The cryptocurrency exchange FTX was valued in January 2022 at $32 billion. The investors in FTX include well-respected corporations SoftBank and BlackRock. On Monday, November 5, Sam Bankman-Fried, the chief executive of FTX, the world’s third largest exchange, took to Twitter to reassure his customers that FTX is fine and the “assets are fine.”
On Friday, November 11, FTX announced that it was filing for Chapter 11 bankruptcy. Sam Bankman-Fried also resigned as CEO. The losses will be in the billions for those who invested in FTX or traded through FTX and now are left with little or nothing. Financial advisors will have a hard time explaining why they convinced their clients to invest in FTX or trade crypto on FTX’s exchange.
It was reported by Reuters that at least $1 billion of customer funds have vanished from FTX. Bankman-Fried secretly transferred $10 billion of customer funds from FTX to his trading company, Alameda Research. A large portion of that total has since disappeared. One source put the missing amount at about $1.7 billion. Another source said the gap was between $1 billion and $2 billion.
On Saturday, FTX said it had detected unauthorized access. Analysts said hundreds of millions of dollars of assets had been moved from the platform under “suspicious circumstances.”
For those like myself who thought the whole crypto market was a scam, which had its roots in helping criminals launder money, the result was not surprising. I was in good company with Warren Buffett and Bill Gates, who also trashed cryptocurrency.
This is just another example of greed overcoming logic. Unlike currency, which has backing of the country issuing it or precious metals that have intrinsic value, cryptocurrency has nothing behind it. Its value is merely what some fool is willing to pay for it. There were many who did which raised the price of bitcoin to a high of $ 68,789.63 per coin in November 2021. It made people such as the 30-year-old Bankman-Fried very rich.
One would have expected that there would have been governmental regulation. Instead, little or nothing was done to deal with it. One excuse was that there was governmental agency infighting as to who had the authority to regulate crypto. There was talk but no action in Congress to pass laws to regulate the cryptocurrency market. A reasonable conclusion was that the crypto companies, which publicly were claiming they wanted regulation, were privately telling legislators the opposite. Plenty of money was given to legislators. If the crypto industry wanted regulation, it would have happened.
Now that the music has stopped and those who lost funds are blaming the government for its inaction, the government will have no choice but to regulate the “wild wild west” of cryptocurrency. The SEC (Securities and Exchange Commission) and DOJ (Department of Justice) are investigating FTX and its disgraced former CEO. Too little, too late.
If one looks back, there were plenty of warning signs for those who wanted to see them. For example, it was reported on CNBC that scammers took home a record $14 billion in cryptocurrency in 2021, thanks in large part to the rise of decentralized finance (DeFi) platforms, according to new data from blockchain analytics firm Chainalysis.
As reported in the New York Times, U.S. investigators have busted a handful of crypto Ponzi schemes over the years. Among them is One Coin, which was based in Bulgaria and which prosecutors allege brought in roughly $4 billion from investors around the world.
Back in 2018, Europol concluded that criminals in Europe are laundering $5.5 billion of illegal cash through cryptocurrency.
It is hard to understand why bitcoin is still worth $16,800 per coin. It had gone down to close to the current level before FTX declared bankruptcy. One would have expected a bigger drop once the story broke. However, it should not be surprising. Since bitcoin has no relation to any reality, why should the reality of the bankruptcy matter? People will believe what they want to believe and disregard the rest.
Warren S. Hecht is a local attorney. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.
