FTX, Bankman- Fried and Other Shockwaves: a Surprisingly Long Lifetime After a Lehman Moment
FTX has continued its downward spiral after filing for bankruptcy on Friday. Another big name from the industry has also admitted to mishandling funds, spooking investors even more.
Industry insiders are debating whether to call the implosion of FTX, which filed for bankruptcy on Friday, a “Lehman moment,” referring to the 2008 collapse of the investment bank that sent shockwaves around the world. It is an apt comparison for many people.
It will take some time for the company to recover from this, as it was one of the most trusted entities in the space.
The company was valued at $32 billion in its latest funding round, and had recruited high-profile backers including SoftBank, Tiger Global, Singapore’s Temasek, as well as celebrities like Tom Brady, Gisele Bündchen and Naomi Osaka. The arena where the Miami Heat play is named after it.
The situation is still evolving quickly. But one concern is how it could ripple throughout the entire crypto sector, which was worth more than $1 trillion in August.
Bankman- Fried put up $1 billion to keep the entire industry afloat as digital assets fell in value. White knights are often the only ones who can rescue FTX and others.
“The number of entities with stronger balance sheets able to rescue those with low capital and high leverage is shrinking within the crypto ecosystem,” strategists at JPMorgan said in a note to clients this week.
Traditional investors have also been burned, though they’re reassuring clients they can handle the fallout. The Ontario Teachers’ Pension Plan said that despite uncertainty, losses tied to its $95 million investment would have a “limited impact,” given the stake represents less than 0.05% of total assets.
The Cryptocurrency Crisis and the World’s Largest Branches: Comment on a Text from El Rican President, Changpeng Zhao
Changpeng Zhao, who is the CEO of Binance, wrote on his account that he had been texting with the president of El Rica who is against the use of digital currency. We do not have any money in FTX, and we never transacted with them. Thank you, God!
Prices of digital currencies fell again as the crisis engulfing the market deepened over the weekend. The world’s biggest cryptocurrencies has plummeted this year. It was trading at about $16,500 on Monday, according to CoinDesk. Analysts think that it could fall below $10,000.
The fears about the broader economy continue to erode the appetite for risky assets in that climate, and they are about to get worse.
The episode has not just destroyed confidence in the crypto industry, but will also embolden global regulators to tighten the screws. Some of the biggest names in the business said they will welcome the scrutiny, if it helps restore faith in the industry.
He said that authorities use traditional banking systems to borrow regulations but that they are very different from banks.
“We’ve been set back a few years,” he said. “Regulators rightfully will scrutinize this industry much, much harder, which is probably a good thing, to be honest.”
SBF CEO Sam Bankman-Fried is facing the Securities and Exchange Commission: Investigating a possible criminal misconduct in Ether and other crypto currencies
Ether, the world’s second most valuable cryptocurrency, isn’t faring much better. It was down 20% over the last week and was trading at about $1,230 on Monday.
The Securities and Exchange Commission is on a warpath. The Wall Street Journal reported over the weekend that the agency intends to sue Paxos for issuing BUSD, a stable coin developed in partnership with the world’s largest exchange, Binance.
The man was speaking at a conference in Indonesia on Monday. He said last week that a comparison between the current financial turmoil and the 2008 global financial crisis was probably an accurate analogy.
Last year FTX moved its headquarters from Hong Kong to The Bahamas, with former CEO Sam Bankman- Fried saying it was one of the few places to set up a comprehensive framework forcryptocurrencies.
“In light of the collapse of FTX globally and the provisional liquidation of FTX Digital Markets Ltd., a team of financial investigators from the Financial Crimes Investigation Branch are working closely with the Bahamas Securities Commission to investigate if any criminal misconduct occurred,” the Royal Bahamas Police Force said in a statement.
Known as “SBF,” Bankman-Fried is a crypto celebrity who became a pariah overnight as his company suffered a liquidity crisis and filed for bankruptcy last month, leaving at least a million depositors unable to access their funds.
Miller said that FTX was “investigating abnormalities” regarding movements in crypto wallets “related to consolidation of FTX balances across exchanges.”
Ryne Miller, the General Counsel of FTX, said the company moved its digital assets offline on Friday. The process was expedited Friday evening “to mitigate damage upon observing unauthorized transactions.”
The Crypto.io billionaire admitted to sending $4000+$ in ether to the wrong account, and will be arrested on $fb$ bailouts
As scrutiny of big players in the crypto world increases, Singapore-based Crypto.com admitted to accidentally sending more than $400 million in ether to the wrong account.
Kris Marszalek said that the company made a transfer of 320,000 ether to a corporate account three weeks ago at Gate.io, instead of using a cold wallet.
Marszalek said the process and systems have been strengthened to better manage internal transfers. The native token fell more than 20% in the last 24 hours.
Marszalek said Monday that his firm has acted as a “responsible, regulated player since inception” and will soon “prove all the naysayers …wrong with our actions.”
He said that moving user assets for investments is normal for a bank. He claimed that if the exchange operates that way it is almost certain to go down. adding that the industry collectively had a role to play in protecting consumers.
It had seen its highest daily withdrawals since June. The rate of withdrawals has since stabilized to approximately $79 million in net outflows, the firm’s data showed as of Tuesday evening ET.
“Concurrently, a large market maker, Jump, was found to have withdrawn huge sums from Binance with no deposits over the past few weeks — ultimately seems to have caused jitters among both retail and institutional users,” Thurman said. It is a lot of money headed out, that has spooked some people.
In his Twitter post, the billionaire sought to strike a sanguine note, suggesting that it was “a good idea” for each crypto exchange to generally face “stress test withdrawals.” He later added that Tuesday’s outflows were not among the highest the company had processed.
The details of the alleged fraud will likely take months to untangle. The broader story is that he spent years defrauding people, and then used their money to fund a lavish lifestyle, which included illegal campaign contributions.
Editor’s Note: Casey Michel is a writer and investigative journalist covering kleptocracy and dark money networks across the globe. He is the author of “American Kleptocracy: How the US Created the World’s Greatest Money Laundering Scheme in History” and is researching a book about foreign lobbying in DC. The opinions he gives in this article are his own. At CNN, you can read more opinions.
These kinds of cases are as old as American capitalism itself. They almost always pair a lack of regulation and oversight with promises of easy wealth schemes, all predicated on some kind of proprietary technology that seems to generate returns out of thin air.
Time and again, America’s financial industry has seen the emergence of new, untested financial tools — railroad bonds, stock purchases, mortgage derivatives — emerge without any kind of proper regulation and oversight. Money has raced in to take advantage of new industries and financial tools multiple times. The new investors have had others take advantage of them, taking as much of the wealth as they could.
What Ms. Ellison and Mr. Wang are facing: The S.E.C. accused Ms. Ellison of manipulating the markets for FTT, FTX’s in-house token and the digital asset it frequently used to invest in other companies, to prop up its price. Mr Wang was accused of creating software that enabled the diversion of FTX customer funds.
Ms. Ellison and Mr. Wang said something different than Mr. Bankman-Fried had said. Mr Bankman- Fried has said several times that he wasn’t aware of the trading at Alameda, the exchange’s tradingaffiliate, but according to documents filed yesterday, he was.
The fact that the SEC believes some stablecoins can be securities should come as no surprise, says Acheson. Acheson imagines the regulator will argue that stablecoins like BUSD, backed by their issuer’s holdings of established securities such as government and corporate bonds, are by extension securities themselves and must be regulated accordingly.
The SEC defines securities as contracts that amount to “an investment of money, in a common enterprise, with a reasonable expectation of profit, to be derived from the efforts of others.” The classification brings with it a range of regulatory and disclosure requirements. The SEC has the power to reject coins if stablecoins are universally determined to be securities. Any stablecoins already on the market could be subject to enforcement action.