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“Sam Bankman-Fried received numerous plaudits as he rapidly achieved superstar status as the head of cryptocurrency exchange FTX: the savior of crypto, the newest force in Democratic politics and potentially the world’s first trillionaire. Now the comments about the 30-year-old Bankman-Fried range from bemused to hostile after FTX filed for bankruptcy protection Friday, leaving his investors and customers feeling duped and many others in the crypto world fearing the repercussions. Bankman-Fried himself could face civil or criminal charges.” AP News
Both sides worry about the volatility of cryptocurrencies:
“My beef with the crypto market has always been that it is backed by nothing but air. At any moment, that support could disappear. For FTX it just did… The dollar and Treasurys are backed by the good faith of the U.S. government via its income-tax-generating ability. When stocks sell off, they eventually find a bottom so long as they are viable enterprises that can eventually make money. Real-estate loans are backed by the value of a home or building, but crypto has no backing.”
Andy Kessler, Wall Street Journal
“With inflation still roaring, it is a hard time to make a case for the value of central banks. But the boy wizards of cryptocurrency have done it… Any monetary instrument is a form of credit, and credit will always involve risk. Mr. Bankman-Fried discovered that. His putative savior, a crypto exchange known as Binance, backed out 24 hours after it had tentatively agreed to a rescue. On Friday, FTX filed for bankruptcy. Yet had the rescue deal gone through, Binance would have been on the hook for, reportedly, up to $8 billion in claims against FTX. Who would have come to the rescue of Binance?…
“The point of a central reserve, which is what Paul Warburg and Nelson Aldrich had in mind in 1913, is that the pooled resources of the nation are immeasurably greater than those of any single mogul. They offer, in times of need, an ocean of liquidity to iron out the inevitable fluctuations in individual, regional, and industry-specific credit. Would anyone in their right mind wish to entrust the nation to crypto — and trade the imperfect Fed for the likes of FTX and Binance?”
Roger Lowenstein, New York Times
Other opinions below.
“All of this is a lesson for crypto investors and the Fed, which encouraged excessive risk-taking by keeping real interest rates below zero for so long. Trillions of dollars flowed into crypto seeking higher returns. A Terra affiliated lending platform offered interest rates of up to 20% on deposits. FTX offered yields of up to 8% on fiat and crypto currency in its accounts…
“Massachusetts Sen. Elizabeth Warren tweeted Wednesday that ‘the collapse of one of the largest crypto platforms shows how much of the industry appears to be smoke and mirrors. We need more aggressive enforcement and I’m going to keep pushing @SECGov to enforce the law to protect consumer and financial stability.’ What law? Congress hasn’t passed one…
“Crypto has potential as a financial asset and marketplace even if some trading is purely speculative. Maybe the best way to rein in excessive risk-taking is for the Fed to continue rolling back the monetary conditions that have encouraged it.”
Editorial Board, Wall Street Journal
“Shockingly the news breaks right after the midterm elections: the 2nd largest Democrat mega donor after George Soros turns out to be a total fraud… His billions–he was worth up to $26 billion at the peak of his wealth–was built on a pack of lies…
“He created a cryptocurrency of his own, while also handling other cryptocurrencies for his clients. He then, apparently, took the money of his clients and used it himself, substituting his fake crypto as an ‘asset’ backing the more legitimate currencies. It was a fraud…
“He essentially created an asset out of thin air, took legitimate assets for himself, and called it a day. Except, of course, he used a ton of that ill-gotten gain to bankroll Democrats and lobby for regulations that would benefit his business… Now there is no evidence as of yet that any of the recipients of his largesse reciprocated with political backing based upon those contributions–although he was known as a power broker in Washington DC… When he talked, Democrats listened.”
David Strom, Hot Air
“Bankman-Fried raised more than $2 billion from some of the top venture capitalists in the world, including Sequoia Capital, SoftBank, BlackRock, Thoma Bravo, and Altimeter Capital. None of these firms required Bankman-Fried to meet basic standards of corporate governance. None of the venture capital firms conditioned their investment with a seat on the board of directors to independently oversee its activities. Moreover, these firms didn't even require Bankman-Fried to create a real board of directors… What were these wealthy investors thinking?”
Judd Legum, Popular Information
“Bankman-Fried has so far explained that a mistake in internal labeling had led to customer deposits being used to fund his hedge fund. This is important when you’re trying to come up with a legal theory that lets you off the hook: Look, it was bad, but it was an accident. [But] If a back door built into the company’s code is only known to or accessible by the top executive (or something like that), it starts to get at something prosecutors really salivate over: intent. White-collar crime is difficult to prove, in large part because someone’s state of mind is crucial to demonstrating that something was an intentional fraud. How do you explain a back door as inadvertent?”
Kevin T. Dugan, New York Magazine
“If the entity that bailed out half of crypto is now himself so toxic that he has to be bailed out, I think we can confidently say that this asset class is vaporware… All of which begs the question: Why is Congress just plodding along on industry-friendly crypto regulation right now?…
“We have a volatile product that basically blows up every few weeks, and members of Congress, fattened with crypto money from before the billionaires went bust, are just following the old program, seemingly unaware of what reality has presented over the past few months. Putting together a weak regulatory and tax regime for crypto right now is like putting together a prescription drug benefit for fentanyl… The only entities that should be working on crypto in Washington right now are law enforcement authorities.”
David Dayen, American Prospect
A libertarian's take
“For all its prophecies of world-shaking change, crypto remains primarily the province of hobbyists, speculators and gurus… It took a lot of work to make the stock market boring enough to attract the wealth of more than half of all American households, a lot of institution-building to control fraud and limit the fallout from speculation. If crypto wants to become a world-changing financial technology, it will need to take the same journey…
“Decentralized finance! Permissionless innovation!… This all sounds very exciting when crypto nerds talk about it… But at present, too much of this freedom is being used to reinvent financial architectures that were de-permissioned for good reason — including the self-dealing clearinghouse, the undercapitalized market-maker and the Ponzi scheme. Crypto must find some way to rein this in, or let government do it. Otherwise, the best-case scenario is that it will remain irrelevant to the larger economy, as ordinary folks stick with the old-fashioned money they understand and the institutions they feel they can trust.”
Megan McArdle, Washington Post
