If Archegos' Leverage Was "Insane" Then What About Citadel?

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by Tyler Durden
Wednesday, Mar 31, 2021 - 09:44 PM

Speaking to CNBC this morning, bitcoin billionaire and crytpocurrency preacher Mike Novogratz turned the table on those who mock bitcoin for being too volatile or for being an instrument of unhinged speculation, and instead pointed to Bill Hwang and his family office Archegos, pointing out the obvious: it wasn't bitcoin that nearly led to another systemic event - after all everyone is aware of the inherent risks of bitcoin - but rather a handful of relatively boring and low-beta media names that caused billions in losses for both Hwang and his various Prime Brokers. The culprit: "insane" leverage.

As a reminder, we previously explained how with the help of Equity Swaps known as Certificates-For-Difference (or Total Return Swaps), Archegos managed to take a modest amount of capital and lever it up as much as 7x. As we further noted, CFDs linked to stocks (with a gross market value of around $282 billion at end June 2020) were among bespoke derivatives that investors trade privately between themselves, or over-the-counter, instead of through public exchanges and that suited the secretive Archegos perfectly. It is also exactly the kind of hidden risk that amplified the losses during the 2008 financial crisis.