Sam Bankman-Fried sold himself as a savior—but was sitting on a hollow company.

By David Gerard, the author of the book Attack of the 50 Foot Blockchain and the cryptocurrency and blockchain news blog of the same name.

Foreign Policy

NOVEMBER 11, 2022, 1:22 PM

Cryptocurrency has a serious problem: The party’s over. Fresh dollars from naive retail buyers aren’t coming in anymore after the crashes in May and June, despite a round of advertising during the Super Bowl in February reaching every consumer in the United States. Without those fresh dollars, the holders can’t cash out.

Crypto trading firms hold large piles of assets whose “market cap”—their alleged mark-to-market value—supposedly adds up to a trillion dollars. But this number is unrealizable nonsense because the actual dollars just aren’t there. Everyone in the system knows it. What to do?

The regulated U.S.-based exchanges are just the cashier’s desk for the wider crypto casino. The real trading action, as well as price discovery, is on the unregulated offshore exchanges. These include Binance, OKX, and Huobi. Until Tuesday, Nov. 8, they also included Sam Bankman-Fried’s FTX, which cut off customer withdrawals around 11:37 a.m. UTC on Nov. 8 and then revealed around 4 p.m. UTC that it was suffering a “liquidity crisis.” FTX is just the latest casualty in a series of collapses that began with Terraform Labs’s UST stablecoin; that took out Celsius Network, Voyager Digital, and many other crypto trading firms; and that is now gradually driving the price and trading volume of cryptocurrencies to what they should be: zero.

FTX desperately sought more funding, but to no avail; at press time, FTX had been shut down by its Bahamian regulator and put into liquidation, as well as was filing for bankruptcy in the United States and Bankman-Fried has resigned as CEO. But the fall of FTX has been particularly remarkable in part because its founder was unusually feted.