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A big financial event took place on our previous watch dates of November 8 and 11, events which many people probably missed unless they are involved in the cryptocurrency world. On November 8, Binance, the largest cryptocurrency exchange in the world, agreed to buy the second largest cryptocurrency exchange, FTX.
The deal immediately went sour when FTX’s balance sheet went public. The deal unraveled the next day.
A classic bank run followed as people rushed to take their assets out of FTX.
Bankman-Fried said Tuesday that customers had demanded withdrawals to the tune of $6 billion. He also deleted tweets from the prior day indicating that FTX had enough assets to cover clients’ holdings.
The company went bankrupt on November 11.
FTX filed for bankruptcy and announced the resignation of CEO Sam Bankman-Fried on Friday, marking a stunning downfall for the 30-year-old billionaire seen as one of the cryptocurrency sector’s most prominent figures.
FTX.com, FTX’s US operations, and Bankman-Fried’s cryptocurrency trading firm Alameda Research are among about 130 FTX Group companies covered by the bankruptcy filing, the company said in a statement…
The crypto evangelist’s empire has plunged to about $1 billion after being valued at $32 billion as recently as January.
Regulatory scrutiny of the situation is already underway. The Securities and Exchange Commission and the Commodity Futures Trading Commission have launched probes into FTX’s downfall…
Bankman-Fried also became active in politics and aimed to become a “kingmaker” in Democratic circles by pouring millions of dollars into the 2022 midterms.
Its founder and owner, Sam Bankman-Fried, quickly lost $16 billion, because he owned half of the company’s tokens (FTT), which had been priced at $16 billion. This represented 94 percent of his wealth.
Suddenly, the Democratic Party’s second biggest megadonor (after George Soros) was no longer among the richest people in America. Bankman-Fried had been bankrolling many members of congress—including members of the CFTC, which is the regulatory committee that is supposed to oversee his activities.
“Sam Bankman-Fried, prolific Democratic donor and ex-CEO of now-bankrupt cryptocurrency exchange FTX, funded the campaigns of members of Congress overseeing the Commodity Futures Trading Commission (CFTC), one of the key bodies tasked with regulating the crypto industry and the subject of Bankman-Fried’s aggressive lobbying.”
The story become downright weird when we discover who Sam’s parents were. Sam is the son of Joseph Bankman and Barbara Fried, both professors at MIT.
Joseph Fried was once the boss of Gary Gensler, when Gensler was a professor at MIT before becoming head of the SEC under Biden.
Gary Gensler blew it again. After his agency failed to warn investors about Terra and Celsius—whose collapses this spring sparked a trillion-dollar investor wipeout—the Securities and Exchange Commission chair allowed an even bigger debacle to unfold right under his nose…
Gensler, a former campaign finance chair for Hillary Clinton, is of course not the only prominent Democrat who may have been willing to flex his influence on behalf of FTX.
So it is clear that the FTX debacle is a significant event, given the fact that it unraveled from November 8-11 on our watch dates. This is not only a financial event comparable in the cryptocurrency world to the collapse of Lehman Brothers in 2008, but is also sure to have political fallout. News accounts show that it is a big blow to the Democratic Party itself and to their funding mechanisms.
If you want to read more background to this story, here is a link. I pulled out some of the highlights.
Now, the game is over for Bankman-Fried. Just weeks ago, he was a Democratic megadonor, one of the richest men who ever lived, the very face of what many in Washington and on Wall Street thought was the future of the economy: someone who could unlock the potential of cryptocurrencies and still walk with ease through the traditional world of money and power. In less than a week, it was all annihilated, with questions of fraud and admissions of misappropriating his own customer’ funds exposing his empire to be a house of cards.
On Friday, FTX and his hedge fund, Alameda Research, filed for bankruptcy, and he resigned as CEO of the exchange. Government officials in the Bahamas, where his companies are based, seized what was left of their assets. Investigators are reportedly probing his company and him, personally, to understand what happened — investigations that are likely to delve into whether or not the former wunderkind (an MIT physics major whose parents are both Stanford professors) defrauded his way into the most rarefied of positions. Sequoia, like other VCs who plowed money into the company, proactively marked down their stake to zero. “I don’t want to call it fraud in this moment,” Anthony Scaramucci, the ex-Trump adviser who sold part of his investment business to Bankman-Fried, said on CNBC Friday. “If there was fraud, let’s clean it up to the extent possible and repair the accounts at FTX…”
The millions he spent helping elect Democrats and write his own regulatory agenda in Washington have blown up, effectively turning him — and the crypto industry — toxic…
Despite all the technospeak around crypto, what happened here was an old-fashioned bank run, the same variety of phenomena that happened in the Great Depression or the collapse of Lehman Brothers. While FTX was positioned as a platform for safely and quickly trading cryptocurrencies — essentially a New York Stock Exchange for this industry — what wasn’t known was that it had a secret funding relationship with Bankman-Fried’s other main business, the hedge fund Alameda. As a way to fund FTX’s operations, it issued its own cryptocurrency called FTT — similar to what a traditional company would do by selling stock or bonds.
That all collapsed spectacularly starting this month when CoinDesk published some of Alameda’s internal holdings showing that Alameda was by far the biggest holder of FTT. Alameda was known for taking big, leveraged bets on crypto companies —stoking fears, which turned out to be true, that it didn’t have enough money to cover its debts. This raised all sorts of alarm bells, particularly around the amount of capital that FTX had to pay back its customers.