZ Uh, but then again, you know he's really good at casting everything aside. his fud look at this Binance's asset shuffling eerily similar to Maneuvers by FTX Now of course there have been on chain analytics suggesting that I don't know Binance's stuff doesn't look as bad as FTX but some of it does rhyme with FTX Let's just look at what Forbes says.

Okay, late last year, crypto markets were struggling to regain their footing. The world's biggest crypto exchange quietly moved 1.8 billion dollars of collateral meant to back its customer stable coins, putting the assets to other undisclosed uses. It's no surprise that when CZ was on CNBC and you had Becky quick and the other cast members over there as if they're actors. So the other journalist over at um uh at CNBC asking like hey, well, could you support a multi-billion dollar liquidity call he's like, well, I'll let the attorneys answer this I got a lot of flack for saying this guy's being dodgy.

People are like come on man, let the attorneys answer it. He doesn't need to answer Cnbc's question. it's like well then why is he on CNBC You know then then don't go, then send the attorney somebody with the answers but you don't want to give the answer because the truth is what you're doing with the money and what you're doing with these fake bailouts of companies is really just artificially trying to prop up the crypto economy long enough to to get past the bank run that was happening at Binance. Now so far, it seems like they got past it, so congratulations they're they're ruse worked.

But I mean just listen to at least the allegations of Forbes and make what you want of it personally. I Think the easiest thing is look, not your keys, not your crypto. get off exchange right? I Think that's the simplest solution here and a lot of people are like, well, yeah, duh of course. But still, it's shocking how many people have lots of money on Binance anyway.

Uh, they did this without informing their customers according to blockchain data examined by Forbes from August 17th to early December about the same time FTX was imploding holders of more than one billion dollars of the crypto known as Bpeg. Usdc tokens were left with no collateral for instruments that Binance claimed were 100 backed by whatever token they were pegged to. Well, look, we've talked about this many times before. It's really, really easy to say stuff is 100 backed when you're multi-counting it, We know this has happened before.

All you have to do is say oh, look, we've got three buckets that are each worth one billion dollars. Let's say right? and you basically say, hey, maybe this is uh, Usdc over here, You know, maybe this is uh, B USD whatever and I don't I don't know, Maybe this is this is tether. Okay, right. Let's say a Binance has a billion dollars of all this and then what they actually have.

So they have 3 billion dollars here, right? But what they actually have is one billion dollars of cash. This is. This is how the scam is played right. They're like oh yeah man, don't worry, our Usdc is a hundred percent backed by cash.

Yes, that's true, But is all of your crap together all backed by cash? Of course not. Of course not. So if all of these needed liquidity at the same time. Goodbye Binance, But but we know I mean like maybe I can't say of course not.

I should say 99.9 My opinion? probably not. Uh, Anyway, so uh, let's see. let's take a look a little bit deeper here. So of the rated customer funds which consisted of USD stablecoin tokens 1.1 billion was channeled to Cumberland Drw, a Chicago-based high frequency trading firm whose parent was founded in 1992 and began trading crypto in 2014..

Cumberland may have assisted Binance in its efforts to transform the collateral into its own Binance USD a stable coin until a Crackdown in mid-February By the New York State Department of Financial Services on stablecoin issuance, Binance was aggressively seeking to gain market share for its uh, dollar back coins, blah blah blah blah. Binance's Chief strategy officer downplays concerns about co-mingling saying there was no commingling because there's a wallet and there's a ledger which could all be tracked. you know? I I Really, it drives me nuts when you have uh the the the institution say oh well, all our stuff is transparent. It's so not trans parent.

It's like oh yeah, here are the wallets. and then you look at the wallets and you see these insane trading moves that don't even make sense. They're designed to be transparently Arcane They're designed to confuse. That's what they exist for.

That's why when they provide proof of reserves, which by the way, their auditor just stopped doing it because they're basically a fraud. But anyway, when they provide these proof of Reserve statements, they're basically just saying, yep, we looked, we see, You know Binance hired us to say hey, uh, how much cash do we have Oh a billion, How much Usdc we have? Oh a billion. Don't look over here. don't mind all the other crap, don't mind all the other liabilities that we have.

We get it old news at this point, right? Look at some of the other allegations here. Coronargo said the collateral underpinning Binance Peg Usdc was deficient by more than one billion dollars. Deficient by a billion dollars on three separate occasions in the Peg wallet. This is in the public chains.

you could find the deficiencies and the exchanges version of its busd stablecoin was under collateralized by more than 500 million dollars for the maturity of 2021. That's when we were still in the bull market today. The wallet holds approximately seven billion dollars, but that's after the exchange added approximately 3.2 billion since mid-December when Binance experienced heavy deposit outflows following the decline of the FTX collapse. so they had to basically to avoid essentially a bank run, which which they were suffering a lot of withdrawals, they had to kind of play the game.

make it seem like don't worry, we're great. We're fine. Everything's fine over here anyway. Jn24 Bloomberg quoted an unnamed Binance spokesperson admitting that the exchange co-mingled funds and the underfunded certain B tokens in error.

Oh yeah, just during the craziest liquidity crisis we've ever dealt with at Binance, we happened to make a little Finance there. Uh, don't worry, everything's good Now it's so ridiculous. The transfer is showing. Co-mingling began as far back as November of 2020 the earliest available data.

They of course launched their P token back in June of 2019.. Uh, the Forbes article goes through some wallets and kind of gives you a little bit of uh, wallet transfer history history here, including apparently uh, Binance transferring money to Amber group, Alameda and certain individuals during, uh, frantic weeks here. Uh, now of course Forbes says look, these actions aren't necessarily illegal because these are not regulated exchanges. That's the whole point.

That's why the SEC is having a heart attack with crypto because the stuff that's happening is straight up Shady Now maybe they can fake it till they make it because so far they've been doing that. but boy oh boy, some crazy stuff going on. personally. I think it'd be crazy to be yield farming on Exchange Uh, right now, a lot of people still do it.

A lot of people listen to me, say that and say thanks for the warning Kevin But you know what? I'm good and that's fine. It's fine. In fact, it could work out fine in a weird way. as long as we continue on this disinflationary path which is pretty bumpy.

But as long as we continue on this disinflationary path and we don't get Paul Volckerd and we actually get a movement towards risk assets. Again By any, it's might have been this close to BK but they just didn't get to that level. How? maybe they played it perfect quickly and we went to basically close to BK and now we're on that recovery and now sort of that disinflationary. Oh no.

Paul Volcker. Oh, let's get back into Risk Assets. Oh, Bitcoin's no longer at 15K. Let's everything.

Everything's getting better. it's gonna. It's gonna end up being a cocktail story for them. Where they're like, huh? Are there risks? Yes.

Are there things we have to pay attention to in the crypto? World Absolutely. This is ultimately where the bottom line always is. not your keys, not your crypto. Personally I Think it's very, very fascinating to see this sort of breakdown here.

Uh, someone here Scott says I'm a crypto bull Kevin has made some great points I Don't know. Well, thank you for saying that I'd be more concerned about coinbase halting trading every time prices moves to move too quickly. Yeah, well. I Think that's just also a sign of a lack of liquidity, right? as they're essentially trying to act as a market maker.

Funny how uh, what do you have here? Funny how Regulators were worried about Asian exchanges, but it was an American Exchange stealing funds? yeah and sending it to the Democratic party. You're not wrong. You're not wrong. That is like really embarrassing.

You're absolutely correct in what you're saying that and by no means am I saying Finance is definitely FTX I'm just saying there are some things that are very similar. FTX is just the one that hit bankruptcy right? Uh, that? that doesn't mean the other ones are angels, right? But yeah, you, you are right. But but I mean look at it this way. Look at it this way.

Uh, I I I Think the way to look at it is is kind of like this: FTX Let's just say murdered. You know, 100 x 100 You know widgets. Let's say just to make this not gruesome, right? Okay, and then you might go over here and you go uh and say Finance murdered 75 widgets Okay, obviously FTX is worse, but this was still pretty damn bad. You see what I'm saying like yes, yes, one was an order of magnitude worse.

And then there's one that's also probably still pretty bad. but so far it hasn't really been like clearly caught yet. Oh man, who knows, who knows. It's just it's I find it educational I don't have a horse in this race and I I don't have I don't think I have any crypto exposure I'm I mean I I don't want to say I don't have any because maybe there's like a tiny little bit like stuck somewhere.

Uh, but as far as I'm aware, I'm I has no crypto exposure. Uh yeah, so it doesn't matter to me if it's all fine or it all goes bust. It doesn't matter to me I Study it to learn to learn basically how companies can basically lie to you and and it shows you via the Silver Gate lies and also via the binance lies how they can do it or even the FTX size like to me, it's all just one big educational wow That's how that's how you could talk through both sides of your mouth and screw people I find that very interesting.