Is this the end of crypto?
The Economist published that headline in the wake of the recent collapse of FTX, one of the world's largest and most highly publicized cryptocurrency exchanges.
“Never before has crypto looked so criminal, wasteful, and useless,” the magazine observed.
But looks can be deceiving.
A rogue among rogues
Make no mistake about it: FTX's crash is bad for everyone with so much as a toe dipped in crypto. In short, FTX loaned billions of dollars to its trading arm – something it pledged not to do – and couldn't come close to covering when customers tried to pull their money out in droves.
For a minute, it looked like FTX might get bailed out by selling itself to its biggest competitor, Binance, which sounds more like a hookup app than a serious financial enterprise. But after taking a look at FTX's books, Binance's chief strategy officer told the AP, “This is the result of a rogue actor breaking every single basic rule of fiscal responsibility.”
FTX's rogue-in-chief was founder and CEO Sam Bankman-Fried, aka “SBF,” the puffy-haired son of Stanford professors who employed Daniel Friedberg as his chief regulatory officer. Those in the online poker community will remember Friedberg for his role in attempting to minimize restitution stemming from UltimateBet's insider-cheating scandal in the mid-2000s.
“Friedberg's presence on FTX's payroll means Sam Bankman-Fried either didn't do his due diligence before hiring, or he knew of Friedberg's past sins and didn't care,” wrote Coingeek's Steven Stradbrooke in August 2021. “Neither of these options paints Sam Bankman-Fried in an overly flattering light.”
Seemingly adhering to a guiding principle of “if you brand it, it will come,” FTX splashed its name on sporting arenas (most prominently, the Miami Heat's), Formula One cars, and the blue polo shirts of Major League Baseball umpires. It attracted celebrity pitchmen like Tom Brady and Steph Curry, both of whom are named as co-defendants in a class action lawsuit that alleges FTX and its collaborators took “advantage of unsophisticated investors from across the country” to add more participants to what the Bay Area News Group plainly called a “Ponzi scheme.”
Breaking: Sam Bankman-Fried sold $300 million FTX shares in a fundraising spree last year, people familiar with the matter say. He told investors it was a reimbursement. https://t.co/CKuB1a75Uv