Pether (10)

The CEO of Lentz Enterprises wasn’t the sort of man who usually spent much time giving media interviews.

But after he went short, things were different. He appeared everywhere, from CNN and NBC to Fox News, pointing out the flaws in Pether’s assets one by one.

“The HMA Cayman that claims to have verified Pether’s assets is a shell company. When I went to the Cayman Islands myself, it turned out to be nothing more than a tiny office with a single receptionist. You can’t trust documents certified by a place like that. And if you look at the assets they’ve disclosed, cash and U.S. Treasuries make up less than ten percent. The rest is made up of ‍‍‌‌⁠​​⁠‌​​‍​​‍​‌​⁠‍‌‍⁠⁠‌⁠‌‍‌‍‌‌‌‍⁠​‌​‌​‌‍‌‌‌⁠‍​​‌‍⁠‌‌⁠⁠corporate bonds, commercial paper, and cryptocurrency. That means the marked value and the actual value are very likely to be different.”

In response, Pether Limited came out swinging as well.

Pether Limited filed suit against the CEO in the New York prosecutor’s office, accusing him of spreading falsehoods, damaging the company’s reputation, and interfering with its business.

But by then he had already been sued dozens of times by companies he’d shorted, so he didn’t so much as snort.

“Frauds always sue when they have nothing left to say. Go ahead and sue as much as you like. In time, everyone will see who was telling the truth.”

Continue Capital flooded the market with the Pether it had secured through the PN Protocol, and Pether’s side moved to defend by buying up the wave of sell orders.

Some hedge funds went a step further and predicted a full-blown market collapse, choosing not Pether but Vantcoin and the altcoins as their targets and opening short positions instead.

The shock sent the entire cryptocurrency market reeling.

Vantcoin had just broken through $80,000, and the market as a whole was printing fresh all-time highs, so the impact hit even harder.

The media ran special features day after day, and panel discussions were organized nonstop.

Every investor with even a little name recognition showed up on television to offer an opinion.

Unlike in Korea, most overseas investors were holding Pether. That was why they could hardly hide their anxiety.

I took a phone call from Korea.

“Hey! What the hell are you doing right now?”

“Doing what?”

“I heard you were shorting Pether. My friends are going crazy because of this.”

‍‍‌‌⁠​​⁠‌​​‍​​‍​‌​⁠‍‌‍⁠⁠‌⁠‌‍‌‍‌‌‌‍⁠​‌​‌​‌‍‌‌‌⁠‍​​‌‍⁠‌‌⁠⁠

“Why?”

“Because I have plenty of friends from undergrad who invest in crypto.”

“Ah, right. That’s true.”

Sunwoo had graduated from HIGHEST, the best science and engineering university in Korea. That meant he had a lot of acquaintances who were interested in cryptocurrency.

“Lately, it seems like a lot of people are moving into crypto. One of my classmates works at BitUp, and another made an app that analyzes cryptocurrencies.”

Hearing that, something came to mind.

“Didn’t you have a classmate who made a cryptocurrency?”

“Yeah. He was the one who first told me to invest in crypto.”

“Ah….”

So he was the culprit after all!

But if he’d had a good investment tip, he should have kept it to himself instead of dragging me into it too—and the result was… well, let’s spare the details.

“So Pether really is in trouble?”

“Yeah. It’s going to blow up before long. If any of your friends are investing in crypto, tell them to get out.”

“Do you think they’ll listen to me?”

“……”

Well, if they didn’t, there wasn’t much I could do about that.

Because the cryptocurrency market ran twenty-four hours a day, the staff monitored it in three shifts.

David and I stayed at the office without even going home.

Reports came in every thirty minutes.

David said, “It’s still holding up for now.”

“How much longer do you think it can hold?”

Right after World War I, Britain was still drunk on the nostalgia of empire and proudly declared a return to the gold standard.

France then gleefully took pounds and drained Britain’s gold, and in the end, Britain had to suspend gold convertibility.

The Bank of England’s blunders had a long history.

So what was the lesson here?

You had to extract everything you could while you still could.

“The media seems to estimate Leonard Chang’s wealth at $300 billion.”

Being the richest man in the world wasn’t just some rumor people threw around.

Looked at that way, it almost seemed as if he could defend Pether with his personal fortune alone, no matter how much in reserves it had.

But there was one fatal weakness in that reasoning.

And that was….

“Every single one of Leonard Chang’s assets is built on cryptocurrency.”

Pether, Vantcoin, the exchange… everything was connected to everything else. If even one piece collapsed, the whole thing would come down like a house of cards.

David said, “So in the end, this is a fight over how much trust the market can bear.”

Modern finance runs on trust.

Everyone knows banks only keep a seven-percent reserve ratio, yet bank runs don’t happen because people trust the central bank behind them, and the country behind the central bank.

But here….

“Does this market even have trust to begin with?”

Leonard Chang monitored Pether’s sell volume in real time.

He understood better than anyone how serious the situation was.

If Pether’s peg broke, Coinmax, the exchange, and eventually the entire cryptocurrency market would collapse like dominoes.

So he threw everything he had into defense.

The only way to stop a depegging was to buy up the flood of sell orders.

The problem was that Pether’s side had cash equal to only about three percent of the issuance. The cash was burned through almost instantly, and then they started liquidating their holdings.

They sold U.S. Treasuries first to raise funds, but even that was gone in no time.

They borrowed money from Coinmax on the fly and poured it into the defense, but there was no telling how long they could keep it up.

“Sell Vantcoin first!”

“Understood.”

A few years earlier, the cryptocurrency market had already suffered one major crisis.

When the bubble burst, Vantcoin, which had once surged past $30,000, plunged all the way to $3,000, and the entire crypto market shrank to one-tenth its former size.

Coinmax had been driven to the brink back then too.

What saved it was Pether.

He issued Pether without collateral and used it to engage in wash trading, buying Vantcoin with it. That pushed up trading volume, and Vantcoin’s price rose as well.

As Vantcoin was drained from the market, its price went up, and Pether was released in its place. The liquidity from that released Pether improved the market’s flow, and other cryptocurrencies started climbing too.

At first he had issued Pether without any collateral, but by using it to buy Vantcoin, he ended up holding Vantcoin as collateral.

At present, Pether Limited held roughly 580,000 Vantcoins.

That was worth an astonishing $45 billion.

There was no choice now but to sell it in order to defend the peg.

Leonard Chang clenched his teeth.

I should have sold earlier and reduced the position.

Until now, there had been no need to. After all, Vantcoin’s value had kept rising.

But now the whole market was shaking, and there were more sellers than buyers. What would happen if a flood of selling hit under those conditions?

Obviously, it would deliver a massive shock.

But at the moment, there was no other way.

As Pether Limited began selling, Vantcoin, not long after breaking down through $80,000, dropped below $60,000.

That meant they had to sell more of it just to raise the same amount of money.

If ten coins had been enough before, now they needed to sell thirteen.

As the volume of selling increased, the price fell even further, and as the price fell, they had to sell even more. It was a vicious cycle.

Panicked investors dumped Vantcoin all at once, which pushed the price down even further.

That, in turn, triggered another disaster.

There was a term for this: Death Spiral.

In finance, it referred to a vicious cycle that fed on itself and amplified with every turn.

To defend ‍‍‌‌⁠​​⁠‌​​‍​​‍​‌​⁠‍‌‍⁠⁠‌⁠‌‍‌‍‌‌‌‍⁠​‌​‌​‌‍‌‌‌⁠‍​​‌‍⁠‌‌⁠⁠Pether, they had to sell Vantcoin. The problem was that the price of every cryptocurrency was tied to Vantcoin.

So when Vantcoin fell, the altcoins fell with it. And as the altcoins fell, they dragged Vantcoin down again.

Vantcoin dropped to $50,000, and the cryptocurrency market cap, which had been more than $3 trillion, was now slipping below $2 trillion.

As the market shrank, demand for Pether weakened even further, and redemption requests stacked up alongside the sell orders.

What had once been $45 billion in Vantcoin was suddenly hard-pressed to fetch even $30 billion once they started unloading it.

Sell Vantcoin alone wasn’t enough to handle the flood of redemptions and the mounting pressure to sell. So they rushed to liquidate the corporate paper and bonds they held as well.

The Pether short squeeze that erupted in the United States even spread to China.

Dao Group.

It was China’s largest construction company by assets, and the 120th largest company in the world.

Dao Group had grown rapidly alongside China’s development over the years.

In recent years, China had seen a real estate boom centered on second- and third-tier cities.

Urban development required enormous sums, and Chinese property companies relied heavily on borrowing to cover the costs.

They all issued mountains of commercial paper, and interest rates climbed day by day.

But none of that seemed to matter.

They could always recover the money by selling units. The real estate market had been in the middle of an extraordinary boom, so anything launched into the market sold out instantly, and the cash came back easily.

Property companies borrowed even more so they could develop even more.

But growth like that could never last forever.

House prices had risen too far, and everyone who could afford to buy had already bought. Unsold inventory kept piling up, and liquidity problems began to surface.

Dao Group’s debt had already been pushed to the limit by its sprawling, octopus-like expansion, and even the Chinese government had started issuing warnings.

Dao Group’s debt stood at 1.8 trillion yuan. That was an enormous sum, more than $300 billion.

But Chairman Wang Xiaoke didn’t stop.

No, more accurately, he couldn’t stop.

We just need this one development to succeed.

Dao Group was currently building a new city on empty land at a scale never before seen in history. If the project succeeded, a mountain of debt like this wouldn’t be a problem.

To make that happen, Dao Group issued new commercial paper.

But then an unexpected problem emerged.

Suddenly, the commercial paper market was flooded with a massive dump of construction-company paper worth 200 billion yuan.

One-third of it had been issued by Dao Group.

With existing paper being sold off at a discount everywhere, there was no way newly issued paper was going to find buyers.

For ordinary goods, demand rises when prices fall. But with commercial paper, demand actually falls when prices drop.

If paper can’t fetch face value, it means the company’s chance of default is that much higher.

That made real buying demand disappear.

The discount rate, which had started at around five percent, soon climbed past twenty.

If you held it ‍‍‌‌⁠​​⁠‌​​‍​​‍​‌​⁠‍‌‍⁠⁠‌⁠‌‍‌‍‌‌‌‍⁠​‌​‌​‌‍‌‌‌⁠‍​​‌‍⁠‌‌⁠⁠to maturity, you’d earn ten percent interest per year. At a twenty-percent discount, that meant you could effectively make thirty percent.

Even so, no one was willing to buy easily, and the price kept falling.

With the paper no longer clearing, rumors of Dao Group’s bankruptcy began circulating through the market, and all borrowing froze up.

Chairman Wang Xiaoke’s mouth fell open.

“What the hell is going on here?”

Pether Limited, having failed to secure enough cash, announced that it would temporarily suspend redemptions for investors with more than $10 million.

Once that news broke, Pether’s price, which had been holding at $0.99, plunged to $0.75.

The peg had broken.