Business

FTX is accused of mass fraud that relies entirely on cryptocurrencies


Sam Bankman-Fried is escorted out of the Magistrates Court building after his arrest in the Bahamas

Sam Bankman-Fried is escorted out of the Magistrates Court building after his arrest in the Bahamas

Not a crypto crime, just an alleged crypto-related crime.

The arrest of FTX co-founder Sam Bankman-Fried The numerous fraudulent charges have been hailed in several quarters as a testament to the crypto economy. After all, the allegations centered on general financial crimes and the relevant government agencies failed to take this opportunity to engage in heated debates about how to manage money assets. electronic.

That has led to some celebrations. “They are not really crypto criminals—and that is a huge relief for the broader crypto industry,” said Summary provided by Information. But don’t let it get twisted. Outside the courtroom, it became clear that Bankman-Fried’s alleged scam could not have been possible without the cryptocurrency technology and the hype surrounding it.

Read more

Consider the alleged scam: The best picture we have so far is that of FTX, the crypto exchange, which took money from customers in exchange for buying or betting on a variety of assets. assets, while Alameda Research, Bankman-Fried’s hedge fund, also bets on the exchange. The funds that customers send to FTX are routed to Alameda and used to pay for the hedge fund’s failed bets, as well as many personal and philanthropic expenses by Bankman-Fried and its close group. he. When enough customers ask for a refund, FTX declares bankruptcy.

Crypto Component 1: Financial Future hype you can’t miss

Every scam is a story. Why do guys suck part with their money? What prompted people to give $8 billion to FTX in its two and a half years of existence?

Similar schemes in traditional finance, such as commodities broker MF Global, which used $1.6 billion in client funds to settle a lost bet in 2011, or Ponzi schemes Bernie Madoff’s decades-long run, which had robbed victims of perhaps $19 billion before its 2008 crash, didn’t manage to make that much money so quickly. FTX depends on the crypto bubble and the perception that people are getting rich fast—an idea it promotes its own massive advertising campaign.

Of course, any type of property can be hit by the bubble, from land in Florida to particularly attractive tulip bulbs. But usually there is some underlying material object, or at least a stream of cash, behind the insanely overpriced. Manic stock meme has the potential to evaporate a lot of money in recent years, but despite Gamestop’s stock being overvalued, the company still had more than $1 billion in revenue last quarter.

The underlying economic value behind FTX is a lot less obvious.

Crypto Component 2: Out-of-Air Asset Creation Power

The balance sheet that Bankman-Fried used on his last futile efforts to make money shows that the majority of the company’s “assets” are crypto tokens or created by or dependent on FTX.

This includes the most famous FTT, a token issued by FTX that is effectively linked to the value of the exchange. But it also includes Serum, MAPS, and Solana — others whose value depends most on recognizing venture-style risk and the fact that a relatively small number of these coins can tradeable.

FTX customers probably didn’t realize how much of their deposits at the exchange were backed by these tokens. Indeed, the public disclosure that Alameda had a huge position in FTT led to a sell-off of the tokens and caused the exchange to collapse.

But the people who run FTX and Alameda, if you believe their public story about their actions reflecting mismanagement rather than outright theft, arguing that the money they helped generate was sufficient collateral for obligations in US dollars. Skeptical or not, without their faith in tokenomics, this scam would have been stopped sooner than it did.

If FTX is not a cryptocurrency, what is it?

Some true crypto believers argue that the existence of FTX as a centralized exchange is the real issue here, and that truly decentralized on-chain transactions will not result in volatility. similar force. But they need to take into account the fact that the value of their crypto investments is heavily dependent on investor access provided by centralized exchanges like Coinbase, Binance or FTX. As we know, cryptocurrencies seem to only require exchanges and dollar-pegged stablecoins to function.

Another argument is that if crypto assets were properly managed, this would not be the case. That may be true, but it’s also not clear what “proper” regulation would be — or how much of the “value” of cryptocurrencies as a speculative asset or instrument for regulated arbitrage could be. may be eliminated by the types of disclosures and capital requirements that traditionally apply. securities or commodities.

One thing to watch out for is the recovery form available to the victims of this alleged scam. Customers of MF Global made completely intact, with the owners and partners of the company suffering losses. For the Madoff scam, two different funds together distributed more than $17 billion to victims and other creditors by recovering cash from the beneficiaries of the scheme.

Similar efforts are likely to take place at FTX, but is there anything left in the wreckage for them to return to investors?

More from Quartz

Registration for Quartz Newsletter. For the latest news, Facebook, Twitter and Instagram.

Click here to read the full article.

news7f

News7F: Update the world's latest breaking news online of the day, breaking news, politics, society today, international mainstream news .Updated news 24/7: Entertainment, Sports...at the World everyday world. Hot news, images, video clips that are updated quickly and reliably

Related Articles

Back to top button