Readers of this column know my feelings on cryptocurrency and the related infrastructure surrounding it. I think it is a Ponzi scheme. One Bernie Madoff would be proud of.
One of the similarities of Madoffs creation and the FTX catastrophe is that I honestly do not believe that either mastermind actually planned the resulting schemes from the beginning. I think that they honestly believed that what they were doing was ok. Until it wasn’t.
Madoff at some point in his tenure pivoted from being a financial wizard to being a wizard of a different kind. My old firm had done business with Madoff back in the day. He had a brokerage firm that traded on the New York Stock Exchange and on something he created, The Cincinnati Stock exchange. Cincinnati was the first true all electronic exchange and it was his creation. That relationship lasted about a month and the next time we had heard of Bernie Madoff was years later when he was being walked into the USASNY (US Attorney for the Southern District New York) office in lower Manhattan in handcuffs. We went through our records and compliance material and we knew we weren’t any part of this scheme.
Sam Bankman Fried had done something similar. Details at this point are very sketchy and SBF is even sketchier. Looks like the guy built this huge platform with other people’s money and had zero control of the operation. He was a nerd. He wasn’t a business manager and instead of hiring someone professional to run the business, he ran it, right into the ground. He had help of course. His ex-girlfriend, Caroline Ellison, ran some trading company that was owned (or affiliated) by FTX and he kept fronting her money as cryptocurrencies were falling around the globe. He used customer funds to back her poor bets and the Ponzi scheme collapsed when people realized it was all a scam.
Lesson learned. Again.
Pretty sure that we will probably never get a satisfactory conclusion to this little saga. SBF was a fairly large donor to the Democratic Party. The party that had complete control of Congress and the White House. How much of an investigation do you actually think will take place? I don’t know about you, but a 37 billion dollar swindle needs to be looked at from a lot of different directions. From a legal standpoint, from a regulatory standpoint and from a financial standpoint. It needs to be dealt with and with full transparency.
It seems weird to me that Congress wants some full investigation into Twitter and it’s practices and yet Congress is hesitant to dig into this little tale. What gives? Hmmm. Seems odd that this guy, SBF, donated 40 million dollars into the mid-terms (all Democrats) and everyone is pointing a finger somewhere else.
I like corruption as much as the next guy but this is really ridiculous.
Look, I really don’t want more regulation, but I do think since we are what appears to be the beginning of something that will have major implications in the financial sector, the SEC and Gary Gensler need to be in front of this, not behind it. If you think this will be the only major failure in a system that is so ripe for failure, you are delusional. People pumping money into or out of something they vaguely understand is just the environment for criminal behavior.
I have spoken with dozens of proponents of cryptocurrencies and not one of them have changed my mind. I believe until the US Government backs a cryptocurrency for commerce, it will always be a high risk endeavor. If anyone has a counterpoint I would love to hear it because I can slice it up faster and easier than white bread and a machete.
Remarkably, Bitcoin is still trading actively and while it sold off a touch when the FTX scandal first came to light, it has regained some of those losses. To me, this is an even bigger mystery. Why would people stay involved in an investment idea (Which is being kind) that has as many holes in it as Alpine Lace Swiss Cheese. When this scam completely collapses, I will have exactly zero sympathy for all of the losers. You were warned.
Thank You for the Bernie history lesson, learned something today. Liked and agreed with you on SBF and your assessment of lack of investigation, I mean, its only a $37B swindle, peanuts compared to what congress has swindled from the American Tax Payer and was pointed out, he paid $40M for this protection. Again, we don't necessarily need more regulations, just enforce what we have, MMmmm where have I heard that before.....
You've written an article on greed, which should now aptly be renamed, cryptocurrencies, or the next scheme, you just can't take greed out of the human psyche.