Crypto tokens aren’t the only things experiencing dramatic falls. Crypto personalities can also face spectacular downfalls, as seen with Sam Bankman-Fried, the founder of FTX, one of the largest cryptocurrency exchanges. FTX collapsed last year, leaving behind billions of dollars in debt and Bankman-Fried facing a lengthy prison term.
After a month-long trial, a New York jury found Bankman-Fried guilty on seven counts of fraud and money laundering. This conviction highlights the risks associated with crypto markets, where people trade tokens with no intrinsic value through complex and poorly regulated financial systems.
The Australian government is currently exploring ways to protect consumers in these markets, but it’s a challenging task given that much of the activity takes place overseas or online.
Bankman-Fried attempted to defend himself by testifying in court, claiming he was an innocent math nerd with a bad memory who was unaware of the actions of his friends and colleagues within the companies he had a stake in. However, the jury did not buy his defense.
In the final days of FTX, as concerned customers started withdrawing their deposits, Bankman-Fried reassured them on Twitter that “FTX is fine” and that their assets were safe. The jury did not believe he genuinely believed this statement at the time.
This verdict serves as a warning about the dangers of unregulated financial markets like crypto. Fraud is prevalent in the industry, as noted by the former chair of the UK’s Financial Conduct Authority.
Crypto tokens like Bitcoin have no underlying assets and rely solely on speculation for value. They only generate returns if owners can sell them at higher prices to others who expect further price increases. This makes them highly speculative and prone to bubbles.
One irony of the crypto market is that it’s marketed as a way to avoid trusting governments and banks, but in reality, it often relies on trusting individuals who may turn out to be fraudsters like Bankman-Fried.
FTX customers trusted the exchange to safeguard their funds while they traded between different crypto tokens. However, instead of keeping the funds available for withdrawal, FTX transferred a significant portion to another company, Alameda Research, which was poorly managed by Bankman-Fried and his associates.
The fate of the missing billions is still unclear. Some of the money was spent on extravagant living, celebrity endorsements, and political donations. Additionally, poor bets made by Alameda without hedging against the risk of token price drops resulted in further losses.
FTX essentially operated as a casino, with Bankman-Fried both owning the casino and gambling with other people’s money. Despite maintaining his innocence, Bankman-Fried is likely to face decades in prison, with the final sentence to be determined on March 28, 2024. He may also face additional charges in the future.
