Crypto, FTX and “Promotional Celebrities”

 

The Chairman of FTX – Sam Bankman-Fried.  You gave your money to this guy.

The dramatic collapse of the cryptocurrency exchange FTX sent shockwaves around the world last week, especially after it emerged that the exchange’s balance sheet had an $8billion hole in it resulting from transfers of depositor’s funds to another company controlled by the Chairman to cover losses on risky investments which never paid off.

About 1 million people have money frozen in the bankrupt exchange, in a collapse that also looks set to hurt poor and working-class people worldwide who never owned so-called “digital assets” as well as “promotion celebrities” who pushed Bitcoin and the Exchange in return for cash and/or shares in the firm.

The lawsuits have already been filed against the latter.

As an old, retired guy who spent his life in banking I was never much for digital money.  Less so for digital art investments and walking around the coming “metaverse” in my goggles.

When Bitcoin came to be it was described as a currency of the future.  We would be able to pay each other in Bitcoin over our phones.  Back in the day Bitcoin (and other crypto-currency) was defined thusly:

“The Bitcoin Currency System is a form of currency developed in 2008 by an unidentified programmer known as Satoshi Nakamoto, with both similarities and differences to other currencies. It is similar to any nation’s currency in that it is traded and the market ultimately determines its value through pricing goods and services. However, the Bitcoin Currency System does not have the backing of a nation, nor is it currently regulated by traditional means (it actually self-regulates via a computer program). Though still small compared to nation currencies, Bitcoin is the only decentralized currency in the world today.”

Well Bitcoin never really developed into an everyday money, but it did develop into an asset which could be purchased in hopes of appreciation, bringing about the creation of the crypto-currency trading firm.  A place where you could park your money in Bitcoin as if you bought a stock and left it with Goldman.

Why do they even exist, when bitcoin was conceived as a peer-to-peer digital-payments system that removed the need for financial intermediaries?  Simply because no one uses crypto-currency as money but as an asset – akin to investing in securities or gold.

Both crypto firms and traditional banks rely on people trusting them with their money. However, conventional financial institutions are regulated by the US government, which oversees their behavior, controls the risks they take, and insures their customers’ deposits. Crypto investors don’t enjoy the same protections, the market being virtually unregulated.

the implosion of Sam Bankman-Fried’s FTX exchange sparked a crypto sell-off and fanned fears that its peers could fold too.

The scale of crypto losses over the past year have been vast. Bitcoin, the most popular coin, has plunged in value from over $68,000 to below $17,000. That fueled a roughly 70% plunge in the crypto sector’s market capitalization, from over $3 trillion to below $850 billion.

Crypto exchanges and lenders are facing mounting financial and regulatory pressure.  Regulation would probably mean the end of the exchanges and the assumption of their current functions by conventional banks.

Meanwhile in Canada, pensions managers had to reassure public school teachers that their exposure to FTX was limited after it emerged that the Ontario Teachers’ Pension Plan invested $75 million in the company. The investment might end up being worthless.

Retail investors with direct exposure to FTX appear to include many people around the world with little room to fall. Studies have shown that the cryptocurrency industry — similarly to subprime mortgages and payday loans — has attracted people in the U.S. who are priced out of conventional financial services. The market has flourished over the past few years under false promises of instant wealth with the blessing of lawmakers and regulators who have failed to enforce consumer protections, ignoring centuries of lessons learned about speculative frenzies dating back to the Dutch tulip mania.

To add insult to injury, and creating more doubt for those who are worried about recovering their money, an apparent hack of the digital wallets that remain on FTX drained hundreds of millions of dollars from users with frozen funds

CEO Sam Bankman-Fried was routinely invited to appear before Congress to testify on the industry’s behalf, and made $40 million in campaign donations this election cycle, mostly to Democrats. Ryan Salame, FTX’s other co-CEO, also gave generously to Republicans, granting them $24 million in campaign donations this cycle.

No wonder there is no regulation.

Finally, there is the issue of sports “celebrity promoters” of which Tom Brady and Giselle are among the most prominent in the world.

Tom is our quarterback here in Tampa. This week he and Giselle were sued along with others.  First, everyone must understand that Brady is arguably the most famous endorsement “face” tied to the FTX platform, which is headquartered in the Bahamas. He did a multitude of highly publicized commercials for the company and repeatedly utilized his social media platforms to endorse cryptocurrency, FTX and founder Sam Bankman-Fried.

In exchange for his work and endorsement of the company and Bankman-Fried, Brady reportedly received equity in FTX. To date, there has never been a precise accounting of what Brady’s alleged stake in FTX totaled, or whether he also invested his own personal finances in the platform. But what’s clear is that Brady had a financial interest in FTX when it collapsed under the specter of bankruptcy and fraud.

Back in August Brady took a hiatus from the Buccaneers for eleven days for “personal reasons.”  No other explanation was given by either Tom, Giselle or the team.  Tom allegedly went to the Bahamas where Giselle was staying at an “exclusive resort.”  Everyone assumed, with the announcement of their pending divorce that the trip was indeed personal.

FTX and its officers also operate out of the Bahamas at an “exclusive resort,” a gated high-end community of homes and offices.  What does this have to do with Brady? Quite possibly nothing, apart from the fact that if he ever faces a deposition, he will likely be asked a few things surrounding that 11-day window he took away from training camp.

Did he visit the Bahamas, as reported?   Was the “exclusive resort” that he reportedly stayed in the same one housing executives from FTX?  Did he have any contact with anyone from the two companies while he was allegedly in the Bahamas?   As one of the most prominent endorsers and faces of FTX, did Brady lose everything invested, or was he able to move funds out before it declared bankruptcy?

In essence, the root question will be whether or not Brady was a victim of FTX like everyone else, or whether he had knowledge or culpability in what ultimately went down.  These will be the same questions facing a lot of big-name endorsers.

Lots of folks made money in crypto.  They took their profits and got out.  Lots of folks have lost money.  And many are trying to get their money out now.  There is no FederalReserve to run t for overnight liquidity.