The Complete Collapse of Cryptocurrencies | Stablecoin Disaster.

hey everyone me kevin here this is gonna

be a hard video to make because i've got

about over a million dollars invested

into cryptocurrency related assets and

stocks and folks

if what i'm about to describe ends up

having serious issues at some point in

the future

i could lose all of that money really

dang it fast and i just want to make you

aware

of these potential issues because i

don't actually think they're very very

clear

to society so let's make this as simple

as possible and get right into it please

don't hate me for talking about the

scenario

i don't want people to think this is

like doom and gloom just it is a

possible scenario give it a chance if

you deposit a hundred dollars

with gemiini you do not keep 100

because they're not bank they can't take

your money instead you'll get 100 gusd

let's say your name is kevin you get 100

gusd and maybe gemini had the 100 gusd

to give you

so you get 100 gusd that's it that's

your name

what does gemiini get gemini gets a

hundred dollars what can they do with

that they can pay their employees

they can lend it out to other people

which would be like hard money loans so

they could lend that money or they could

buy more cryptocurrency with it if they

buy more cryptocurrency with it

in theory the more customers they get

the more institutional demand there

could be for cryptocurrencies and the

more the cycle could repeat itself it's

like

oh more deposits we get the more crypto

we buy and more deposits we get

and then of course the more crypto goes

up the more people want it right because

things that go up attract people oh gosh

that's

[Laughter]

never mind keep going pretend i didn't

say that

anyway now i go to gemini and i'm like

hey you know what i heard i can earn

interest on my gemini like that's pretty

cool how do i do that

well folks there's something called

gemini earn

in fact here it is gemini earn put your

crypto balance to work with gemini earn

you can earn up to 7.4

apy on your cryptocurrency so what do

people immediately think they think

oh cool i could make 7.4 on my crypto

because it's crypto and there's just not

a lot of liquidity in the crypto market

yet so

they're able to pay me 7.4 somehow at

least that's the answer what i get when

i talk to professionals in this industry

it's like oh yeah well they need that

liquidity order so they can pay you all

that extra money

i just thought about this today or well

actually yesterday for like six hours

and i'm putting the thoughts together

today in a video and i'm like i don't

know about this because why

if i have 100g usd in this account and i

start running 7.4

i think i have that 100g usd that i

could always turn into dollars which

technically is true gusd usdc

tether are all technically pegged to the

dollar which means i should always be

able to redeem my 1g usd or usdc or

tether

for one us dollar but unfortunately that

relationship

does not have to stay at one dollar for

any other reason other than

people say that well we have a dollar of

backing for the gusd in an account

somewhere and don't worry

it's fine in fact if you look at the

gusd price

on let's say coin market cap the website

you'll see it fluctuates

and what happens is arbiters are

arbitrary arbitrary

people who arbitrage come in and when

they see that gusd is trading for 99

cents

they buy it sell it at a dollar and

that's how you maintain the peg you

actually maintain the peg by trading it

okay so what happens to my actual gusd

when i sign up for something like

gemiini earn or any kind of interest

fairing

doesn't have to be a usd like a

stablecoin it could be any

cryptocurrency what happens

when i get interest on my cryptocurrency

well i'm lending it

and i'm told that i'm lending this to

institutional borrowers and i'm thinking

myself okay well i mean like

institutional borrowers probably aren't

going to go bankrupt right

well that's where it gets really

entertaining because who could be deemed

an institutional borrower

so let's say i got my money over here at

gemini they're going to lend this

100 gusd now to some other institutional

borrower

well let's just make up a company here

we'll call them crypto phi

and michael is going to come over to

crypto fight and he's going to deposit a

hundred dollars

with a crypto fi and a crypto fi because

they don't accept dollars as well

they're going to convert that money to

gusd

now you've got gemini that got a hundred

dollars crypto fi that got a hundred

dollars they could spend this on

whatever

buy more crypto employees loans whatever

they want they got cash

and we got a digital representation of

that cash but wait a minute crypto 5

borrowed that 100 gusd from gemini

and now michael says hey you know what i

want to sign up for cr you know

crypto fi earn and i want to get eight

percent on my gusd it's why would i not

park my savings here heck you know what

i'm gonna refinance my house at three

percent and invest it at seven percent

over here and

make the four percent difference great

cool signs up for earn as well

what happens then now the money goes

over here to let's say

voyager and uh sally is gonna deposit a

hundred dollars over here at voyager

and she gets 100 gusd as well she could

keep that there

and literally this cycle could keep

going on for

thousands of iterations like we could

literally see one set of 100 gusd

sitting in a hundred people's different

bank accounts

and they're not really bank accounts but

that's what we think of them as

we think hey it's pegged to the dollar

it's pegged to the dollar one uh one to

one

and if it's pegged to the dollar one to

one it's kind of like having cash

except it's kind of like a high-yield

savings account but that's the problem

it's not

it's a loan if they made you sign a

document saying you agreed to lend this

and you could lose all of it

people probably would be less inclined

to do this but that's all in the fine

print

they just say hey sign up and earn

interest on your cryptocurrency it

sounds so wonderful

they don't make it clear that this is

actually a loan now that doesn't become

a problem because

right now your gusd doesn't fluctuate in

value because it's pegged to the dollar

and the markets are working normally

prices are going up

you've got nothing to worry about

because as prices go up there there

usually isn't stress

in the markets right so when does this

become a problem well let's say sally

says you know what i'm going to get some

margin i'm going to buy bitcoin

for a hundred dollars i'm gonna get 25

dollars of margin from

voyager here and i'm going to have 125

invested in bitcoin

now let's say bitcoin goes from 55k to

5k that's a big drop it's about 91 right

well this is going to go down 90 to

about 12.50

what happens now well now sally gets

wiped out

sally got destroyed and this could be a

flash crash this could be a day

sally instantly gets destroyed because

you have smart contracts that instantly

take your money away

give it to voyager the problem is

voyager is left with an asset that's

worth a whole lot less

than what they thought it would ever be

worth so now they only have 12.50

they just lost money when a company or

an

institutional investor loses money and

this happens at scale amongst

hundreds or thousands of different

client accounts because we have no idea

how many people are on margin

we don't get that kind of transparency

from the system we don't know we don't

know how often this gusd

is lent out over and over again we have

no idea let's say voyager goes bankrupt

okay voyager goes bankrupt because

they're like wow we just tell all these

margin losses

well cryptofy is probably gonna have

some issues as well but i'll tell you

the first thing that's gonna happen

kevin and michael are gonna be like oh

crap

please let me have my gusd back and all

of a sudden we're gonna see a lot of

people

instantly demand redemptions they're

gonna want yo give me turn my gusd

into dollars right now the market's

crashing i'm freaking

out okay now and i know some of you are

going to think kevin come on the same

stuff happens in fractional reserve

banking

hold that thought okay i'm going to put

a little note down here fractional

reserve banking

we're going to talk about fractional

reserve banking hold that thought

because there's a massive difference

quite a few actual massive differences

here so what happens now now you've got

two people

who think they have a hundred dollars of

gusd in the bank

they're like i want to redeem okay well

what happens gemini and crypto fight say

hey look we're in a crisis right now

no redemptions literally no redemptions

they could do that it's happened before

look at bitfinex bitfinex a chinese

company uses tether as their stablecoin

and in october of 2018

they stopped allowing deposits and so

nobody was able to convert

uh us dollars or chinese dollars or

whatever euros into tether

and the one-to-one peg of the tether

collapsed

it went down as low as 85 cents to one

dollar

and there was no market crash bitcoin

was stable around six thousand dollars

when that happened

no credit no crash no collapse

and tether loses 15 boom

like that but wait a minute it's pegged

to the dollar okay

you think kevin and michael are gonna be

able to go to the fed and go yo

i demand my usd no fed's gonna laugh you

they're gonna laugh you out of the bank

i mean like get out of here we we did

not bestow

our trust on the gusd you tried to

inherit trust of the usd you tried to

inherit

the sovereign banking the uh

the backing of the full faith and credit

of the united states via a stable coin

but it doesn't work that way

quick example i have let's say a

thousand of these erasers and i say hey

i will always pay you one dollar for

this

eraser right here because the value of

this eraser is pegged to the dollar

cool who are you trusting the us

government or me

you're trusting me if i go bankrupt

worthless

same could happen here you get

institutional bankruptcies

the value of those underlying coins

which are corporate controlled these

this is not government control they're

corporate controlled

usdc is a consortium they're private

companies

that control usdc gemini private company

that controls the gemini coin it's not a

government

the government cares about the people

corporations care about themselves

right so now think about this so we both

go to claim the money we're like wait a

minute come on kevin

gusd says they have passed through fdic

insurance and they got all the money

sitting in a bank account

like we could just go claim the money at

the bank account wait

who's we kevin does not own the gust

anymore

michael owns the gusd in this example or

actually

it went to voyager so technically none

of these guys own the gusd anymore

because the money's been lent out

time after time after time after time so

now you like look if you're getting

interest

the odds are your stable coin is lent

out so you have no claim to the money

that actually exists

in those audited statements and look at

this you go to an audited oh sorry

that's just an example of some notes

you go to an audited statement of some

company

that basically gets hired by gemiini so

some auditing firm gets hired by gemiini

to do an independent accountant's report

it actually does not say

audited it does say audit committee but

that could just be the audit committee

at gemini

so anyway gemini hires a cpa to say hey

let the world know that our bank account

shows we have 121 million dollars and

there are 121 million dollars worth of

gemini coin

in the bank account they look and go yup

numbers match cool pay us a thousand

dollars for the signature cool thank you

bye

actually in a weird way this is not

signed by

an in oh there it is okay okay it is

signed by an independent account because

i just saw the gemini signature and i'm

like wait a minute okay so it is signed

that's fine so it's signed

this could be totally true this does not

have to be wrong

but this does not mean that kevin and

michael have a claim to that 121

the last person to borrow it has a claim

to that 121.

and when kevin and michael get pissed

that they thought they had something

that was

liquid like a savings account and all of

a sudden that money is not there and

they start filing lawsuits and

companies start filing lawsuits against

each other for not being able to redeem

gemini

there are going to be people or usdc or

tether

not to single out gemini sorry for

singling out gemini there are going to

be people who lose

a ton of money just saying get me out

just give me 50 cents on the dollar get

me out here you have the gsd

gusd coin you deal with it i want out i

want my money get me out of this

i thought it was like a savings account

i didn't realize all of the risks i'm

suing

and look when you go to a gemini urn you

have to go to the footnote

you have to go to the footnotes over

here like footnote one

and it's tiny look how tiny this is

right you probably can't even see that

depending on availability gypto crypt

gemini earn is a lending program

through which you may choose to lend

your cryptocurrency to certain

institutional borrowers

okay cool so it's in the fine print but

let's be clear it's not

very crystal clear disclosure that

you're not always going to be able

to get your money back on a one-to-one

basis because you might not actually

have a claim to it

if that leads to lawsuits the value of

stable coins absolutely gets obliterated

and collapses instantaneously

and if that happens the value of

cryptocurrency so all the people who are

like well wait a minute kevin like i

have my cryptocurrency in cold storage

great it's worth a lot less now

because if we see stable coins collapse

there could be a lot of

lost trust in digital currencies which

what backs bitcoin

exactly nothing so there's no there's no

j-pal like i said there's no j-pal

coming to save you now some people are

like but kevin

they say there's pass-through fdic

insurance for

the money that's kept at gemini to back

up the gusd do you know what that means

probably not and that's okay because i

didn't either i don't wanna i'm not

trying to the point of this is not to

make anyone feel bad the point of this

is

to open uh open up our eyes collectively

here and go wait a minute i never

thought about that okay so who gets the

fdic insurance folks

in what event do you get to claim the

fdic insurance the gemini dollar

accounts are held and maintained at

state street bank and trust company

folks

the fdic insurance is not for gemini

it's for state it's based on

the potential failure of state street

bank so if state street bank fails

this 121 million should still be around

if gemini fails

that's not fd the ic insurance for

gemini

now some people go but kevin isn't

didn't i hear

that uh you know new york regulates

gemini and that there there are like

reserve requirements

yeah there are in fact uh gemini

is a new york trust company and it's

quote regulated by the new york

department of state like financial

services or whatever

and they say hey gemini's got to keep

ten percent of uh assets on reserves

cool

okay fine now multiple loans by the way

are i o u's right so those reserve

requirements could be scattered at

different

companies and a lot of other companies

may not actually be registered

so what if gemini's registered plenty of

loopholes

that's one example of one here's another

example of one let's think of a

traditional bank for a moment

you think oh the bank's got to keep 10

of my money around that's the fractional

reserve banking system right which i

said i would talk about

sure they're supposed to keep 10 of your

money around this is true but you want

to know a quick little loophole that i

found

listen to this loophole funds and bank

customers retail checking accounts

are shifted overnight into savings

account and are therefore exempt from

reserve requirements and then return to

the customer's checking account the next

business day boom

loophole that's how quick we just got

around the federal reserve or or

banking reserve requirements well what

about fractional reserve banking i mean

come on kevin

you just described a lending system sure

maybe it's not as clear

that people are lending their money and

maybe there should be better disclosures

but we could do better disclosures we'll

make you docusign something next time

no problem fine but now i want to ask

you this okay

what is more likely to happen and

seriously i

want you to ask yourself what is more

likely to happen bitcoin

going from 55 000 because let's say

inflation doesn't manifest

which i know that's that in the crypto

community that pisses people off it's

like what if inflation doesn't manifest

ask yourself is it not even five percent

possible

that inflation does not happen i think

we can all agree

yeah that's that's possible maybe

inflation doesn't happen

it's like wow we didn't turn into japan

and we didn't get inflation yeah america

america's great

could happen could collapse whether

that'll actually collapse bitcoin or a

certain cryptocurrency who knows right

total speculation

we're just saying when and if a crypto

collapses this is what could like

uh you know shell shock throughout the

entire industry but what's more likely

since we're talking about hey this could

happen with a dollar too right

fractional reserve banking i mean isn't

banking the same let me ask you this

what is more likely cryptocurrency or

bitcoin in this case going from 55k

to 5k it's been a 5k not that long ago

right

or what's more likely one

usd going from

point 84 cents i think we're at 84 cents

84 cents euro so in other words one

dollar converts into 84 euro here

or the dollar turning into well in that

case the dollar going from 84 euro

to going to eight euro pennies what is

more likely

the dollar collapsing the world's

reserve currency collapsing

or bitcoin dropping from 55 to 5k

causing a bunch of margin defaults

causing liquidity issues at the

institutional borrowers

leading to the collapse of stable coins

and potentially other cryptocurrencies

as well

you have to ask yourself i'm not gonna

answer that you have to ask yourself

what's

better but i guarantee you if something

like this happens

and and i'm in this too okay i i'm in

this i'm a hodler

like i'm like an og hodler i don't sell

i don't sell when there's pain it's fine

me no problem

i sell when things are up when i'm

making profits

but if this happens you better believe

you're gonna wish you had a j-pal

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