Ironically, however, attempts to create a separate structure for regulating and supervising crypto will just make the financial system less, not more, safe.
This is true for two reasons. First, it will encourage banks both to purchase crypto assets and to lend against them as collateral, making the banking system vulnerable to plunging market values. In contrast, even the ongoing collapse of crypto values and institutions has had virtually no impact on the wellbeing of the traditional financial markets and firms.
Second, new rules would lead to a migration of financial activity from traditional finance to the still less regulated, but newly sanctioned, crypto world. Both crypto and traditional finance are simply combinations of a database and computer code. It would be straightforward for a group of technicians to convert any set of conditional cash flows from one into the other. For example, imagine someone choosing to issue claims on their firm as a crypto token rather than as conventional equity to take advantage of looser rules for disclosure, accounting, custody, and the like.
If any new rules are needed, they are ones that limit exposure of traditional leveraged intermediaries to the crypto world.
Banks, dealers, insurers, and pension funds should not be allowed to purchase and hold crypto or accept it as collateral. For the most part, crypto today is just a multiplayer online video game (like World of Warcraft). If virtually all the transactions remain internal to the crypto world without links to the real economy, the process might as well be occurring on Mars, leaving traditional finance unaffected.
The overriding goal of policymakers should be to keep crypto systemically irrelevant. The best way to do this is let it implode under the pressure of its unsafe and unsound business practices. Meanwhile, authorities should constantly point to the record that crypto is rife with failures and fraud.
Rather than creating a new legal and regulatory framework that legitimises crypto, we should simply let it burn.
He was a billionaire who had quickly amassed political and philanthropic influence. What happened?
A week ago, Sam Bankman-Fried was the boy-wonder face of crypto: A 30-year-old who founded one of the biggest cryptocurrency exchanges in the world, a celebrated philanthropist worth an estimated $16 billion, and a major Democratic donor who quickly found favor in Washington. By Friday, he was at the center of an epic flameout that left his empire and his image as an uncannily sharp, altruistic billionaire in ruins.
In the annals of crypto disasters, the tale of Bankman-Fried may go down as one of the most jaw-dropping. He resigned from his crypto exchange, FTX, as it collapsed from a domino effect of a surge in customers trying to withdraw their funds, and the company filed for bankruptcy. The Wall Street Journal has reported that Bankman-Fried may have illegally taken about $10 billion in FTX customers’ funds for his trading firm, Alameda Research, whose future is also in peril. And Bankman-Fried is now worth close to nothing.
The downfall of FTX isn’t a typical story of crypto’s volatility or investor risk-taking; it didn’t crumble due to bad luck, but what now appears to be unsustainable layers of deception. On the surface, FTX appeared to be thriving — in the past year, it made several high-profile acquisitions and bailed out other failing crypto companies.In reality, it was drowning in debt. At least $1 billion in customer funds is reportedly missing. The stunning contrast between image and reality has resulted in Bankman-Fried facing a reputational fall from grace swifter than any in recent memory. According to reporting from several news outlets, the DOJ and SEC are investigating FTX, andhis friends and admirers in crypto, philanthropic, and political circles have quickly begun distancing themselves from the man widely dubbed the king of crypto.
Shot
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The fallen crypto CEO on what went wrong, why he did what he did, and what lies he told along the way.
Last night, Sam Bankman-Fried DMed me on Twitter.
That was surprising. I’d spoken to Bankman-Fried via Zoom earlier in the summer when I was working on a profile of him, so I reached out to him via DM on November 13, after news broke that his cryptocurrency exchange had collapsed, with billions in customer deposits apparently gone. I didn’t expect him to respond — typically, people under investigation by both the Securities and Exchange Commission and the Department of Justice don’t return requests for comment.
Bankman-Fried, though, apparently wanted to talk. About how FTX and his hedge fund Alameda Research had gambled with customer money without, he claims, realizing that’s what they were doing. About who gets lauded as a hero and who’s the fall guy. About regulators. (“Fuck regulators.”) About what he regrets (“Chapter 11,” the decision to declare bankruptcy) and about what he would have done differently with FTX and Alameda (“more careful accounting + offboard Alameda from FTX once FTX could live on its own”).
It was past midnight Bahamas time, where Bankman-Fried is reportedly still located, and we went back and forth on Twitter for more than an hour. He was, he said, still working to try to raise the funding needed to pay back all his depositors.
As we messaged, I was trying to make sense of what, behind the PR and the charitable donations and the lobbying, Bankman-Fried actually believes about what’s right and what’s wrong — and especially the ethics of what he did and the industry he worked in. Looming over our whole conversation was the fact that people who trusted him have lost their savings, and that he’s done incalculable damage to everything he proclaimed only a few weeks ago to care about. The grief and pain he has caused is immense, and I came away from our conversation appalled by much of what he said. But if these mistakes haunted him, he largely didn’t show it.
(Disclosure: This August, Bankman-Fried’s philanthropic family foundation, Building a Stronger Future, awarded Vox’s Future Perfect a grant for a 2023 reporting project. That project is now on pause.)
