Is This the Nail in the Coffin of CRYPTO? // Sam Bankman-Fried’s destruction of billions of dollars of other people’s money

Samuel Bankman-Fried, founder and CEO of FTX, testifies during a Senate Committee on Agriculture, Nutrition and Forestry hearing about "Examining Digital Assets: Risks, Regulation, and Innovation," on Capitol Hill in Washington, DC, on February 9, 2022. (Photo by SAUL LOEB / AFP) (Photo by SAUL LOEB/AFP via Getty Images)

To be referred to just by your initials, you have to be famous, in some iconic sense. That was true for several years of Sam Bankman-Fried—known in the crypto world as SBF. That may be even truer now, after his cryptocurrency exchange, FTX, imploded, and SBF’s personal fortune went from an estimated $16 billion to zero. In less than a week. He’s just 30 years old, and he’s already infamous.

The crash of FTX effects the political and philanthropic worlds. SBF was a major political donor this past year, mostly in the Democratic primaries, coming in second only to George Soros among donors to Democratic politicians. (SBF donated to some Republicans, as well.) He was also a major donor to specific philanthropies, supporting what is known as effective altruism.

But this bushy-haired wunderkind’s massive failure is likely to have its widest effect in the cryptocurrency market. FTX, like other cryptocurrency exchanges, allowed people who are less technically savvy to trade and own cryptocurrencies like Bitcoin, as well as other crypto assets like NFTs (Non-Fungible Tokens). The failure of the exchange—and the loss of clients’ funds—seems likely to make regular people much more wary of cryptocurrency.

Large drops in the prices of many cryptocurrencies show that the entire industry is taking a beating. Bitcoin slid back to prices last seen in 2020. Critics have long claimed that cryptocurrencies and related assets are scams, but this kind of massive loss may finally convince the public at large of that opinion as well.

What happened at FTX?

The basic problem for FTX, as we understand it now, is that it lent out its customers’ assets—their bitcoins, say—and didn’t have enough to repay when many people wanted their money back all at once. In essence, it experienced the same thing that banks experience during a so-called run on the banks, when so many depositors ask for their money back that the bank can’t pay it all out.

There are laws about both exchanges and banks that are supposed to protect against this, but it appears that FTX violated them.

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