Matrix

I am worried that this week's cybersecurity crisis is the beginning of a new bearish narrative for crypto. The early version of this narrative was "AI breaks crypto" - a concern that cryptographic primitives used in major protocols would be broken by automated research. At the time, I thought this fear was mostly overblown, and so far the market seems to have agreed. However, a slightly different version now seems plausible: "AI breaks crypto exchanges." There are hundreds of billions in digital assets sitting in the centralized custody of major exchanges. This is the juiciest target for hackers anywhere on the internet. I think there is a high probability that in the next few months, a top ten exchange loses billions of dollars of customer assets. If this happens, there will be a small immediate selloff as we've seen after past hacks. But it will also likely kick off a new narrative: that further hacks are only a matter of time, and that all assets on centralized exchanges are fundamentally insecure. Crypto's best path through the coming months is to define itself *positively* with respect to AI - for example, "crypto is the financial layer for agents." But if the main AI-related narrative that sticks to crypto is *negative* - like "crypto exchanges are the biggest losers in the cybersecurity apocalypse" - then we're in for a rough winter.

my best trade ever - not what u would expect...and i think it's a good lesson on risk management. i used to trade HTZ CDS, and all throughout 2019/2020 i kept getting lifted in HTZ frontend CDS...was always bank desks..and when those guys come in u basically know that they hedging stuff and u can sell at really good levels but basically i sold quite a lot to the point where my jump risk was pretty bad..to the tune of about $50m - ie, if hertz defaulted and the CDS triggered, i would lose $50m for weeks and week and weeks my boss told me to cut the risk, but i was just lazy and never really did, no one would sell it and i basically had to pay up quite a large amount that would have had a negative pnl effect for me so i was just apathetic about covering what was lazy risk then in march 2020 all the covid fears kicked off, and people started to panic on leisure-related companies etc...htz cds went a lot wider and the curve had started to flatten, i was basically losing like $200-300k a day on it and obviously my boss was livid coz he'd been telling me for weeks to cut it then we had that first crazy day where circuit breakers got triggered etc...and im basically panicking...i go round asking people for offers and then eventually someone shows me an offer (actually quite a well-known HF founder)...but it was a crazy high level...basically if i did the trade i was paying way way above market and it would have cost me $5m in pnl on that day alone but basically everyone including my boss was off the desk in a meeting and the guy was basically saying last look need to know now or he's going to pull the offer...and so basically i just lifted him...booked the trade...boss comes back to desk and sees my pnl like -$6m (i was down the most on the entire floor) and was like WTF did u do anyways next few days i continue to bleed, my pnl goes from being +$5M on the year to around -$10M...so $15M swing in just a few days...and then literally like a week after hertz defaults lmao even tho it's not a trade i've made money on, i consider it my best trade ever because i had to make a really aggressive decision to cut bad risk (that i should have cut long ago), and it saved me (and the bank) from losing a monstrous amount of money fortunately, COVID created the best trading environment ever seen for credit derivatives and not only did i make it all back but i ended the year up $40m. one thing that trading that market taught me (and i went through 6 different CDS auctions...ie companies defaulting)...sometimes u get urself into a bad position and u know in ur stomach it's a bad trade, but u don't do anything about it because u don't want to take the loss and ur just hoping for it to go higher...it goes from "ill sell it back at ATHS, to ill sell it at breakeven to ill sell it at a 20% loss" but each time you should have just been aggressive to move the risk even though the market is illiquid ok that's it cheers