John Jay Ray III took control of failed cryptocurrency exchange FTX in the early hours of November 11th. Ray was asked at a US House hearing on financial services to compare FTX to Enron, another financial disaster he then cleaned up. “This is just old embezzlement,” Ray said. “Not developed at all.” FTX simply took clients’ money and used it for their own purposes.
FTX and its sister company, cryptocurrency hedge fund Alameda Research, operate out of the Bahamas, without any oversight. At least $8 billion in customer funds are now missing, prompting cryptocurrency enthusiasts to rethink the future of finance and politicians to demand tighter control over the cryptocurrency space.
Is this the end of cryptocurrency?
“In its current form, yes,” said Frances Coppola, an independent financial and economic commentator for Al Jazeera. She notes that over the course of 14 years, the cryptocurrency world has failed to generate any significant real-world use case aside from crime financing. It was basically a speculative investment, which only worked as long as real dollars were entering the system.
“Crypto has never known anything but easy money,” she said. Now central banks around the world are rapidly raising interest rates and canceling quantitative easing. There is brutal liquidity pressure happening in the global markets, and money is being sucked out of risky asset classes.”
Cryptocurrencies were risky as they come. “The valuations that cryptocurrency had just a year ago are gone, and I don’t think they will come back for long, if ever,” she said. “I actually think cryptocurrency prices will drop further. There is still a lot of leverage in the space and central banks are in no way done tightening yet.
Carol Alexander, Professor of Finance at the University of Sussex, didn’t think cryptocurrency would ever completely disappear. She said that the non-fungible tokens will definitely survive as the metaverse continues to evolve. “However, we are now going through a shake-up process similar to the bursting of the dotcom bubble with many small businesses defaulting.”
Alexander believes that the survivors will be smart contract chains like Ethereum, a few regulated exchanges like Coinbase, and futures exchanges like the Chicago Mercantile Exchange.
Charles Whitehead, a professor at Cornell Law School in New York, agrees. “It may be too early to declare cryptocurrency dead, but it is clear that we have been late in efforts to regulate it,” he told Al Jazeera.
‘get rich quick’
“The theoretical promise of cryptocurrency was a payment system that was not controlled by middlemen,” Nicholas Weaver, a researcher at the University of California, Berkeley, who has been an outspoken critic of cryptocurrency, told Al Jazeera. But he said the real promise was that the price of the cryptocurrency would always go up.
“FOMO, or Fear of Missing Out, is as old as money itself,” said John Stark Reid, a crypto skeptic who led the US Banking and Security Commission’s Office of Internet Enforcement. He said that the promise in cryptocurrency has always been “get rich quick without any effort, experience or risk”.
Bankman-Fried’s sweet talk also played a role in making people think FTX was a safe way to store their money and a safe bet for investing.
“Some investors seem to have been blinded by SBF’s appeal in the same way Softbank’s Masayoshi Son was blinded by WeWork’s Adam Neumann’s fast-talking,” Coppola explained. “There wasn’t a lot of due diligence going on.”
Masayoshi Son invested his first $4.4 billion after Neumann gave him a 12-minute spin on WeWork in 2016. Similarly, investors in FTX put in more than $2 billion, raising FTX’s valuation to $32 billion, without bothering to learn more about the company’s operations.
FTX went on a massive buying spree from late 2021 to 2022, spending nearly $5 billion on countless cryptocurrency businesses. FTX has also spent $256 million on 35 properties in the Bahamas. The SBF and Ryan Salameh, CEO of FTX Digital Markets in the Bahamas, have spent tens of millions on political donations. Salameh was buying restaurants in western Massachusetts. Bankman-Fried has also given money to charities and various media outlets.
Ray’s role in the Chapter 11 proceedings will be to try to recover as much of that money as possible, a process he has already begun. Meanwhile, Bankman-Fried was extradited to the United States to face charges, and FTX co-founder Gary Wang and former Alameda Research CEO Caroline Ellison admitted to the charges and agreed to cooperate with the authorities. In ongoing investigations,
All cryptocurrencies are FTX
“I think a lot of investors thought FTX was safe, even though the reality is that no cryptocurrency exchange is sufficiently regulated to consider it safe,” Weaver said.
Most of the actual money flow into cryptocurrencies fell in 2021. The rest came to a halt in May 2022, when the TerraUSD stablecoin collapsed, wiping out $18 billion in alleged value and destroying the books of several other cryptocurrency firms. The fall of FTX followed the fall of cryptocurrency hedge fund Three Arrows Capital and cryptocurrency lending platforms Voyager Digital and Celsius Network.
Now even Binance, the world’s largest cryptocurrency exchange, is starting to waver. Binance’s accounting firm, Mazars, recently announced that it will be pausing all cryptocurrency businesses, and the company has removed all mentions of such work from its website. Binance customers withdrew $6 billion in cryptocurrency assets in the week Mazars shut down its cryptocurrency business.
One theory among critics has been that all cryptocurrency exchanges are broken because they are over-leveraged and filled with unsaleable crypto-assets that do not require market, but are still charged at full market value – not as much as the seller can. actually for them. If true, the future of cryptocurrency may include more cryptocurrency companies filing for bankruptcy in the near future.
There have been many opinions about what the death of cryptocurrencies means. According to Weaver, it means, “We don’t care anymore.” He envisioned a world where there were no more Crypto.com logos on the racetrack, and no more commercials on TV touting cryptocurrency as some financial investment in the future. “Those who put their money into cryptocurrency in the past few years have already lost most of their money. Extinction is an admission that they have lost everything.”
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