Adding More Dumpsters to the Fire • CEO Letter #72

Greetings, salutations, konnichiwa, it's Taylor from Hedgehog here. Hedgehog helps you stay on top of your crypto portfolio… and boy is this an exciting time for crypto. Not necessarily in a good way 😬

Last Thursday we discussed the FTX blowup. This Thursday, we're still discussing the FTX blowup, and how the shockwaves have spread through the crypto industry.

Well, what about Hedgehog? I will follow up soon with a note about our product roadmap in light of recent events — stay tuned for that. Hedgehog has not been directly impacted, since we have no exposure to FTX or other affected products. But I do think Hedgehog can play a role in helping the industry move forward.

Before I get into the nitty-gritty news, a reminder: I'm giving away some sweet Hedgehog swag at the end of the newsletter! Like I do every week 🤗

So, about those shockwaves. I hardly know where to start. I guess first we should pick up where we left off, since many more details have emerged. FTX and associated entities (ominously including FTX.us) filed for bankruptcy. As for the remaining funds on FTX, there was a still-unexplained hack… or maybe inside job?

These links will catch you up:

"To be clear, we still don't have a perfect understanding of what exactly happened at Alameda Research and FTX. However, at this point, I feel that we have enough information to get a grasp on the broad strokes." This is a good rundown of what the Crypto Twitter braintrust has pieced together. Thank you, uh [checks notes] @0xfbifemboy.

You know what, sometimes in crypto that's just how it is, the best source of info goes by "FBI femboy" and there's nothing you can do about it. (Related: @AutismCapital has been the MVP for breaking news during this saga.)

In response, psychiatrist Scott Alexander examined how much it mattered that everybody was on drugs.

Probably legal drugs, but still… when all your employees can be described as being on drugs… even as an exaggeration… that's bad.

"The collapse of FTX is a story about credit and credibility: about how leverage can produce fabulous wealth, but how it can also lead to vulnerable systems. It's about how a good story and a high-trust community can inspire people to work hard in order to improve the world (and get rich), but how it can also be abused." Byrne Hobart explained the ideological and intellectual basis for SBF's crazy decision-making. If you've been wondering why "effective altruism" is relevant to the whole brouhaha, let Byrne help you out.

Sam Bankman-Fried himself unintentionally gave an absolutely bananas interview to Vox with his take on the mess he caused. "Sometimes life creeps up on you," he mused. You don't say.

Tldr: Drugs, Incompetence, and Criminal Activity. Check, Check, and Check.

That section was the background. Here is what's going on currently:

"FTX's Failure Is Sparking a Massive Regulatory Response," per CoinDesk — oh, what fun! — and the House Financial Services Committee will hold a hearing next month.

I love when elected officials use the term "dumpster fire," always a good sign. Poor Binance might be in the crosshairs since its CEO lit the match that incinerated FTX (presumably without anticipating a full-on forest fire).

At least Congressman Auchincloss gets it: "The crimes FTX were committing were not some tech-specific, wiz-bang, 2022-era set of crimes. They were illegal 100 years ago. You can't do that."

Stealing from your customers has been a no-no for a long time.

Crypto lender Genesis is in trouble; the company suspended redemptions and ceased issuing new loans. "This decision was made in response to the extreme market dislocation and loss of industry confidence caused by the FTX implosion," according to Genesis parent company Digital Coin Group. As lawyer Preston Byrne commented, "There's a liquidity crunch and unlike 2008 there’s no money printer to bail people out."

The turmoil at Genesis has impacted Gemini Earn: "We are aware that Genesis Global Capital, LLC (Genesis) — the lending partner of the Earn program — has paused withdrawals and will not be able to meet customer redemptions within the service-level agreement (SLA) of 5 business days." No bueno. "We will continue to work with [Genesis] on behalf of all Earn customers. This is our highest priority."

Cross your fingers and knock on wood. The rest of Gemini is fine, and the risks of Earn have always been disclosed, but many customers were surprised, given that it's called Gemini Earn — you had to read the legalese to know what you were really getting into.

Solana continues to be down bad, like really bad: "Solana has lost 60% of its market value in a week due to its exposure to the now-defunct crypto exchange FTX, which could continue to haunt the 'Ethereum killer' well into the future."

Well, that’s another Ethereum killer that’s being killed for not being Ethereum. But also… c'mon man, do you gotta bring up the ETH killer thing right now?

"Who is billionaire FTX co-founder Gary Wang and why is he still committing code?"

Answer: He's mysterious and that's what we know! Alrighty.

Tldr: Multiple dumpsters have now been thrown into the fire. The fire continues to burn.

Okay. I've thrown a lot of information at you in this newsletter. What are the practical takeaways?

Self-custody is an important skill, that's one. Unfortunately it's also pretty scary. As I've said before, the best part of crypto is that you get to be your own bank… and the worst part of crypto is that you have to be your own bank. FTX dramatically demonstrated that exchanges can be risky.

Hardware wallets offer the strongest security and reduce the chance of messing up, but there are also numerous software wallets for both desktop and mobile, and it's intimidating to figure out which one to choose. I don't have a good solution for this problem — if you have ideas, let me know!

Another takeaway: If you believe that the crypto industry will bounce back, now is a good time to go shopping. Everything is on sale! However, I said the same thing in May when Terra and Luna went down (pun intended):

[W]hile past performance is no guarantee of future returns [...] another way to look at market crashes is that assets are on sale for the next growth cycle. Exchanges out here lookin' like JCPenney with all these 15% dips. Granted, it's hard to time the bottom, so it's totally possible to buy your favorite cryptocurrency and then watch the price keep sliding. Bitcoin and ethereum have also provided ample opportunities for that experience throughout their history! And some altcoins will never recover, just like some companies go bankrupt and disappear during a recession.

When I wrote that, the price of bitcoin was around $30k, and now it's around $16k… about the same price it was a year ago in 2020. Meanwhile ethereum is currently around $1.2k, whereas last November it was bouncing from $400 to $550.

Tldr: Prices are often surprising. Predicting the future is hard.

How about some good news? Giveaway time: What's your crypto storage setup?

Recommendations welcome. Or if you don't own crypto, go ahead and tell me why not. Reply with your answer for the chance to choose three of these lovely prizes: