📈FTX ≠ FTW
*This blog will be rated whatever lets you say F#$k*
So… that happened.
FTX filed for bankruptcy this week, cratering crypto markets. You probably saw the headlines flash across your phone and you knew that you’d get the best version of this story if you just waited for the Weekly Upside. Ian’s here to deliver the goods.
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Whether you invested in crypto or not, you likely have heard of the company that is today’s focus. FTX was the 2nd largest crypto trading platform in the world, and they made a lot of noise in the sports world. From stadiums…
To baseball umpire uniforms…
And even Gisele got involved! (Brady did too but I went with the more successful of the two)
This last pic is extra cringey.
The grungey hobbit slouched between two super models is Samuel Bankman-Fried, the CEO of FTX, a $40 billion company that collapsed into bankruptcy in less than a week.
Samuel Bankman-Fried - often abbreviated to SBF - was the golden child of crypto.
He donated $40 million to political campaigns this year and had pledged up to $1 billion leading up to the 2024 elections, although maybe he knew something we didn’t and backtracked on that last month. And earlier this year during the start of the crypto collapse he gave billions in loans to multiple failing companies - effective altruism!
Fast forward to today and well…
And when he says he should have done better, he's referring to losing or in the process of losing somewhere between $8-16 BILLION DOLLARS of client money (hence the wide range of estimates).
How did this happen and why is this different from any other crypto collapse? Well, the other collapses we covered earlier in the year were about stablecoins. These promised outrageous returns for you simply lending these companies your money. Magic Internet Money! These were always obviously risky at best and a scam at worst. If you would like a refresher on stablecoins here is our article.
And as for the scam aspect, I’ll give you a summary of me corresponding with some Twitter idiot.
SBF and his particular brand of crypto scamming was more heinous than this.
FTX was a crypto exchange, which, in practice, is actually a pretty simple business. You give money to SBF, and then he buys you Bitcoin or whatever crypto you want to purchase. As diagrammed here.
This way you don’t have to have a hot or cold wallet (like a nerd), don’t have to go on some shady site, or even use one of those Bitcoin ATMs. You simply upload some money, buy some coins and SBF keeps them safe for you. A perfectly safe, viable, and useful business model.
In theory, SBF and FTX keep this money safe and sound for you in a vault (in this case a digital one), and whenever you want it back, you simply flip the flow of the chart below. Pull the Bitcoin out of storage and give it back to you.
Seems simple, and in the meantime, FTX can make all the fees from trades and even safely invest unused customer funds in US Treasuries. Seems like a good business model and even SBF said so…
Turns out *Maury Voice* That was a lie.
In fact, SBF lent a lot of those customer funds to a subsidiary of FTX called Alameda, which was a trading division of the company that ran into trouble after the numerous crypto collapses we outlined above.
Just to be clear, they GAMBLED BILLIONS of users’ money without their consent. And not only that but they did it claiming “effective altruism”.
And spoiler alert they “crapped out” this week.
Now we don’t know exactly why or how it devolved into this as it's an ongoing story but what we do know is a lot of shady shit went on. What annoys us on a personal level is they acted like a White Knight while lobbying for less regulation for them while trying to kill competitors, all while they stole money in broad daylight.
What’s the Upside?
It has been well documented on this blog that I personally like to gamble and also have dabbled in crypto (although I did call the top). However, there is a reason that I continually pitch what some may view as boring investment advice.
Crypto, NFTs, Collectibles, and even individual stocks continue to be more of a gamble than an investment. While they have made people millions, they have hurt far more people than they have helped and this FTX collapse is a perfect example of why. Even the smartest crypto investors got screwed over by bad actors.
So as always, Kunu is right. Keep it simple. Do less.
