What You Should Also Know About Circle, DCG, MIT and Black Rock.
Genesis...Circle...DCG...USDC...BlackRock
I am going to assume a fair number of you have heard about the FTX & Alameda situation, to the point of inducing a gag-reflex no doubt. I’m right there with ya. I will do my best to avoid the topic as I wanted to explore a different shade of the “crypto” space (meaning sans bitcoin). While still managing to talk about the very same entities — crazy, right?
This one is a bit long and a bit chaotic, so I apologize in advance. But there’s quite a bit here, so I believe it’ll be worth your while.
Circle & USDC
First let’s take a ride on the “Way Back Machine” to 2020. We look to the end of July, when Genesis (a prime brokerage, and largest broker in the crypto space) partnered with Circle Internet Financial Ltd, to “accelerate the adoption and acceptance of digital dollar stablecoins in mainstream finance.” Circle is the owner of the stablecoin USDC. This partnership also came with a $25 million injection of capital to Circle from Digital Currency Group (DCG), which is the parent company of Genesis. You may recognize these last two names, as they are entities now being feared to face risks of bankruptcy after the FTX-Alameda-SBF cluster-cluck.
According to CoinMarketCap (CMC), USDC has a market cap, as of today, at just above $44 billion. Yet, what you may not know is that USDC has been on the slide since mid 2021. Below shows the current exchange balance of USDC (first image), and the peak exchange balance (second image) that topped-out at $7.157 billion on March 28, 2022.
Now, also according to CMC, USDC’s overall market capitalization maxed out on June 19th, 2022, at $55.9 billion.
Today the current market cap is down about 28% to where we sit currently at $44 billion, and some change.
Black Rock & Circle & USDC
Prior to the aforementioned partnership between Circle and DCG-Genesis, Black Rock had partnered with Circle Internet Financial Ltd to the tune of $400 million, in April. What also came in-tow with this was the development of the Circle Reserve Fund, that was to be managed by Black Rock *wink-wink*. Establishing Black Rock as the primary asset manager of USDC reserves, and establishing said fund as a “government money market fund” according to the SEC filing. For further elaboration on the Circle & USDC relationship I would recommend this substack by Matt Taibbi, which was very useful to help in my triangulation on where to look.
Sure seems to me that Black Rock & Fink were aiming to become the US’s go-to CBDC product. Is that still likely when exchange balances, across the board, have been shedding their USDC exposure?
It’s also worthy of noting here that MIT is involved with the CBDC development front via the Digital Currency Initiative (DCI), AND also tied to the FTX-Alameda relationship via SBF’s own relationship to Caroline Ellison.
*Viewer beware: they may be professors, but they aren’t A/V experts, and the “A” makes this interview painful to listen to.
Silvergate
While questions are being raised over the survivability of DCG, Genesis, and Grayscale, I’m personally interested in the health and strength of institutions like Silvergate. Dylan LeClair has been all over SI 0.00%↑ lately, bringing attention to their aggressive sell-off that has occurred this year.
The reason that I’m interested in Silvergate is because of their reach into the crypto space coupled with their relationship to Circle, DCG and Black Rock. In the current financial environment nearly every entity is, as Preston Pysh puts it, “levered up to their eyeballs.”
Meaning we have intense fragility. And it is seemingly everywhere. With enough hardship in an environment of fragility, it won’t take much pressure to theoretically break something.
Silvergate & Black Rock could be in interesting situations when all things are considered. Silvergate is tied-up in a quagmire of financial daisy-chains and has been seeing rapid selling of their stock. While Black Rock’s bet on USDC & Circle seems to be a general failure when you compare the above images of USDC exchange balances against their largest competitors: Tether ($USDT) and Binance’s stablecoin ($BUSD).
*It’s also worthy of noting that Paxos is the issuer of not only $USDC, but $BUSD as well.
On top of their bet on Circle being an abrupt failure, there’s also their failures on the ESG front. Between Louisiana, Missouri, and 17 others pulling back from funds attributed to ESG and anti-hydrocarbon investing, there’s also their total AUM.
Black Rock’s AUM has fallen from $10 trillion this summer, to $7.9 trillion this fall.
An Interesting Little Bit..
…about the stablecoin landscape…
Last night I had a little discussion with some of my nerdfriends on the interwebs and I brought this topic up. I referred to a proposal that I had heard discussed on Tom Luongo’s Patreon where he proposed a scenario of The Federal Reserve potentially cooperating with Tether; they’re already working on backing their Tethers with treasuries; makes sense to me. What was also discussed was an opposing argument of suggesting that, with the data points I have provided above, that Black Rock is actually consolidating USDC off exchanges, into the Circle Reserve Fund, and effectively withdrawing the capability for anybody deemed “undesirable” to seek refuge in USDC.
This would be a very effective strategy considering how much of the legacy sector froths at the mouth as soon as doubt in USDT rears its head in the market again. Especially when you consider the activity of the ‘17-’19 bear market. For those that weren’t watching (as intently as I was) Bitfinex would just appear like an ‘Olde Saint Nick” with some exorbitant amount of USDT while PA was in the sh*tter.
Now, consider this for me. If you’re a certain crypto research firm that rhymes with “Fla-va-vida Re-perch,” and you have access to an exchange that rhymes with “Lick-my-necks,” and you’re in the middle of a bear market that sent bitcoin from $20k to bowling at $6k… and you’re seeing liquidity & demand drying up… How hard would it, hypothetically, to be to strike up a conversation with Lick-my-necks to convince them with;
“Hey I’ll ‘buy’ a couple hundred million tethers from you — *wink*— and then use those those tethers to buy-up BTC on the cheap-cheap (shout-out; Jack Harlow) as the market scrapes the barrel. Then you send those btc to me, and we forget where we put the tethers, or you know whatever, and then you get to keep all of your crypto trading fees rolling in.”
Considering the nefarious activity that was willfully engaged in by these individuals… doesn’t seem so far-fetch’d.
I seriously don’t know if Tom is right, or if the Black Rock strategy is right. No clue.
*Update: the latest on the shadiness of Tether by a recent article from the New York Times only further cements the USDC & Black Rock strategy, which the article by the NY Times can be found here. It’s just unfortunate about the ties to the creator Inspector Gadget *sad face*.
The Incest
As the financial ninjutsu deployed by FTX & Alameda has come out, what should be understood is the deployed strategies can be tied back to the 3AC blow-up earlier this year when $LUNA imploded. These entities were caught in a game of taking loans from Genesis (remember, Genesis falls under DCG), using said loans to purchase crypto assets, and then collateralizing those “assets” to produce loans themselves. What has also come to light is that many of these crypto collateralized loans were being taken out by other crypto industry entities, producing a daisy chain that we are witnessing degrade on a near-daily-basis.
And now DCG is using it’s own entities’ funds to essentially provide overnight liquidity with the hope of avoiding insolvency issues. Sure sounds like the reverse-repo window at the Federal Reserve if you ask me.
Between these own entities attempting to bail themselves out — FTX & Alameda Research and Genesis Global Capital & Genesis (both of which are DCG companies) — and then the also incestuous relationships between crypto organizations propping each other up, it’s no wonder nobody takes this industry seriously.
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