Perspective on the FTX disaster has been filtering in as more details surface. Below are several recently received observations from various industry insiders.
Alex Adelman, CEO & Co-founder of Lolli – a Bitcoin rewards app, says the implosion of FTX has “irrevocably changed the crypto ecosystem and the communities in it.”
“The revelation that one of the most trusted, powerful players in crypto was gambling with customer funds has served as a watershed moment for crypto, wherein the industry now needs to rebuild trust and unify to ensure that this doesn’t happen again. To even begin to rebuild consumer trust, there must be a holistic reevaluation of how crypto companies operate. When companies rely on and collateralize their own alternative currencies to inflate their balance sheets, they undermine not only their clients’ funds but the financial health and integrity of the crypto ecosystem at large.”
Adelman adds that in order to heal the crypto ecosystem, leaders must now be radically transparent and “return to Bitcoin’s technology and principles to build scalable, sustainable businesses.”
“Only then will crypto be able to have a positive impact on the world and fulfill its original vision.”
Daniel Besikof, partner with Loeb & Loeb’s Restructuring & Bankruptcy Practice in New York, commented:
“FTX’s terms of service provide that coins are to remain customer property, yet billions of dollars of those coins evidently are missing. FTX needs a huge bailout, which it is unlikely to get, particularly if there is any evidence that customer coins were mishandled by FTX. Bankruptcy therefore appears likely. Customers should prepare for what could be a very messy and complex bankruptcy case.”
Besikof references an article he posted this past June posing an important question: Are customers’ crypto safe in a custodian’s bankruptcy filing?,
“If crypto assets are property of the estate, the automatic stay will preclude customers from trying to recover their crypto assets. Worse yet, customers would become creditors with unsecured claims for the value of their crypto assets. Unsecured claims are often paid just pennies on the dollar, if at all, in bankruptcy cases.”
“The world loved the story of a brash young man taking on the world, building an empire, and creating a firm from nothing. The problem is that financial services companies are not the same as other companies, and the qualities that make a great leader are those that are less flashy: trustfulness, safety, and risk mitigation. The world ignored many of the little indications that SBF may not have those qualifications, and was willing to cut corners.”
Grant points to the warning signs they saw, alleging:
- SBF [Sam Bankman-Fried] origin story involves the arbitrage of Bitcoin prices in Korea and Japan. The Korean price difference colloquially referred to as the “kimchi premium,” resulted from the Korean capital controls. Therefore it appears that SBF started his business through violations of Korean law.
- SBF was on Youtube talking about why Alameda Research was called “Research.” He explained that when they started the firm, they could not obtain bank accounts for a crypto trading company and chose “research” to obscure the company’s activities. Making false statements to banks and intentionally deceiving a bank is an unlawful activity that is quite often bank fraud.
Grant says these two incidents alone are indicative of the lack of critical leadership qualities.
“Should the leaders of financial services companies, the ones we trust to keep our funds safe, speak about their potentially unlawful activities? We may admire great leaders who push the envelope to make things happen, but these two activities do not seem like someone making great changes to the system, but rather someone violating well-established laws for personal benefit. Maybe not the type of person we want to safeguard other people’s money.”
Grant adds that the digital asset class has incredible potential to change the world’s financial system, but people must “recognize that it is time for the grown-ups to take over the space.”
“Digital assets have value, and at one point the asset class was valued at over $3 trillion. By any definition that is real money. Time to treat it that way. While the government catches up with regulation, we can encourage customers to only deal with institutions based in the USA who are covered by the nation’s comprehensive rule of law.”
There is a lot of anger in the industry that someone so prominent and respected could cause so much damage, harming the entire industry.