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"Over the years, a number of very smart people have learned the hard way that a long string of impressive numbers multiplied by a single zero always equals zero."

- Warren Buffett

Thursday Sentencing Mailbag

Q: Is 25 years enough for Sam Bankman-Fried?

25 years is a looong time.

Prosecutors think it should have been longer, of course, as they argued in their pre-sentencing statement this morning: "A sentence is necessary here of at least 40 years so he will not do it again."

"So he will not do it again" neatly expresses the legal principle of "specific deterrence" by which long incarceration is justified on grounds of public safety.  

That’s a great argument in, like, a murder case. But confining someone to prison so they don’t start another crypto exchange feels kind of comical to me.

Personally, I don’t feel any safer with SBF behind bars than I otherwise would. So on that basis, I’m not sure it’s worth the taxpayer money to house and feed him for the next 25 years (let alone 40).

The sentence seems long to me as a "general" deterrent, too. 

If you were debating whether or not to start a fraudulent crypto exchange, would the prospect of 25 years in prison dissuade you any more than the prospect of, say, 15 years? 10 years? 5?

I wouldn’t risk 10 minutes, myself, so I’m guessing probably not. 

But there are other reasons to incarcerate someone, one of which Judge Kaplan invoked in his sentencing: "The criminal justice system thrives only if it's seen as fair. People need to feel it's fair or we're back to trial by combat."

This line of reasoning makes more sense to me (although trial by combat does sound kind of fun), but is 25 years fair?

From what I gathered this morning, that seems to depend on how you feel about SBF as a person because his attorneys spent their pre-sentencing argument attempting to convince the judge he’s not such a bad guy: "He makes decisions with math in his head, not malice in his heart. He's into veganism. He is a beautiful puzzle." 

And my personal favorite: "In college he spent time helping animals." 

I take it that Judge Kaplan is not an animal lover because he sounded unconvinced. 

Kaplan described SBF instead as "A man willing to flip a coin as to the continued existence of life on earth," in reference to a hypothetical SBF answered on Tyler Cowen’s podcast some time ago. 

(Note: Be careful what you say on podcasts!)

If there were such a coin, I’d support a life sentence for SBF to keep him away from it.

But I don’t think there is, so 25 years seems like a lot to me.

Q: Could FTX have made it?

In his pre-sentence statement this morning, SBF noted that FTX "looked like it was going to work" and that it "would have survived."

In his mind, FTX had a liquidity problem, not a solvency one, and I think he’s technically correct: SBF’s Solana tokens alone would be worth $11 billion now, more than enough to plug the entire $8 billion that he "borrowed" from customers.

As was the case with the John Corzine trade that sunk MF Global, SBF’s trade would have worked if he was allowed to hold it till the end.

But that didn’t help his legal case any, as Judge Kaplan noted this morning: "A thief who takes his loot to Las Vegas and successfully bets it is not entitled to a sentencing reduction."

Stealing is still a crime, even if you later give it all back (which will be news to many crypto hackers).

Also, it was just bad risk management: In trading, it’s not enough to be right in the end — you have to make it to the end, too.

SBF is the latest very smart person to learn Warren Buffett’s lesson that there’s no coming back from zero.

Q: What's the bull case for memecoins?

Right — now that this newsletter is done talking about SBF for at least 25 years, we can get back to the real business of crypto: memecoins!

Memecoins continue to dominate the crypto discussion, most notably with activity exploding on the BASE layer-2 blockchain this week.

But it’s starting to feel a little long in the tooth to me — I suspect the tidal wave of new coins may finally be discovering the limits of our demand for these things.

As evidence, I’ll cite this ridiculous, embarrassing and almost certainly illegal advertisement for the Harambe memecoin that I saw on Dexscreener this morning:

Promotional advertising for a $25 million coin with 9,000 Twitter followers seems distinctly late-cycle to me — and, as much as I enjoy memecoins, I kind of hope it is, because it’s starting to feel like crypto is only about memecoins. 

It’s worth remembering, though, that the craze for memes transcends crypto.

For example, after completing its SPAC merger, the Trump Media & Technology Group Corp (DJT) started trading this week, and I’d argue that its $8.5 billion market capitalization can only be explained by its value as a meme.

I’d also argue that it’s not a very good one!

The DJT meme is burdened by a money-losing business, compliance costs, lawyer bills, legal liabilities, payroll, quarterly reporting requirements and limited investor access.

For all these reasons, I’d argue that a DJT memecoin should be worth far more than a DJT meme stock.

And yet, DJT is worth 42x as much as the TRUMP memecoin.

I’d also note that DJT is authorized to issue a maximum of one billion shares, which makes its fully diluted value (the crypto valuation metric of choice) a whopping $62 billion dollars.

Does that mean that TradFi is better at memes than crypto? 

Probably not. 

There are thousands of memecoins competing for a small pool of crypto-native money and only a handful of memestocks (and only one new one) competing for a giant pool of TradFi money, so it’s not a fair fight.

I’m not sure how much more memecoin supply the small pool of crypto money can support right now, but I think DJT is evidence that as TradFi people get more comfortable with crypto, there will be more demand for memecoins.

We’ve recently been surprised at TradFi’s enthusiastic embrace of bitcoin — I suspect memecoin ETFs, if they ever happened, would be met with similar enthusiasm.

That will be a long while still and crypto will hopefully diversify into more productive things in the meantime, but I think the lesson from DJT is that the demand for memes is universal and that memecoins, for better or worse, are therefore here to stay.

Upon release in 2049, I’m certain that SBF will have memecoins to trade.

― Byron Gilliam

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