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Ram Ahluwalia, higher for longer crypto CFA Profile picture
@ramahluwalia
May 15 • 8 tweets • 2 min read Twitter logo Read on Twitter
1/ Crypto market liquidity has dried up significantly.

These are the consequences of a lack of a crypto bank settlement layer (SI & Signature).

Market makers need a way to settle instantly with counterparties (eg, exchanges, HFs, other MMs).

🧵
2/ Market makers want to trade with as many counterparties as possible - bit not take on counterparty or settlement risk.

In TradFi, the answer to this is well capitalized clearinghouse firms that are the seller to every buyer and buyer to every seller - DTCC, CME, ICE, etc.
3/ In crypto, this problem was (seemingly) solved with SEN and SigNet.

A market maker can enjoy instant settlement. One benefit is not having to tie up capital on many exchanges, or waiting several days for funds to clear.

Lack of instant settlement hurts capital efficiency.
4/ The banks ‘intermediate’ these transactions. They confirm transactions and validate sufficient funds - just like the blockchain.

(And there are no pesky gas fees or mempool queues and tx are reversible but leave that aside for now.)
5/ Some of you are thinking:

‘Why not use a secure high TPS blockchain to settle transactions instead of the banking settlement layer?

Prop trading firms are not directly regulated also…’

Here’s the rub…
6/ The market makers were able to rely on the banks for compliance with sanctions screening laws issued by OFAC (division of US Treasury).

Entities on this list are N. Korea, drug cartels, Russian oligarchs, Iran, etc.

W/o banks, market makers assume more ofnthis risk.
7/ The penalties of an OFAC violation is severe.

There are Ethereum engineers in jail for allegedly violating OFAC…

(Side Note: The heart of decentralization vs centralization will turn on this issue - stateless vs state in one sense…)
8/ Zooming out, a 24x7 crypto market needs a 24x7 bank instant settlement layer to match to unlock liquidity.

We are seeing the consequences of the loss of critical market infrastructure like Sen and SigNet.

Learn more about Signet here:

youtube.com/live/qbr8965IY…

• • •

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More from @ramahluwalia

Ram Ahluwalia, higher for longer crypto CFA Profile picture
May 9
1/ DCG Update:

One of two things would happen today.

a) Either a $200 MM wire would be sent from DCG to subsidiary Genesis.

b) Or there would be a DCG blog update.

Today, we got the latter.

This all but confirms there will be no payment of the $630 MM this week.
2/ Here is the statement from DCG. The parties are entering mediation.

At the same time seek to refinance the intercompany loans. Image
3/ Both sides are digging in. The prior statement from DCG is below.

This is DCG saying 'Bro, we agreed to heavy terms, why move the goal posts?'

The UCC is saying they don't trust DCG and have uncovered new information that warrants a new deal. Image
Read 10 tweets
Ram Ahluwalia, higher for longer crypto CFA Profile picture
May 8
1/ A good day to honor Buffett & Munger as investors.

Here's why no investor - including Blackstone - can compete with Berkshire.

This is a compilation of lessons over the years.

This goes deeper than 'float', value investing, or moats. If you love investing, read on...
🧵
2/ Tax: Ordinary investors access the after-tax dividend cashflow. That's ~1 to 3%.

Buffett accesses the *pre-tax cashflow* of its 60+ subsidiaries. This can be 15 to 20%.

The depreciation from growth/capex investments in other subsidiaries can offset the taxable gains
3/ This is why you may have read Buffett like 20% ROE firms.

It's not just b/c of the power of compounding book value - it's also the access to the raw cashflow which can then be deployed to its highest marginal productive use.
Read 19 tweets
Ram Ahluwalia, higher for longer crypto CFA Profile picture
May 5
1/ Coinbase Q1'23 earnings breakdown.

Revenue beat 18%, stock up 7% in after-market.

Coinbase shifts message from Web3/SAAS to 'time to update the system'

Here's what you need to know.
🧵
2/ The first & last sentence in Coinbase quarterly report introduce a new message.

"It’s time to update the system. The majority of financial systems were built over 100 years ago. The rules are outdated, the technology has been slow to catch up"

Banking sector?
3/ Net Revenue up Q/Q 22%, expenses declined 37%.

This is the first quarter in my mind where Coinbase is committing to profitability - not merely in words but in action.

Adjusted EBITDA profitability coming in '23. (I'd like to see GAAP soon as well to weather the storm.)
Read 20 tweets
Ram Ahluwalia, higher for longer crypto CFA Profile picture
Apr 30
1/ Consensus 2023 was a blast.

I asked everyone I spoke with 'What did you learn? What is you non-consensus view?'

Superthread covering innovation, regulatory, new product.

The future of Digital Assets is bright.
🧵
2/ Disclaimer: This is not meant to be exhaustive or capture both sides of any particular issue. There is no fact checking here. These are live notes. I made attributions only where I was permissioned.

Errors & Omissions are mine.

DYOR. NFA. NLA.
3/ GP of Top-Tier VC fund:

“Our fund seeks to generate 1000x. We’re looking for the next Ethereum. And We’ve done it before."

China, contrary to public perception, is seeing major NFT adoption.

Insight: Very few VCs are indexed to crypto growth in Asia.
Read 25 tweets
Ram Ahluwalia, higher for longer crypto CFA Profile picture
Mar 31
1/ How healthy are the banks?

- Now vs. 2008
- Usage of the Fed Window & BTFP
- Commercial Real Estate sizing
- Deposit to Money Market flows
- Credit growth & debt capital markets

This is the ultimate bank chartbook to separate signal from the noise 😀

🧵
2/ Over the last 10 years, banks swapped out credit risk for interest rate risk.

In 2008, there was no possibility of holding a toxic asset to maturity.

In 2023, you can hold a Treasury or MBS to Maturity.
3/ That said, there are a few issues.

One is the "slow bleed" from low-yield savings accounts to Money Markets.

Banks cannot compete with the yields offered by MMFs. The more the Fed raises rates, the more the pressure on bank deposits increases

Notice CD rates up, but lag
Read 20 tweets
Ram Ahluwalia, higher for longer crypto CFA Profile picture
Mar 30
1/ There are many awful takes on the China, Russia, Saudi idea to advance the Yuan as a global currency.

One major structural reason is China is a major exporter, not an importer.

When the US is importing goods & services, it is exporting dollar-denominated stocks and bonds… twitter.com/i/web/status/1… Image
2/ When the US imports services, it pays for goods and services in USD.

This gives importing countries a natural advantage in terms of the global demand for its currency.

The exporting country must then use the foreign currency it earns from the importer to purchase either (i)… twitter.com/i/web/status/1…
3/ The Current Account Deficit (e.g., US imports > US exports) is financed by the US capital account surplus.

Importers finance the imports thru the sale of stocks and bonds.

The consequence is US dollar denominated assets are exported to the world.

This is the basic math of… twitter.com/i/web/status/1…
Read 9 tweets

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