Another ponzi scheme (Cryptocurrency exchange FTX) bites the dust

[brad465]

Crypto giant FTX has collapsed and Sam Bankman-Fried stepped down (and also lost almost all his multi-billion wealth):

Crypto giant FTX collapses into bankruptcy

Sam Bankman-Fried also stepped down as chief executive, capping a tumultuous week for the firm.

www.bbc.co.uk

Embattled cryptocurrency exchange FTX has filed for bankruptcy in the US, seeking court protection as it looks for a way to return money to users.
The company said that former boss Sam Bankman-Fried had also stepped down as chief executive.
It said the goal was to "begin an orderly process to review and monetize assets for the benefit of all global stakeholders".
The moves cap a week of turmoil for the world's second largest crypto exchange.
Earlier this week, customers rushed to withdraw their funds as rumours swirled that FTX and other firms headed by Mr Bankman-Fried were on shaky financial ground.
Mr Bankman-Fried tried to organize a bailout, hoping to be bought by Binance, a rival, and one of the world's biggest cryptocurrency exchanges.
But Binance walked away from the deal, leaving FTX, an exchange used to buy and sell digital tokens, scrambling to raise billions of dollars and many customers unable to access their money.
"I'm sorry," Mr Bankman-Fried wrote on Twitter on Thursday. "I... should have done better."
The bankruptcy proceeding will involve FTX as well as Alameda Research, a trading firm founded by Mr Bankman-Fried, and roughly 130 affiliates, according to the statement FTX shared on Twitter.

The question now is if/when SB-F is arrested, as most of what's reported has the hallmarks of some form of fraud.

 

[Typhoon]

I struggle with cryptocurrencies which is why I steer well clear. However, I suspect there are a number of people who are about as knowledgeable as me who will have been taken in by this. I guess gamblers investors will get nothing (or next to nothing) as the market, I believe, is unregulated.

I really don't understand the fascination - if it was so easy to make money, those that know how would be keeping quiet. I know Farage was bleating on about it some months ago and it appears that Johnson is the keynote speaker at a conference:

Boris Johnson will address a crypto conference in Singapore next month while Parliament is still sitting.

The former Prime Minister will address the International Symposium on Blockchain Advancement, as the keynote speaker.

Johnson will be joined by vice-president from 2001-09 Dick Cheney, but it’s not clear how much Johnson will get paid.

The MP for Uxbridge and South Ruislip’s attendance on 2 December takes place with Parliament still sitting.

This comes after Johnson appeared on the lecture circuit last month at the Council of Insurance Agents and Brokers in Colorado, before he attempted another bid to become Tory leader.

He was paid £130,000 for the speech in the US.

I'm not certain how much he knows about cryptocurrencies, but I bet he will insist in being paid in US dollars!

https://www.cityam.com/boris-johnso...e in,not clear how much Johnson will get paid.

 

[yorksrob]

Nice work if you can get it.

Seriously though, we're always told that x currency is going up or down according to the perceived value of the economy linked to it. I've never understood where a cryptocurrency, with no economy to speak of backing it , obtains its "value" from.

 

[Busaholic]

A month ago the broadcaster CNBC related how El Salvador, the only country to recognise bitcoin as its legal currency, had already lost $6O million of the $325 million they'd invested in it a mere year and a bit ago. Now they face losing a darned sight more: this in one of the poorest countries in the world.

 

[Kite159]

Some people who jumped in at the start made serious money, exiting when some of the currency was at it's peak last year. Those who purchased when it was at the peak have probably lost a bit of money and have been spamming the likes of Twitter trying to get new people to put money into the scheme.

 

[tbtc]

Ordinarily I might sound cynical when something like this happens, the only people who lose out were greedy people who relied on buying early enough so that the people coming behind them would get fleeced - these schemes only work if there are enough gullible suckers going to invest after you’ve paid your money for you to profit from - essentially it’s a financial transaction based on “I’m an idiot for giving my money to conmen but there are a queue of idiots behind me, so if i buy now then I’ll make a profit from the money that these dweebs will lose”

(It’s a bit like the way the likes of Trump seem attractive because they’ll hurt other people, but you feel like you’re in on the scam, you’re too smart to fall for it!)

however, whilst I don’t pay much attention to these daft schemes, this latest one seems to have sounded respectable enough that a Canadian pension fund has lost millions of pounds as a result - and it’s not even like holding shares in a company that might eventually bounce back, you essentially just “own” a few lines of computer code

So this one might have much wider repercussions in the “real” economy (not just the Crypto-bros) - I’m certainly not suggesting that we bail anyone out, but the losses of public money will see real people lose out through no fault of their own (especially as, if governments do compensate people for this, it makes Crypto a safer bet in future, if you think that tax payers will always make up for your losses)

But generally, when it comes to crypto or pyramid schemes etc, if you’re the person setting it up then you’ll do well, if you join early enough then you should do okay, if you are in the second half of people joining then kiss your money goodbye because a lot has gone to post the people who joined before you, and now there’s only a trickle of new entrants left, which won’t be enough to cover your losses

(Of course some of the money coming in later on is coming from earlier adopters who made enough money from their first investment that they think it’ll be safe second time around… no sympathy)

As we’ve seen with various ideas that seemed incredibly popular online, the reality never works as well as the proponents suggest it will

 

[Busaholic]

Crypto giant FTX has collapsed and Sam Bankman-Fried stepped down (and also lost almost all his multi-billion wealth):

Maybe I missed it somewhere, but I saw nothing about how much, if any, of his personal wealth he's lost. I suspect it'll be nothing like nearly all of it. FTX is not him!

 

[brad465]

Maybe I missed it somewhere, but I saw nothing about how much, if any, of his personal wealth he's lost. I suspect it'll be nothing like nearly all of it. FTX is not him!

Fortune report here his wealth dropped 94%, equivalent to $14.6bn.

 

[Cloud Strife]

this latest one seems to have sounded respectable enough that a Canadian pension fund has lost millions of pounds as a result

Ontario Teacher's Fund by any chance? If so, that fund is ridiculously wealthy and aggressive, so I wouldn't cry too much about it. They own Camelot UK, the operators of the National Lottery for instance.

I really don't understand the fascination - if it was so easy to make money, those that know how would be keeping quiet.

It's the unregulated nature of it. I know someone from school who has made a lot of money ripping off British pensioners on the Costa del Sol with crypto investments.

 

[Tetchytyke]

FTX was an exchange where you could buy or sell crypto. They also operated custodian wallets where they looked after your crypto for you, much as a bank looks after your savings. And it is this second part where people have lost their deposits, just as they would in any bank run.

FTX had the problems because they overstretched themselves, landing crypto to other companies which didn't repay. Again, just like any other bank run.

There are plenty of "pump and dump" cryptocurrencies, and these are like your Ponzi schemes of old, but FTX wasn't, to my understanding, one of these.

As for cryptocurrencies, like any currency it is only worth what everyone agrees it is worth, and part of that value will depend on how much of it there is and how desperate people are to have some.

Bitcoin is slow and energy-intensive to create, so it gets mined slowly. As more people want it, the value of that coin already mined goes up. Mining Bitcoin is the same as a central bank printing fiat currency.

Value will go up and down, and will be subject to unsustainable bubbles, just like any currency. A bitcoin being worth US$70K was clearly unsustainable insanity.

 

[brad465]

There are rumours the former CEO has fled to Argentina.

 

[johntea]

I bought €500 worth of Bitcoin last November just as a bit of a experiment and long term punt really, currently worth about €160 but I'm happy just to leave it there in the background for several years and either eventually lose the lot or become a billionaire...

Funnily enough I have also made about £1k over the past year and a bit just doing bank account switches! I just keep one main bank account for my daily life and then quite a few 'donor' accounts that I get the bonus on then can switch them out to another bank offering a bonus as and when they come up

 

[Busaholic]

There are rumours the former CEO has fled to Argentina.

Wonder how he'd afford the ticket?

 

[WelshBluebird]

Again, just like any other bank run.

I think you are being pretty disingenuous there.
Regular banks have regulations they must abide by around percentages of their books they must hold in cash, and customers are protected if the worst does happen. That is not the case with crypto.

 

[Tetchytyke]

I think you are being pretty disingenuous there.
Regular banks have regulations they must abide by around percentages of their books they must hold in cash, and customers are protected if the worst does happen. That is not the case with crypto.

I don't think I am.

Crypto exchanges are semi-regulated or even not regulated, agreed. However the basic principle is the same as any other bank run.

Banks only offer partial protection- £85k per person per bank in the UK, it's £50k here- and crucially only offer that protection to retail depositors. And these protections are relatively recent- the FSCS only came into being in 2001, replacing various bank-backed schemes. And even then the FSCS had to borrow from the Bank of England to protect savers with Bradford and Bingley and Northern Rock. The collapse of Kaupthing resulted in Iceland needing an IMF bailout.

And what protections do exist do so because previous bank runs *did* wipe people out.

 

[Cloud Strife]

The collapse of Kaupthing resulted in Iceland needing an IMF bailout.

It's a bit OT, but a similar example is currently in Lithuania. If Revolut was to collapse, Lithuania would too.

 

[Egg Centric]

I bought bitcoins more than a decade ago, I did alright out of it but I am certainly not a gazillionaire, I have to work for a living and have a mortgage.

Got rid ages ago as it became clear that they weren't fulfilling their promise as an actual currency and proof of work isn't environmentally sustainable (there are other schemes like proof of stake and proof of space but you all know how to google and none of them apply to bitcoin). Ironically their only actual use seems to be in illegalilty of various kinds - in the first world that mostly means drugs, in the wider world that means evading exchange controls and fees, and so on. That's certainly useful to an extent and why there is some intrinsic value to it - but no reason to own some as an investment.

Still, before that, while I still believed in the dream, I had a small number in an exchange called MtGox which went tits up (supposedly after a hacker). That was about 2014 (forget exactly when).

Anyway, I mention as background to point out that I am *still* involved in a legal procedure to do with said MtGox collapse and to get some of it back. Apparently, this procedure is very close to drawing to its close but there have been so many false dawns. Topically, I got a bizarre postcard from Japan from the person overseeing the civil rehabilitation procedure (like a bankruptcy but for companies that accidentally became solvent) just a few days ago (thanks for letting the postie know I'm a creditor, Mr Kobayashi!) just before this latest thing kicked off.

If that is the kind of timeframe the depositors in FTX can expect they are screwed tbh; they should write off their assets now and feel lucky if they get anything back at all. Some will literally die before seeing anything. Others will be put in homes, get divorced, become vegetarian, go to war, change careers, get a leg amputated, have kids, etc. Worrying about the money will not be healthy for them.

And don't feel sorry for any of them either. They knew the risks.

 

[DelayRepay]

I think you are being pretty disingenuous there.
Regular banks have regulations they must abide by around percentages of their books they must hold in cash, and customers are protected if the worst does happen. That is not the case with crypto.

I don't think I am.

Crypto exchanges are semi-regulated or even not regulated, agreed. However the basic principle is the same as any other bank run.

Banks only offer partial protection- £85k per person per bank in the UK, it's £50k here- and crucially only offer that protection to retail depositors. And these protections are relatively recent- the FSCS only came into being in 2001, replacing various bank-backed schemes. And even then the FSCS had to borrow from the Bank of England to protect savers with Bradford and Bingley and Northern Rock. The collapse of Kaupthing resulted in Iceland needing an IMF bailout.

And what protections do exist do so because previous bank runs *did* wipe people out.

The difference really is that the FSCS limit of £85k is well understood, and customers are reminded of this on a regular basis by banks. Customers are also able to increase their protection by splitting their deposits across multiple banks. I do not think it would be practical or desirable to offer 100% protection, but the current £85k limit will cover the majority of savers. There is also temporary protection (for 6 months from the date of deposit) for certain balances upto £1m. This is intended to protect people who have received a large deposit e.g. from a house sale or insurance settlement.

Banks and other regulated firms also have to follow rules around minimum capital and liquidity requirements, segregation of client assets, the provision of clear information about products, including associated risks even if acting on an execution only basis, and have a duty to treat customers fairly. They also have broader obligations to prevent fraud and other forms of financial crime. Customers who believe they have not been treated fairly have recourse to the Financial Ombudsman Service and, as mentioned above, customers of failed firms have recourse to the FSCS.

Currently crypto transactions receive none of these protections. Crypto exchanges doing business in the UK have to be registered with the FCA, but only for the purposes of the money laundering regulations.

In general I think people should be able to invest their money as they see fit, but those who choose to invest outside the UK regulatory perimeter have far, far less protection than those who remain inside it.

 

[Tetchytyke]

In general I think people should be able to invest their money as they see fit, but those who choose to invest outside the UK regulatory perimeter have far, far less protection than those who remain inside it.

Absolutely, and people need to remember that.

They also don't need to use exchange services at all unless they're actively buying or selling crypto. The safest way of keeping your crypto is in a cold (offline) wallet you control yourself, but that is inconvenient. Better for investors' safety though.

I suppose my point is crypto is just a currency and most of the issues- fraud, bank runs, boiler-rooms, misselling- affect *any* currency.

FWIW I don't own crypto as the volatility of Bitcoin, etc, doesn't suit my savings needs, and as I'm in a country with a relatively stable banking system the stablecoins are no use either. But I do have to understand this stuff for my job, I'm certainly no expert but I don't think "it's all a scam" helps. Informed investors are better investors.

 

[DelayRepay]

Absolutely, and people need to remember that.

They also don't need to use exchange services at all unless they're actively buying or selling crypto. The safest way of keeping your crypto is in a cold (offline) wallet you control yourself, but that is inconvenient. Better for investors' safety though.

I suppose my point is crypto is just a currency and most of the issues- fraud, bank runs, boiler-rooms, misselling- affect *any* currency.

I agree. The difference though is that there is a degree of protection for customers using regulated firms. The protection is not perfect but it is adequate for the vast majority of consumers.

On the other hand many people invest in Crypto as a result of scams. At the bottom of this very page is an advert which links to a fake BBC news article saying the Prime Minister went on ITV and suggested everyone should invest in Crypto. Clearly he did no such thing. If a regulated entity tried to promote their services in that way, they'd be in serious hot water and rightly so.

Maybe the issue is not with Crypto but with Google being happy to carry advertising which is downright lies.

 

[Tetchytyke]

Maybe the issue is not with Crypto but with Google being happy to carry advertising which is downright lies.

Advertising on the Internet is the real problem with a lot of these things, tech companies have no incentive to prevent fraudulent advertising so they don't. I don't tend to see crypto scams, presumably because of how Meta/Google/etc have categorised me, but I do see plenty of adverts for things like gadgets which will cut your electricity bill by 90% just by plugging them in by distorting the sine wave. Yeah right.

There are certainly plenty of cryptoscams, especially "pump and dump", but I think tarring all crypto as a scam just makes it harder for people to see where the real scams are.

What's really interesting about crypto is that, for all the bluster, the main Bitcoin and Ethereum currencies are incredibly transparent. You can track transactions all the way back down the chain, great for spotting who is associating with fraudsters.

 

[najaB]

Maybe the issue is not with Crypto but with Google being happy to carry advertising which is downright lies.

I've not seen the advertisement in question, but I suspect strongly that the advert isn't actually a lie - it is more likely statements that lead the viewer to the wrong conclusion.

 

[Mcr Warrior]

At the bottom of this very page is an advert which links to a fake BBC news article saying the Prime Minister went on ITV and suggested everyone should invest in Crypto.

Who's the advertiser?

 

[contrex]

According to CNN, the FTX crash is eerily similar to the Bernie Madoff scandal, says Sheila Bair, an ex top US financial regulator.

 

[Busaholic]

According to CNN, the FTX crash is eerily similar to the Bernie Madoff scandal, says Sheila Bair, an ex top US financial regulator.

Yes, someone made off with the dosh.

 

[dosxuk]

What's really interesting about crypto is that, for all the bluster, the main Bitcoin and Ethereum currencies are incredibly transparent. You can track transactions all the way back down the chain, great for spotting who is associating with fraudsters.

But on the other hand, with no regulation or oversight, even if you know who the fraudsters are, you can't do anything about them.

 

[Tetchytyke]

But on the other hand, with no regulation or oversight, even if you know who the fraudsters are, you can't do anything about them.

People think they're untouchable using crypto, but the FBI will happily prove otherwise; search for "Razzlekhan" to see what I mean.

 

[Busaholic]

People think they're untouchable using crypto, but the FBI will happily prove otherwise; search for "Razzlekhan" to see what I mean.

And then the court grants her bail: it's not as though those billions she's accused of stealing would help her disappear, is it? Of course, she's a white female Californian with an impeccably middle class establishment background. The bail bond wouldn't exactly have presented a problem to meet.

 

[DelayRepay]

I've not seen the advertisement in question, but I suspect strongly that the advert isn't actually a lie - it is more likely statements that lead the viewer to the wrong conclusion.

The ad its self said 'Brits are raking in millions from home'. So yes, not a lie. But the linked website was a fake copy of the BBC News website, containing a report that Rishi Sunak had done an interview on ITV's This Morning to promote crypto investments. That was a lie.

The good news is the website's been taken down now. A small victory because they'll just set up another one, but if it's stopped someone getting scammed then reporting it was worth the effort.

 

[Kite159]

The ad its self said 'Brits are raking in millions from home'. So yes, not a lie. But the linked website was a fake copy of the BBC News website, containing a report that Rishi Sunak had done an interview on ITV's This Morning to promote crypto investments. That was a lie.

The good news is the website's been taken down now. A small victory because they'll just set up another one, but if it's stopped someone getting scammed then reporting it was worth the effort.

Those scam sites are like Wrack a Mole, as soon as one gets taken down another pops up to take its place with the same fake articles.