Can the implosion of FTX be a Lehman moment, or is it a ripple in the crypto sector? A comment on Gensler, MSNBC, and CNBC
Gary Gensler, head of the US Securities and Exchange Commission, said on CNBC Thursday that while the crypto space is regulated, investors “need better protection.” According to the Wall Street Journal, the SEC is investigating FTX. (The Department of Justice declined to comment.)
Industry insiders are debating whether to call the implosion of FTX, which filed for bankruptcy on Friday, a “Lehman moment,” referring to the 2008 collapse of the investment bank that sent shockwaves around the world. Many think it’s an apt comparison.
“This was one of the most trusted entities in the crypto space, so it will take some time to recover,” said Jay Jog, co-founder of the blockchain startup Sei Labs, which is based in California.
The company was valued at $32 billion in its latest funding round, and had recruited high-profile backers including SoftBank, Tiger Global, Singapore’s Temasek, as well as celebrities like Tom Brady, Gisele Bündchen and Naomi Osaka. The arena where the Miami Heat play is named after it.
The situation is evolving quickly. But one concern is how it could ripple throughout the entire crypto sector, which was worth more than $1 trillion in August.
FTX, JPMorgan and Bankman-Fried: I’m sorry but I can’t have a penny in my pocket
Bankman-Fried has been trying to cast himself as a hapless chief executive who got out over his skis, denying accusations of defrauding FTX customers.
In a note to clients this week, strategists at JPMorgan noted that the number of entities with strong balance sheets able to rescue those with low capital is decreasing.
However, traditional investors are reassuring their clients they can deal with the consequences. The Ontario Teachers’ Pension Plan said that despite uncertainty, losses tied to its $95 million investment would have a “limited impact,” given the stake represents less than 0.05% of total assets.
The CEO of the company that makes Binance was texting with the president of El salvador, which has taken a very strong stance in the matter. We don’t have any currency in FTX and never had any dealings with them. “Thank God!”
Markovian Cryptocurrency: The Case Against the Excess Regulated Crypto-Cryptogeny Correlations
The crisis in the market spread over the weekend and the prices of the digital currency fell again. The biggest digital currency has plummeted this year. The price was about $16,500 on Monday. Analysts believe that the price could fall below $10,000.
In that climate, the “crypto winter” is poised to get even worse, especially as fears about the broader economic backdrop continue to erode the appetite for risky assets.
The short term impact of this will be very bad for the industry. He is hopeful that it will increase awareness of his business, which focuses on building more transparent, multi-signature exchanges.
“It reinforces the view that any sort of financial enterprise needs extensive regulation,” said James Malcolm, head of foreign exchange strategy and crypto research at UBS. The world will probably look more stable in the next ten years.
He said that they had been set back a few years. “Regulators rightfully will scrutinize this industry much, much harder, which is probably a good thing, to be honest.”
At the end of the ad, David learns about FTX, an easy way to enter the world of digital currency. David doesn’t think so. I am never wrong about this stuff.
Rival Binance had said it would explore an FTX bailout earlier this week but almost immediately backtracked after the company said FTX was essentially beyond saving.
How Did Bankman-Fried End his Cryptocurrency Adventures? A Case Study with Samuel Bankman: FTX, Inc.
Bankman-Fried, the 30-year-old founder of the exchange, was one of the faces of the crypto industry, amassing a fortune once totaling $25 billion that has since vanished. He had been viewed as the crypto world’s white knight, stepping in previously to rescue companies struggling after the collapse of the TerraUSD stablecoin in May.
It is not clear what the charges are against Bankman- Fried, who became a pariah overnight last month as his company went bankrupt and at least one million of his clients couldn’t access their funds.
Bankman-Fried has been trying to make as much money as possible in order to give away. His philanthropic endeavors are in doubt.
Samuel lives in Southeast Asia and is currently between jobs, which makes money difficult to come by. His FTX account contained a nest egg.
Samuel has a lot of XRP, which was depressed due to a lawsuit between the issuer and the US Securities and Exchange Commission. Recently, there have been signs the two-year legal battle may be coming to a close—and Samuel had been sitting tight in the hope that a favorable ruling might send the price of XRP skyward. But now, with his tokens locked up in FTX, he won’t be able to reap the rewards for his patience. He says that this latest drama has him hanging by the balls, and he could see the finish line. It is so much hardship.
There are many stories like that of FTX customers. The FTX trader who asked to remain anonymous was in the US when the exchange had troubles, so it was not possible to withdraw their funds immediately. When the FTX trader eventually used a VPN service to bypass the geo-restrictions, they found their withdrawal password needed to be reset, a process that for security reasons prevents money from being taken out of an account for 24 hours. It was already too late.
However, Neal will not be taking over. It is not possible for him to serve in that position due to having no connection with FTX, Inc.
Resolving Blockfi’s FTX Crisis: Sam Bankman-Fried, Alameda, and the Bahamas Securities Commission
The negative ripple effect across the industry started last night with Blockfi, another crypto services firm, freezing customer withdrawals as a result of the FTX problems. After the announcement, the price of Bitcoin dropped sharply before recovering slightly and remains under the $17,000 mark.
In a thread posted today, SBF said, “I was shocked to see things unravel the way they did earlier this week. I will, soon, write up a more complete post on the play by play, but I want to make sure that I get it right when I do.”
Better Markets CEO Dennis Kelleher said in a statement on Monday that FTX had a strategy of “revolving door hires” from the Commodities Futures Trading Commission (CFTC) and elsewhere “to use their knowledge, influence and access at the agency and in Washington to move FTX’s agenda.”
Update November 11th, 10:55AM ET: Sir Lewis Hamilton’s F1 car will not bear FTX branding this weekend, according to a bankruptcy filing by Sam Bankman-Fried.
Some of that total was gone by now, they said. One source put the missing amount at about $1.7 billion. There was a discrepancy of between $1 billion and $2 billion.
That Sunday, Bankman-Fried held a meeting with several executives in the Bahamas capital Nassau to calculate how much outside funding he needed to cover FTX’s shortfall, the two people with knowledge of FTX’s finances said.
They said the “backdoor” allowed Bankman-Fried to execute commands that could alter the company’s financial records without alerting other people, including external auditors. They said that the set-up meant that the move of $10 billion in funds to Alameda did not cause internal compliance or red flags.
The Royal Bahamas Police Force said that a group of investigators from the Financial Crimes Investigation Branch are working closely with the Bahamas Securities Commission to make sure that no criminal activity has taken place.
A Commentary on Cryptocurrency and the Origins of Financial Crime: The Case of Bankman-Fried (Financial Times Times)
Emily is an editor and a former policy advisor at The Wall Street Journal, as well as executive director of global content at coinDesk, a media, event, indices and data company. She is the author of “Now I Know Who My Comrades Are: Voices From the Internet Underground.” The opinions in this commentary are her own. CNN has a lot of opinion.
The answer is no one, because crypto shouldn’t need a savior. The whole point of crypto is that it is supposed to be decentralized and transparent. Bankman-Fried’s rise and fall shows how far the industry has strayed from that ideal. Today’s crypt is run by bigger than life people. The leader of FTX is perhaps the best example.
It was supposed to be this way. The 2008 financial crisis led to a lot of disappointment in bankers and politicians, and the world’s first major digital currency was born after that. The idea of a new system that didn’t require you to trust anyone at all is based on the fact that there’s distrust in financial institutions. Bitcoin transactions are recorded on a decentralized ledger known as a blockchain, which everyone can see and no bad actor should be able to fraudulently alter.
Alameda Research, Bankman-Fried and the Personality Problem: A Comment on FTX’s Unfortunate Fraud
Bankman-Fried diverted FTX customers’ money to Alameda Research in order to conceal a years-long fraud from the investors, according to the complaint.
Bankman-Fried said he takes full responsibility for his mistakes. He wrote in a long statement this week, “I was CEO, which means that I was responsible for making sure that things went well.” I, ultimately, should have been on top of everything. I clearly failed in that. I am sorry.
There is a cult of personality problem, no matter what the topic is. We can see it in social media as well. Twitter is now subject to the whims of owner Elon Musk, the richest man in the world.
The FTX Collapse Update: How to Protect the Public Interests of the Cryptocurrency, CoinDesk and Gate.io
According to FTX, it was looking into whether the assets were stolen. Crypto risk management firm Elliptic said $473 million in crypto assets appear to have been nabbed from FTX.
Although it is the world’s second most valuable currency, ether isn’t faring much better. It was trading at about $1,230 on Monday, having sunk over 20% over the last week, CoinDesk data showed.
Changpeng Zhao runs the biggest exchange for virtual currencies, said he has lots of risk. “We have seen in the past week things go crazy in the industry, so we do need some regulations, we do need to do this properly,” he added.
CZ, as he’s known, was speaking at a conference in Indonesia on Monday. He said last week that comparing the current crypto turmoil to the 2008 global financial crisis is “probably an accurate analogy.”
FTX moved its headquarters from Hong Kong to The Bahamas last year, with former CEO Sam Bankman-Fried hailing it as “one of the few places to set up a comprehensive framework for crypto” at the time.
Miller said that FTX was “investigating abnormalities” regarding movements in crypto wallets “related to consolidation of FTX balances across exchanges.”
As scrutiny of big players in the crypto world increases, Singapore-based Crypto.com admitted to accidentally sending more than $400 million in ether to the wrong account.
CEO Kris Marszalek said Sunday that the transfer of 320,000 ETH was made three weeks ago to a corporate account at competing exchange Gate.io, instead of to one of its offline, or “cold,” wallets.
We have strengthened our process and systems to better manage internal transfers. The platform’s native token has plummeted in value in the last 24 hours.
Source: https://www.cnn.com/2022/11/14/business/ftx-crypto-collapse-updates-hnk-intl/index.html
Bankman Fried’s Violations and Their Investigations by the Nassau-Penguin Associated with Sequoia Capital
Marszalek said Monday that his firm has acted as a “responsible, regulated player since inception” and will soon “prove all the naysayers …wrong with our actions.”
“It is very, very normal for a bank to move user assets for investments and try to make returns,” he explained. He said that if an exchange operates that way it is almost certain to go down. The industry has a role to play in protecting consumers.
The SEC will be filing its own charges in the Southern District of New York relating to Bankman Fried’s violations.
“It’s a big deal to me because it’s retail investors who suffer the most and too many people still wrongly associate digital currencies with scammy ‘crypto’ space, which is what I raised concerns about before,” he said. Despite being public about his enthusiasm for the digital currency, Klippsten still has skepticism about other parts of the universe.
Bankman-Fried was described as likely talking to the world’s first trillionaire by Sequoia Capital. Several of their partners became enthusiastic about Bankman-Fried after a meeting. After many more meetings, the company was decided to invest by Sequoia.
Bankman-Fried is the 30-year-old celebrity who became a pariah overnight last month, when his company was unable to access its funds and he filed for bankruptcy, leaving at least a million depositors unable to access their funds. He was arrested without incident at his Bahamas apartment complex shortly after 6 pm ET Monday, and is set to appear in a Nassau court Tuesday, the Royal Bahamas Police Force said Monday in a statement.
The Herd Mentality Behind the Valuation of Voyager Digital (formerly known as FTX) and Madoff’s Ponzi Scheme
The Ontario Teachers’ Pension Fund said, “not all of the investments in this early-stage asset class perform to expectations.”
When Bankman-Fried bought up the assets of bankrupt crypto firm Voyager Digital for $1.4 billion this summer, it brought a sense of relief to Voyager account holders, whose assets has been frozen since its own failure. The rescue is now in question.
FTX had a $32 Billion valuation, thanks in part to raising more than $18 million from sophisticated investors such as the Ontario Teachers’ Pension Plan. Star athletes and celebrities who backed FTX also reportedly received a stake in the company, including Tom Brady and Gisele.
Bair told CNN that there were eerie similarities between the rise and fall of Bankman-Fried and FTX as well as that of the notorious Ponzi scheme mastermind.
Bair notes that 30-year-old Bankman-Fried, like Madoff, proved adept at using his pedigree and connections to seduce sophisticated investors and regulators into missing “red flags” hiding in plain sight.
Long before his Ponzi scheme collapsed, Madoff was known as a wizard on Wall Street. He served on the Securities and Exchange Commission advisory panels, managed money for rich and famous people, and was the former chairman of the Nasdaq Stock Market.
You get this herd mentality, where if your peers are investing, you need to as well. And that adds credibility with Washington policymakers. It all feeds on itself according to Bair, who is on the board of directors of Paxos, which is a blockchain infrastructure company.
The FTX Token, the Foundations of Cryptocurrency, and the Making of Digital Currency: A Case Study of a Late Death of Madoff
The track record that was made possible by an elaborate scheme that repaying existing clients with new client deposits was a result of the consistent and astonishing returns that Madoff gave investors.
Given the speed of its demise and media reports, serious questions have been raised about the accuracy and strength of FTX’s balance sheet. FTX had between $10 billion and $50 billion in liabilities when it filed for Chapter 11.
Hilary Allen, a professor at American University Washington College of Law, says that there’s no reason for someone to not design a token. “You can use thin air to create coins.”
The FTX Token, or FTT as it is more widely known, debuted in 2019, and a couple of years later, the digital currency was valued at a high of almost $80. There are hundreds of millions of FTX Tokens in circulation.
“I think of it as frequent flyer miles,” says the economics professor at Carnegie Mellon University. Loyalty points are used for using the exchange.
Customers who bought FTT were able to execute trades on the company’s exchange at a discount. They could use the token as a security. The company regarded token holders as VIPs.
The Bubble of the Future: Why FTT is still trading on some exchanges, but Wall Street is not. It’s anecdote, right?
Gary Gensiter, the top cop of Wall Street, has compared the largely unregulated world of crypto to the “Wild West” due to the inappropriate and unseemly practice.
The set of financial practices was very murky, with no transparency, no investor protection and no financial guardrails.
“The moment there is the slightest whiff of concern about the token, the value of that token can vanish to practically nothing a flash,” Prasad said. “Which is what happened here.”
Today, FTT is still trading on some exchanges, even though FTX has started Chapter 11 bankruptcy proceedings, and Bankman-Fried is under legal and regulatory scrutiny in the United States and around the world.
There will be some value left in the exchange if one sifts away the ashes of the conflagration. There will be some assets that will be left over that have marginal value and the token can be used to derive value from them.
He said he expects the value of the company will fall even more in the next few days as we learn more about why it was overvalued in the first place.
“People buy up Zimbabwean trillion-dollar bills because it’s an anecdote and they might like these as collectibles,” Zeitland-Jones says. We’ll probably marvel at the new collectible that is FTT in 100 years.
Jeremy Bankman-Fried, CEO of the Financial X-ray Exchange and FTX, was arrested after his arrest on Twitter
Bankman-Fried had been scheduled to give testimony on Tuesday, but Waters said he wouldn’t give it after his arrest. The hearing was set to move ahead, however, beginning with testimony from FTX’s new CEO, John J. Ray III, who took over for Bankman-Fried on November 11 and is tasked with shepherding it through the bankruptcy process.
“You must answer for the failure of both entities that was caused, at least in part, by the clear misuse of client funds and wiped out billions of dollars owed to over a million creditors,” the senators wrote.
It was not clear if Bankman-Fried would comply. A representative for his lawyer referred to Bankman-Fried on Sunday as he had mentioned that he couldn’t commit to testifying at a hearing on December 13 before the Senate committee. Bankman-Fried wrote that he would feel like it was his duty to explain to the committee after he had finished learning. I am not sure if that will happen on the 13th.
There are still questions about how client funds were stolen, how clients were blocked from withdrawing their own money, and how you orchestrated a cover up.
Separately, Sens. Elizabeth Warren of Massachusetts and Tina Smith of Minnesota, both Democrats, sent letters to three regulators – the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency – asking them to assess the traditional banking system’s exposure to turmoil in the crypto space, a largely unregulated, parallel financial system.
Waters replied to Bankman-Fried that he had enough information to give testimony based on the role he had played as CEO.
The Southern District of New York, which is investigating Bankman-Fried and the collapse of FTX and its sister trading firm Alameda, confirmed his arrest on Twitter.
The Royal Bahamas Police Force stated that Bankman-Fried was taken into custody at his apartment complex in Nassau without incident at 6 pm Monday and will be appearing in court Tuesday.
The Collapse of Cryptocurrencies: A Murder by a Serious Criminal Trying to Win $eta$$-Fed
If the charges are charged in the US and they are found to be serious, the US can bring the defendants back if the charges are considered serious enough to send them to the Bahamas.
He told the television station over the weekend that he did not know he was committing fraud. I didn’t want this to happen. I was certainly not nearly as competent as I thought I was.”
Waters said they are still committed to getting to the bottom of what happened, despite the fact they won’t hear from Bankman-Fried tomorrow.
While the probe isn’t completed, Ray said, FTX’s collapse appears to stem from the concentration of power “in the hands of a very small group of grossly inexperienced and unsophisticated individuals” who failed to implement virtually any corporate controls.
Bankman-Fried said there wasn’t a single person who was chiefly in charge of the risk of customers on FTX. It feels pretty embarrassing in retrospect.
Bankman- Fried has not knowledge of such a back door. “I don’t even know how to code,” he told cryptocurrency vlogger Tiffany Fong in an interview last month.
Sam Bankman-Fried hasn’t tried to commit a felony: he’s allegedly hiding a house of cards on a foundation of deception
The arrest was made at the request of the U.S. government, based on a sealed indictment filed by the Southern District of New York, U.S. Attorney Damian Williams said in a tweet also on Monday night.
The prime minister of the Bahamas said that his country is cooperating with law enforcement and regulators in the United States, but its own regulatory and criminal investigations are ongoing.
The last month has seen Bankman-Frick spend time on a charm campaign, painting himself as a guy who let things go and didn’t try to commit fraud, after he resigned hours before the bankruptcy filing.
As of late Monday night, the committee still had a notice of the hearing posted that listed Bankman-Fried as a witness and also included the written testimony of the hearing’s other witness, FTX’s CEO John Ray.
“We allege that Sam Bankman-Fried built a house of cards on a foundation of deception while telling investors that it was one of the safest buildings in crypto,” SEC Chair Gary Gensler said in a statement.
During a virtual appearance at the DealBook Summit, Bankman-Fried said that he had messed up. I would do anything to do those things.
The S.E.C. now asserts that S.B.F. was more involved in Alameda’s operations than he let on. In a major revelation, the agency says he directed $8 billion worth of customer deposits from an Alameda-controlled bank into a separate account, labeled “fiat @ftx.com,” in part to avoid getting charged interest, a move that could suggest intent. From the complaint:
The allegations against SBF also focus on his statements to investors that FTX was a safe place to invest because of an automated “risk engine” that would sell off a customer’s assets to make sure their collateral stayed at the required levels.
Other charges may follow, but these are the ones he’s facing so far, and that’s just from the SEC — its announcement notes other charges are being filed today by the US Attorney’s Office for the Southern District of New York and the Commodity Futures Trading Commission (CFTC).
Prior to his arrest, SBF had continued an ongoing post-bankruptcy-filing media tour of Twitter Spaces chats and Zoom calls, with at least two live appearances on Monday, and he was expected to appear remotely today to testify before the House Financial Services Committee. That hearing will go forward and is scheduled to begin at 10AM ET, with testimony from FTX’s new CEO, John J. Ray III.