Choose your country:

What really happened with FTX?

February 6, 2024

The FTX collapse is all over the news. Many claim this is the end of Bitcoin. Others claim that it’s more proof that additional regulation is required. Prior to making any recommendations, do we know what really caused the bankruptcy of the FTX exchange, the biggest and fastest loss of capital in US history? 

When JFK was assassinated the news originally claimed it was the communists Cubans or anarchists who shot him and that was the official story for a while. Since then the story has been altered a few times. For a long period, the prevailing theory was that the American Mafia executed the sitting president as well as his brother Bobby because of differences they had with the Kennedy family. With the fall of the USSR and the opening of KGB’s archives it became clear the Soviets were not involved and the Mafia rarely is so naive considering the anticipated blowback. In 2022, many people see a relation between the deep state and the most famous assassination of the 20th century. 

We will probably never know the truth but the lesson here is that for any important event in history, the truth, if it ever comes out, will do so much later. The same can be said for the Gulf of Tonkin incident, the 9/11 attacks or more recently the Covid pandemic. In the crypto world, the FTX bankruptcy has the potential of becoming the newest conspiracy theory.

The official party line

The official party line so far is that the FTX collapse was caused mainly by the big drop in the price of BTC in 2021 and 2022. From being valued at $67,000, Bitcoin’s price fell around $15,000, almost 80% drop in a year. Even financially tidy companies would struggle to deal with this and it’s no wonder a popular exchange like FTX wouldn’t withstand the pressure. Some shady details were revealed like Bankman’s donations to the Democratic party or the fact that the FTX Token, FTT, had a actual market cap of just above $600,000 and not $15 billion but most remaining unconfirmed.

What is very interesting is the approach the media has towards SBF and the FTX collapse. The same media which presented FTX as crypto’s JP Morgan or SBF as crypto’s Michael Jordan aren’t accusing him of fraud. What is currently happening is they are using the FTX scandal to push additional regulation on crypto. It is interesting how when anything happens the answer is more regulation. Banks are much more regulated than crypto exchanges are but they also have a history of bankruptcies so let’s investigate what happened once more.

In 2017, the MIT graduate and son of two Stanford Law school professors, Samuel Bankman-Fried launched Alameda Research, a crypto quant trading firm and in 2019 the FTX exchange. According to NasDaily’s video presenting SBF he made his billions by trading Bitcoin in different countries and making huge profits from the price difference BTC can have in Japan compared to US for example. Naturally the original video was brought down after the recent developments. In defence of the young Palestinian influencer though, many credible and world known channels or financial websites backed SBF and presented him as the new mogul of crypto finance without going into too much detail as to how he makes his money. The focus was more on his unusual (not for millennials) lifestyle and his virtuous goal of making money to share it with donations and help those in need. Until of course he declared bankruptcy and lost billions from people’s pensions.

So how does a 30 year old fat vegan with crazy hair make $22 billion in order to lose it. Well it seems he didn’t. As more information is coming out it appears this scheme was an old fashioned bubble supported by global news networks. 

Behind the spotlight

Based on what we have read so far our opinion of the FTX story is simple. SBF, who was probably in contact with secret services, was used to set up FTX and Alameida in the Bahamas. Known influencers and news channels advertised his platform. It’s funny how now people are attacking Giselle for advertising FTX and not SBF himself. His and his project’s increased popularity resulted in FTX becoming one of Binance’s main competitors with assets and liabilities close to $50 billion. Then, FTT was launched but instead of buying actual tokens, users are purchasing IOUs. Following BTC’s price surge people invested billions but as it turned out FTX never had the financial backup to support this growth. Bitcoin’s price drop was used to justify the collapse but it seems it’s not that simple.

What is particularly interesting is SBF’s connections to politics and particularly the Democratic party. In the recent US midterm elections, Bankman-Fried was the second largest donor to the Democratic party behind George Soros, another known philanthropist. In addition to that, FTX partnered with the Ukrainian government to launch a new crypto donation website. We also know that the US is sending billions in aid to Ukraine, some of which have been found in suitcases leaving the country. The picture paints itself.

Summing up, a young crypto entrepreneur-philanthropist with political ties becomes a billionaire within a few years only to fail and lose billions of people’s money. All this while he has been advertised as the new Messiah for finance. Taking into account similar scandals, from fairly small ones like the Celsius bankruptcy to gigantic ones like the 2008 financial crisis, a pattern appears. When a big bank or corporation or government loses money, people pay the cost. When people lose money, they pay again. Time to stop paying.

We lack the evidence to prove the connection between the elected officials and Bankman-Fried but if you follow the money, it’s evident there is a connection. What really happened isn’t so important in the end. Does it matter if FTX was a bubble planned to fail or just a miscalculation? For those who lost money the result remains the same.

Lesson learned

More important is the lesson which some people need to be taught over and over again. Don’t trust big banks, don’t trust big government, don’t trust big corporations and never go for free money. It doesn’t exist. The essence of using cryptocurrencies is to distance oneself from the centralized financial system which enslaves people. If you want to purchase cryptos through an exchange then purchase them and immediately send them to a safe crypto wallet of yours and make sure this wallet isn’t offering free coins. Focus on maintaining your cryptos safe, if possible remain anonymous, don’t get lured from a good interest rate and always remain well informed. Don't expect anyone to tell you what to do.