Now You Can Forget Crypto

When I spoke to Sam Bankman-Fried three weeks ago, he was the golden boy of cryptocurrency. Worth an estimated $15 billion, the 30-year-old presided over one of the biggest empires in this quirky industry. For the past few years, he has been a close friend of Bill Clinton Luck journal and changed himself to a three-letter initialism: SBF. Toward the end of our 90-minute interview, Bankman-Fried dropped a casual tip about her financial situation. “The truth is,” he said, “most of my wealth is illiquid right now.” As for why his once-generous political donations have dried up over the past few months, he offered a cryptic koan: “There are limits to what I can give in the short term.”

This turned out to be an extreme understatement. This week, Bankman-Fried lost virtually all of his fortune in one day, in what Bloomberg called “one of the greatest wealth destructions in history.” The largest companies he once controlled, cryptocurrency exchange FTX and hedge fund Alameda Research, went bankrupt almost overnight and have since filed for bankruptcy along with “approximately 130 additional related companies” under the Bankman-Fried umbrella. By Friday — in an irony lost on absolutely no one — John J. Ray III, the lawyer who oversaw Enron’s liquidation, became FTX’s new CEO.

Crypto crashes have become par for the course. But even for an industry known for its volatility, SBF’s downfall came like a cold waterfall. Bankman-Fried, after all, was the good boy wunderkind of cryptocurrency who was supposed to be a proponent of regulation that would finally bring cryptocurrency into the mainstream. Indeed, SBF places particular emphasis on the idea that you can trust its exchange with its gamblers and punters in a notorious industry; as if to make this message even clearer, FTX paid to sponsor MLB’s umpires—the arbiters of truth and justice—as opposed to its players. In an article that has since been taken down, venture capital firm Sequoia hailed SBF as a credible “future trillionaire,” thanks in part to the scale of his vision of a future where trading bitcoin is as easy and popular as shopping. on Amazon.

But right now, cryptocurrency feels less ready than it has in years. Although the cryptocurrency has entered a bear market in recent months, it was still there sleep Cryptocurrency as it emerged after the 2008 financial crisis: Part of the reason for blockchain is to cut out greedy bankers and create more trust between transacting parties. Now, in 2022, the cryptocurrency markets are indeed ruled by an industry that has proven time and time again how similar it is to the current financial system. Before this year’s crash, it felt like a decent portion of the public was beginning to trust the industry. The SBF’s antics turned back the clock and what looked like winter began to look more like an ice age.

Imagine if your bank card suddenly stopped working because the executives at your bank were making high-risk trades with your money while you were trying to pay for the groceries — pretty much the same thing Bankman-Fried is accused of pulling off. (Bankman-Fried did not respond to a request for comment.)

Autumn began with a story CoinDesk reporter Ian Allison suggested that SBF’s companies are more interconnected than anyone knows. Instead of storing value in dollars and debt, the Bankman-Fried empire stored money in an internal cryptocurrency, which of course works as long as the currency remains stable. It so happened that FTX’s rival Binance, led by the richest man in cryptocurrency, Chinese billionaire Changpeng Zhao, had several billion dollars worth of cryptocurrency on its balance sheet. after CoinDesk in the report, Zhao said he planned to throw them all away.

From there, the dominoes fell. After Zhao’s chess move, FTX found it difficult to withdraw money to customers. Suddenly, a once $32 billion company was in an $8 billion hole. Zhao initially said Binance would buy FTX for scrap, but backed off after looking at the books. FTX has never been a bank; customers will be lucky to get even some of their money back in bankruptcy court over the next few years, and it seems possible that SBF could face serious legal ramifications.

Over the past year, several major crypto firms have gone under, but Bankman-Fried and his team have been the adults in the room, trying to legitimize crypto, stubbornly rebuilding its reputation as an immature sector. But it turns out that there are no adults and no room. The collapse of the SBF empire should be a wake-up call not only for the industry that powers it, but for the millions of people who have decided to take their chances with a few dollars worth of cryptocurrency over the past few years. Centralized exchanges like FTX—the easiest way for retail investors to get into cryptocurrency—still come with a huge amount of risk. When these companies go under, as they seem to do every month now, they take your money with them.

But the problem is more fundamental than losing some money. Crypto is built on the idea that you shouldn’t trust your money to banks, that people can keep it with them, hopefully somewhere a little more secure than a mattress. While you can still technically do this, there is no guarantee that the value of your tokens won’t drop to zero at some point thanks to the actions of a few rogue billionaires with huge influence in the market. This is, frankly, a terrible deal and a betrayal of the dream of crypto utopianism – a vision of a future without shadowy middlemen.

Even the legions of cryptocurrency skeptics, now that I’ve told you so, would admit that even as recently as last spring, the industry was bursting with some kind of potential energy. One of the popular cryptocurrency mantras is “We’re too soon”, despite the fragile nature of the whole system and the constant feeling that everything will fall apart at any moment, there will indeed be a time for cryptocurrency. comes. The collapse of Sam Bankman-Fried, and the collapse of many more firms in the near future, dashed much of that hope. Now, it’s hard to imagine a near or even mid-term future where cryptocurrency has a fraction of the impact it did six months ago.

Cryptocurrency will always live on in some form, but the future of cryptocurrency as an institution – as something that could one day destabilize, or at least run parallel to, the big banks – has never been less certain.

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