Following the blowup of cryptocurrency exchange FTX, newly-appointed CEO John Ray III declared in the company’s bankruptcy filing, that “in his 40 years of legal and restructuring experience,” he had never seen “such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.”
That’s quite an indictment, considering Mr. Ray also oversaw Enron’s bankruptcy.
Legendary investor Warren Buffet famously said, “you only find out who is swimming naked when the tide goes out.”
In the depths of bull markets, crooks and charlatans can look clairvoyant. Many sins are forgiven as long as prices keep rising. As history shows time and again, once greed gives way to fear, and markets crash it becomes clear who was “swimming naked.”
In November the tide went out on many large crypto exchanges and the fallout was worse than many could have imagined.
- FTX, the famed crypto exchange that bought Superbowl ads, stadium naming rights, and had all-star endorsements, filed for bankruptcy on November 22nd
- The dust is still settling, but FTX reportedly held less than $1bn in liquid assets against $9bn in liabilities
- Former FTX CEO, Sam Bankman-Fried “SBF,” has gone on an ill-advised speaking tour which is drawing ire from many
- Following the FTX fallout, BlockFi filed for bankruptcy, Gemini Crypto paused withdrawals, and Genesis is desperately trying to avoid bankruptcy.
At the center of it all is SBF, the frizzy-haired wunderkid from MIT that went from being worth billions to just $100,000 in a matter of days. The enigmatic FTX founder made a poor attempt to explain himself in Twitter DMs with a reporter, followed by a cringe-worthy GMA interview where he had no meaningful response to pointed questions.
With such a large and respected crypto exchange folding, many questions are being asked about crypto's legitimacy, reaching all the way to the holdings of stablecoin Tether. Questions have also been raised about Silvergate Bank, known as the bank of the crypto industry. Previously a key banking partner with FTX, many are wondering how deep their exposure goes.
What remains to be seen is how institutional investors feel about these high-level bankruptcies and if they’ll continue to move money into the downtrodden asset class.
Regardless, there’s been significant losses and many individual investors are feeling the pain from clear mismanagement, if not outright fraud, in the industry.
What are your thoughts on the future of crypto?
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