John Jay Ray III took control of failed crypto exchange FTX in a few short hours on November 11th. Ray was asked during a U.S. House of Representatives Hearing on Financial Services to compare compared FTX to Enron, another financial problem he fixed later. “This is simply old embezzlement,” Ray said. “Not fussy at all.“FTX simply takes customer money and uses it for their own purposes.
FTX and its sister company, crypto hedge fund Alameda Research, both operate out of the Bahamas without any oversight. At least $8 billion in customer funds are currently missing, prompting crypto enthusiasts to rethink the future of finance and politicians to call for tighter controls over the money space. electronic.
Is this the end of crypto?
“In its current form, yes,” Frances Coppola, an independent financial and economic commentator, told Al Jazeera. She pointed out that in its 14 years of existence, the crypto world has failed to create any significant real-world use cases beyond funding crime. It is primarily a speculative investment that only works as long as real dollars are put into the system.
“Cryptocurrency has never known anything but easy money,” she said. “Now, central banks around the world are rapidly raising interest rates and easing quantitative easing. There’s a brutal liquidity squeeze going on in global markets and money is being sucked out of risk assets.”
Cryptocurrency has become as risky as it is. “The valuations that cryptocurrencies enjoyed just a year ago are gone, and I don’t believe they will return for a long time, if at all,” she said. “I really think crypto prices will fall further. There is still too much leverage in the space and central banks are not done tightening yet,” she said.
Carol Alexander, a professor of finance at the University of Sussex, doesn’t think cryptocurrencies will go away completely. She argues that non-fungible tokens will inevitably exist as metaverse development continues. “However, we are currently going through a shedding process similar to the bursting of the dot-com bubble with many small companies defaulting on debt.”
Alexander believes that the survivors will be smart contract blockchains like Ethereum, some regulated exchanges like Coinbase, and futures exchanges like the Chicago Mercantile Exchange.
Charles Whitehead, a professor at Cornell Law School in New York, agreed. He told Al Jazeera: “It may be too early to talk about the death of cryptocurrencies, but we are clearly too late in our efforts to regulate it.
‘Get rich quick’
Nicholas Weaver, a researcher at the University of California at Berkeley who has been an outspoken critic of cryptocurrencies, told Al Jazeera: “The theoretical promise of cryptocurrencies is as a payment system. not subject to the control of intermediaries. But the real promise is that the cryptocurrency will always rise in price, he said.
“FOMO, or fear of missing out, is as old as money itself,” said John Stark Reed, a crypto skeptic who used to lead the US Security and Exchange Commission’s internet enforcement office. bad. The promise in crypto has always been “get rich quick with no effort, no experience, and no risk,” he said.
Bankman-Fried’s fluent speech also played a role in getting people to think that FTX was a safe way to store their money and a safe bet on an investment.
Coppola explains: “Some investors seem to have been blinded by SBF’s allure in the same way that Softbank’s Masayoshi Son was blinded by WeWork’s Adam Neumann’s quick talk. “There’s not much due diligence going on.”
Masayoshi Son invested his first $4.4 billion after Neumann gave him a 12-minute tour of WeWork in 2016. Similarly, investors in FTX gave $2 billion, boosting the company’s valuation. FTX to $32 billion without learning more about the company’s operations.
FTX made a massive buyout between late 2021 and 2022, spending nearly $5 billion on countless crypto businesses. FTX also spent $256 million on 35 properties in the Bahamas. SBF and Ryan Salame, CEO of FTX Digital Markets in the Bahamas, have spent tens of millions on political contributions. Salame is acquiring restaurants in Western Massachusetts. Bankman-Fried also donates money to charities and several media outlets.
Ray’s role in the Chapter 11 proceedings will be to try to get as much money back as possible, a process he has already begun. Meanwhile, Bankman-Fried has extradited to the US facing charges and FTX co-founder Gary Wang, and former Alameda Research chief executive, Caroline Ellison, admitted the charges against them and has agreed to cooperate with authorities in further investigation,
All Cryptocurrencies are FTX
“I think a lot of investors think FTX is safe, despite the fact that no crypto exchange is regulated enough to be considered safe,” Weaver said.
Most of the actual inflows into crypto fell by 2021. The rest came to a halt in May 2022, when the TerraUSD stablet collapsed, destroying $18 billion of purported value and blowing it up. account books of many other crypto companies. The collapse of FTX followed the collapse of crypto hedge fund Three Arrows Capital and crypto lending platforms Voyager Digital and Celsius Network.
Now, even Binance, the world’s largest cryptocurrency exchange, is starting to wobble. Binance’s accounting firm Mazars recently announced that it is suspending all crypto work, and the company has removed all mentions of such work from its website. Binance customers withdrew $6 billion in crypto assets the week Mazars halted its crypto operations.
One theory among critics is that all crypto exchanges go bankrupt because they are heavily leveraged and filled with unsoldable crypto assets with no market demand. market, but still charged at full market value – not at what sellers could actually receive for them. If that is true, the future of cryptocurrency could involve even more crypto companies filing for bankruptcy in the near future.
There are many views on what the death of cryptocurrencies even means. According to Weaver, that means, “We don’t care anymore.” He envisions a world where there is no longer the Crypto.com logo on the track, no more TV ads touting crypto as the future of financial investing. “People who put money into crypto over the past few years have lost most of their money. Extinction is acknowledging that they have lost everything.”