November 10, 2022 - 1:00pm
It was only five months ago that Sam Bankman-Fried, CEO of FTX, then the world’s largest and most celebrated cryptocurrency exchange, became the saviour of the crypto ecosystem. Acting as what’s known in traditional finance as the lender of last resort, the derivatives whizkid provided emergency loans to many struggling crypto entities that had succumbed to the early 2022 crunch on the industry. From then on, he became known as the JP Morgan of the crypto world.
But things change quickly in crypto. Last week everything still seemed normal. Advertisements showing the FTX motto of “You in?” filled billboards across the world, while the company had apparently acquired keys to its new offices in Miami.
Then, after rumours of FTX’s insolvency had been circulating for days, the crypto exchange halted withdrawals. This already came after a telltale sign of financial peril, that of a CEO taking to Twitter to deny whispers of insolvency with harsh undertones. “A competitor is trying to go after us with false rumours,” Bankman-Fried said in a now-deleted tweet. “FTX is fine. Assets are fine.”
He was responding to Changpeng Zhao — who goes by CZ — a noted personal rival of his and owner of Binance, one of FTX’s competitors. Catching wind of the deteriorating state of FTX and its parent company Alameda Research, CZ had not only started to unwind his company’s position in FTX’s signature FTT token but announced he was doing so in real-time on social media.
The market’s response was fairly moot, but this didn’t last long. CZ made a further surprise announcement that Bankman-Fried had asked him for what appeared to be a bailout. “To protect users, we signed a non-binding [letter of intent] … to fully acquire and help cover [an FTX] liquidity crunch,” CZ tweeted. “We will be conducting a full DD [due diligence] in the coming days.”
Given the shaky rivalry between the two CEOs, the chance of a deal remained small. Indeed, when an anonymous source tipped crypto media outlet CoinDesk that Binance was now “highly unlikely” to follow through on its rather tentative rescue of FTX after “seeing its books,” the downfall of SBF’s empire appeared to be guaranteed.
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SubscribeGamblers lose money. Who cares ?
Any company that is “worth” $32 billion one day and then zero the next wasn’t really ever worth anything to begin with.
The whole point of crypto is there cannot be a last lender of resort since crypto is not fiat money. It’s full on Austrian school of economics – what you’re seeing is creative destruction. Whether that’s the right thing to do or not will be decided in the marketplace more than in arguments. Having said that, these exchanges are regular companies sometimes listed like CoinBase, and it’s possible to buy crypto with fiat. And yes, some regulatory framework would probably be welcome as long as it doesn’t strangle the industry.
upvoted and then took it back, because of the last sentence. there is no “some”. “some” is a toehold that leads to government agencies chasing more power and a bigger budget, and ultimately crypto becoming just another wall street thing, instead of potentially disrupting wall street.
Take something like stable coins. Someone comes up and says this coin tracks USD with such and such method. Who’s there to guarantee this claim – that there’s not a criminal element. Yes there’s code and blockchain for crypto, but what other places where it interacts with the “real” economy? Also, what about taxation? Is crypto an asset, a commodity, or currency?
I hadn’t followed this closely, thank you for the information, I was wondering why the cryptos dumped over night.
If Binance follows we will reach some very low points indeed.
In fact, I suspect it may bring down some regular banks if the crypto ones fail.
all the complaining about how crypto needs to be regulated, because dumb people throw everything at it and then complain that they didn’t know what they’re getting into.
it’s amazing to me that the internet and crypto became things precisely because there was no one holding them back.
complain about short sellers and citizen journalists. they’re the real evildoers, here.
no – don’t. both did exactly what they should do. that’s the beauty of not having regulation in a space. it’s literally self-regulating.
if you lost everything in mt. gox or ftx, i’m sorry for you. next time, try to be more careful.
one more thought on this: there is a real threat of contagion, and breaking something bigger (i was tempted to say “more important” but that’s just code for hurting the establishment). but you gotta break big things, cut down big trees, churn out the “too big to fail”. cancer is what happens when some cells get to live forever.