Out of nowhere, 30-year-old Sam Bankman-Fried became a billionaire mover and shaker in the world of cryptocurrency. Careful to make friends of powerful Democrats and media columnists alike, he threw money around the halls of Congress — and everywhere else he went..
Known by his initials, “SBF” is a billionaire no more. The house of cards he built over the past several years came crashing down in a matter of days.
His FTX crypto exchange and the entangled Alameda Research hedge fund are now in bankruptcy, amid reports that customer funds are missing. As many as a million of SBF’s customers may have lost whatever they had in their trading accounts, which, unlike traditional bank and brokerage accounts, are not guaranteed by the federal government against a company’s failure.
Media reports are drawing comparisons to the fall of Enron Corp. or the Bernie Madoff Ponzi scheme. Everyone from police in the Bahamas to U.S. Sen. Dick Durbin, D-Ill., is demanding answers from SBF, who sent a series of tweets saying, among other things, he wants to make his customers whole.
Don’t count on it.
It’s too soon to know exactly what happened, and whether criminal conduct was involved. The insolvency expert appointed to shepherd SBF’s businesses through bankruptcy says he’s never seen such a “complete failure” of corporate controls.
After a bank-run-style failure like this, no reasonable person should place their confidence in cryptocurrency trading operations. SBF had become the face of crypto, an innovator who supposedly had the money and brains to professionalize an upstart financial industry, which even before this latest fiasco was having a terrible year
We believe stronger rules and greater participation from mainstream financial firms will help this promising marketplace achieve its potential, minus the shady conduct that is giving it a bad name.
Cryptocurrencies are digital files that can be used as money and traded via blockchain, a digital ledger that permanently records transactions. The technology behind crypto is proven. It has the potential to reduce costs, speed up transactions and, yes, improve the security of financial operations around the world. So far, however, crypto markets have been used mainly for speculation.
Aided by lawyers, lobbyists and megabuck political donations, crypto operators created an image of being different from other financial players, and therefore not subject to existing regulation.
It can take time for knock-on effects to reveal themselves, but with any luck the collapse of FTX will mainly be confined to those directly involved with FTX. Let’s hope that’s where the contagion ends.
No doubt, clarity is needed about which federal regulator should take on crypto. Beyond that, we’re not even sure new rules are needed. If existing rules governing exchanges and public offerings had been applied and enforced in this case, customer funds would likely have been protected.
Chicago Tribuune/Tribune News Service