The report illustrates parallels between the two events and speculates on the ramifications that FTX’s collapse may have on the real estate sector.
AUSTIN, TX, December 20, 2022 /24-7PressRelease/ — MyEListing.com, a completely free-to-use commercial real estate listings, and data platform, recently published a report comparing the collapse of FTX to the housing crisis of 2008. The report illustrates “eerie parallels” between the two events and speculates on the ramifications that FTX’s collapse may have on the real estate sector.
The report’s thesis analyzes how bad, over-leveraged bets can ultimately lead to market chaos. FTX’s reliance on its exchange token, FTT, to prop up its valuation and fund Alameda’s trading activities is paralleled in the report on investment banks’ reliance on credit default swaps (CDS) before the housing crisis to squeeze eyebrow-raising returns out of what was widely considered to be safe investments in mortgage-backed securities (MBS).
“You could draw some loose comparisons between the perceived value of these FTT tokens and the credit default swaps (CDS) that were so popular before the housing crisis,” the report says. “Billions of dollars worth of FTT were sold before FTX’s demise, and billions of dollars worth of CDS were sold before the crash [in 2008].”
“Both became nearly worthless when the true value of their underlying assets was exposed: Sam Bankman-Fried [the CEO of FTX] was known for intentionally decreasing the supply of FTT tokens by millions to reduce float and increase the value of outstanding tokens, and global insurance organization AIG thought CDS were sell-only, plunging themselves into insolvency when it suddenly came time to pay back investors.”
According to the report, FTT ownership could have been viewed “as its own credit rating: The more people buy it, the safer (and more ‘triple-A rated’) the asset must be.” The report hypothesizes that, similar to the deceptive credit ratings many MBS products received before the crash, this false sense of investment security flew FTX “a little too close to the sun.”
“At that time…no one thought that the mortgages they were betting on would default…I can imagine SBF thought his FTT token would never lose value, nonetheless plummet to near zero,” says the report.
The report concludes by speculating on how the real estate sector might suffer as a result of FTX’s collapse. “You could argue that lenders will approach loans for real estate developments housing crypto projects with a much larger grain of salt than they once did, similar to how lenders approached the housing market after the crash (minus all the new regulation, which hasn’t really hit the crypto space just yet).”
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