What Will Bankman-Fried’s Cryptocurrency Exchange Tell Us About Its Lehman Moment? — Jay Jog, Founder, and CEO of Sei Labs

The crisis has sent reverberations through the crypto world, with the price of major coins plummeting. And FTX’s collapse is drawing comparisons to earlier major business meltdowns.

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. It is an apt comparison according to a lot of people.

“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, with high-profile backers such as SoftBank, Tiger Global, Singapore’s Temasek, as well as celebrities like Gisele Bndchen and Naomi Osaka, was valued at $32 billion in its latest funding round. Its name is on the arena where the Miami Heat play.

The situation is still evolving. But one concern is how it could ripple throughout the entire crypto sector, which was worth more than $1 trillion in August.

The 30-year-old entrepreneur’s net worth, which was largely tied up in digital assets, peaked at around $26 billion this spring. Over the summer, as crypto prices plummeted, Bankman-Fried emerged as a white knight for the sector, using his FTX exchange and its sister hedge fund, Alameda, to secure lines of credit to crypto companies like BlockFi and Voyager that were at risk of collapsing.

“The number of entities with stronger balance sheets able to rescue those with low capital and high leverage is shrinking within the crypto ecosystem,” strategists at JPMorgan said in a note to clients this week.

Traditional investors have also been burned, though they’re reassuring clients they can handle the fallout. The Ontario Teachers’ Pension Plan said that the $95 million investment would have a limited impact because of its small stake.

Changpeng Zhao, Binance and Larry David: A Large-than-life Crypto personality in the epoch of cryptocurrency discovery and regulation

Soon after, another larger-than-life crypto personality entered the chat. Changpeng Zhao is the CEO of the world’s biggestcryptocurrencies exchange, and publicly announced that he will liquidate his FTX holdings. Binance then signed a letter of intent to acquire FTX, a plan that Binance abandoned shortly after.

But as spooked investors pull funds from crypto, more pain could arrive. JPMorgan believes bitcoin could fall to $13,000, a decline of nearly 22% from where it is now. Fok said the digital coin could sink to a level it hasn’t reached since 2020.

The outlook for theCrypto winter is set to get worse, as fears about the economic backdrop continue to erode the appetite for risky assets.

“In the short term, this is going to be really, really bad for the crypto industry,” said Jog of Sei Labs. He hopes that the move will bolster interest in his business, though he does not feel that it will end things entirely.

“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. “Probably by 2024, the whole world will look much more coherent and watertight.”

He said they were set back a few years. “Regulators rightfully will scrutinize this industry much, much harder, which is probably a good thing, to be honest.”

Larry David was in a Super Bowl ad for FTX which predicted that it wasn’t going to make it. The ad shows David’s character throughout history, naysaying humanity’s greatest inventions, including the wheel, the lightbulb, coffee and democracy.

A reported $8 billion hole in the company’s balance sheet was caused by a liquidity crunch triggered by the report about the arrangement and a statement from the founder of Binance.

Sam Bankman-Fried has resigned as CEO of FTX and Alameda Research but hasn’t commented on it. Some users on Twitter speculate whether a member of Bankman-Fried’s inner circle drained the exchange’s funds, with crypto sleuth ZachXBT stating “multiple former FTX employees confirmed to me they do not recognize these transfers.” The CEO of the exchange said that they were able to track down the account’s location, as the person used the exchange to sell the funds.

The lesson here is to not look for people who will help you. Bankman-Fried’s meteoric rise was not simply based on his own doing – he was buoyed by many others. He raised millions of dollars from high-profile investors, was showered with media attention, and with few exceptions, was not questioned a lot. Hope and responsibility should not be divided between one person and another. Everything that is supposed to be represented by the coin goes against it.

As a follower of “effective altruism,” Bankman-Fried has sought to make as much money as possible in order to give it away. His philanthropic endeavors are in doubt.

Update: Neal’s FTX branding isn’t going to work for him, but for how to use CFTC and the CBO

Neal won’t be taking over. saying that he is “unable to serve in that position for reasons having nothing to do with FTX, Inc. or its former CEO.”

Customer withdrawals of Blockfi were frozen as a result of the FTX problems. The price ofbitcoin dropped sharply after the announcement, but recovered and is 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 won’t have FTX branding at the upcoming race, as noted by Sam Bankman-Fried, on top of a bankruptcy filing.

Now I Know. Who? My Comrades are voices from the underground: A commentary on FTX collapse and Alameda Research

A large portion of that total has since disappeared, they said. A source put the missing amount at more than $1 billion. The other said it was between $1 billion and $2 billion.

Two people with knowledge of FTX’s finances say Bankman-Fried held a meeting with several executives in Nassau to determine how much outside funding he needed to cover the shortfall.

It was said that Bankman-Fried hid a secret transfer of over $10 billion of customer funds from FTX to his trading firm Alameda Research to avoid triggering accounting red flags.

The Times said the issue is part of a broadening inquiry into the collapse of FTX, and it’s not clear whether prosecutors have determined any wrongdoing by Bankman-Fried.

Editor’s Note: Emily Parker is executive director of global content at CoinDesk, a media, event, indices and data company, and a former policy advisor at the US State Department and writer/editor at The Wall Street Journal. She wrote Now I Know. Who? My Comrades are: voices from the internet underground. She has her own opinions in this commentary. CNN has more opinion.

Does Blockchain Technology Need a Spontaneous Breakdown? A Comment on Bankman-Fried in his Long Twitter Thread on Thursday

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 shows that the industry has deviated from the ideal. One of the large-than-life personality run entities in the world of cyber security is thecrypto world. There is no better example of this than FTX and its leader.

This was not supposed to be the way it is. Bitcoin, the world’s first major cryptocurrency, came into the world on the heels of the 2008 financial crisis, which led to a deep disappointment in bankers and politicians. The idea was that this new system wouldn’t require you to trust anyone at all, even though you distrust financial institutions. No bad actor should be able to alter the transactions of theBlockchain, which is a software that records transactions on a publicly available ledger that everybody can see.

In the case of crypto, many have long pointed out the risk of powerful centralized exchanges like FTX, with some people preferring to hold their own coins instead of storing them in an exchange. Another option is to actually use blockchain technology to provide greater visibility, something that Bankman-Fried is now promising to do. In his long Twitter thread on Thursday, he said his priority would be “radical transparency,” or “giving as close to on-chain transparency as it can: so that people know exactly what is happening on it.” FTX is probably too late in the game.

He takes full responsibility for his mistakes. He said in the long thread that he was responsible for making sure that things went well. I should have been on top of everything. I failed in that. I’m sorry.”

Source: https://www.cnn.com/2022/11/12/opinions/crypto-white-knight-problem-sam-bankman-fried-ftx-parker/index.html

On the Cult of Personality: FTX, Sequoia, Terra, Luna and a View from the Investor’s Perspective

The cult of personality problem is not limited to crypto. We see it in social media as well, another supposedly leaderless and decentralized technology. Musk, the richest man in the world, makes decisions about the future of the micro-blogging site.

“FTX has been hacked. The admins of FTX’s official Telegram channel told users to uninstall the platform’s apps and warned against going on the websites due to the presence ofMalware. FTX.com and FTX.us are currently down at this time of writing.

Federal prosecutors are also investigating whether Bankman-Fried played a role in the collapse this spring of two interlinked cryptocurrencies, Terra and Luna, according to the New York Times, which cited two people familiar with the matter.

“Retail investors suffer more than any other group, and I care because they still wrongly associatecryptocurrencies with scammy ventures,” said the CEO of SwanBitcoin after raising concerns about FTX’s business model. Klippsten is enthusiastic aboutCryptocurrencies but has doubts about other aspects of the coin.

The company that invested in Apple and other companies described their meeting with Bankman-Fried as likely talking to the world’s first trillionaire. Several of the partners of Sequoia became enthusiastic about the Bankman-Fried. After meeting with the company, Sequoia decided to invest in them.

I don’t know, I just do. SBF is a winner,” wrote Adam Fisher, a business journalist who wrote a profile of Bankman-Fried for the firm, referring to Bankman-Fried by his popular online moniker. The article was removed from the website.

Bernie Madoff-like: How Do We Get What We Want to Know About Blockchain and Other Crypto-Industry Assets? An Interview with Michael Bair

The statement from the Ontario Teachers’ Pension Fund said that not all of the investments in the 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. That rescue is now in question.

As king of crypto, his influence was starting to pour into political and popular culture. FTX bought the naming rights to an arena in Miami as well as a few prominent sports sponsorships. Bill Clinton was invited to speak at the FTX conferences after he pledged $1 billion to Democrats in the election. Football star Tom Brady invested in FTX.

“Charming regulators and investors can distract [them] from digging in and seeing what’s really going on,” Bair, who chaired the Federal Deposit Insurance Corp. from 2006 to 2011, said in a phone interview on Monday. “It felt very Bernie Madoff-like in that way.”

Bankman-Fried was able to lure sophisticated investors and regulators into missing red flags, thanks to his reputation and connections.

He was known as a wizard on Wall Street before his Ponzi scheme collapsed. He was the former chairman of the Nasdaq Stock Market, served on Securities and Exchange Commission advisory panels and managed money for the rich and the famous.

“You get this herd mentality where if all your peers and marquee names in venture capital are investing, you’ve got to, too. That adds credibility to Washington policymakers. Bair is a member of the board of directors at Paxos and she said it all feeds on itself.

Sens. Elizabeth Warren and Tina Smith – The Connection Between Traditional Banking and Crypto-Firmion Insights from the Delayed Demise of FTX

It was possible for investors to get huge returns with the help of an elaborate scheme that repaid existing clients with new client deposits.

Serious questions have been raised about the accuracy and strength of FTX’s balance sheet given the rate of its demise. FTX’s bankruptcy filing indicates it had liabilities of $10 billion to $50 billion at the time of the filing.

The chairman and a Republican of the committee wrote a letter to Bankman-Fried and his lawyer.

“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 attorney referred to a message Bankman-Fried sent on Sunday, in which he told Waters that he wouldn’t testify at the hearing before the Senate committee. “Once I have finished learning and reviewing what happened, I would feel like it was my duty to appear before the committee and explain,” Bankman-Fried wrote. “I’m not sure that will happen by the 13th.”

“There are still significant unanswered questions about how client funds were misappropriated, 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.

Warren and Smith wrote that “the banking system may have more ties to the tech firms than previously understood.” “Banks’ relationships with crypto firms raise questions about the safety and soundness of our banking system and highlight potential loopholes that crypto firms may try to exploit to gain further access.”