It's not just crypto tokens that have spectacular drops. So can crypto personalities.
Sam Bankman-Fried founded FTX, one of the world's largest cryptocurrency exchanges, which collapsed last year due to billions of dollars. He has now gone from being hailed as potentially the the world's first billionaire to a long prison sentence.
After a month-long trial, a New York jury took less than five hours to find him guilty for seven counts of fraud and money laundering.
Bankman-Fried's conviction highlights the risks of crypto markets, where people trade tokens with no fundamental value through hugely complex and poorly regulated financial machinery.
The Australian Government is currently considering how to protect consumers in such markets. Treasury has started a consultation process. But it will not be an easy task when much of the activity occurs abroad or in cyberspace.
FTX was not good
Bankman-Fried decided to testify in her own defense. But he failed to convince the jury that he was nothing more than a math nerd with a bad memory who did not know what his friends and colleagues did with the companies in which he was the largest shareholder.
In FTX's final days, as concerned customers began withdrawing their deposits, Bankman-Fried tweeted "FTX is fine. The assets are fine.โ. It seems that the jury did not accept that he actually believed this at the time.
Rebecca Blackwell/AP
The verdict is a salutary warning about the dangers of unregulated financial markets such as cryptocurrencies. As the former chairman of the UK Financial Conduct Authority put it, fraud is โa feature, not a bugโfor much of the industry.
Crypto tokens like Bitcoin have no underlying assets that give them fundamental value. They only generate a return if the owner can sell at a higher price, to someone who expects the price to rise even higher. This makes them one of the purest examples of a speculative bubble.
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Almost no one uses Bitcoin as a currency, new data shows. It's actually more like gambling
No government
One of the ironies of the cryptocurrency market is that cryptocurrencies are sold as a way to avoid having to trust governments or banks, as is done with traditional currency. But in practice, cryptocurrency trading often depends on trust in people, some of them charlatans like Bankman-Fried.
Gamblers thought they could trust FTX to take care of their funds while they switched between speculative crypto tokens like Bitcoin and Dogecoin. They were not investing in FTX, they were not even lending him their money.
Read more:
The Spectacular Collapse of a $30 Billion Cryptocurrency Exchange Should Come as No Surprise
But instead of letting customer funds sit around waiting to be withdrawn, FTX transferred many of them to another company, Alameda Research. It was an investment fund poorly managed by Bankman-Fried and his cronies.
It is still unclear what happened to the missing billions. Some of the money was wasted on extravagant living. Some went to pay celebrities for advertising and sponsorship, like the famous Super Bowl clip starring comedian Larry David. At least David can say that he was warning people not to "get into cryptocurrencies."
Some of the missing money went to large political donations. Alameda lost big on bad bets that failed to protect against the risk that the price of crypto tokens could fall quickly.
FTX was essentially a casino. But Bankman-Fried owned and gambled in the casino, and he also gambled with other people's chips.
Prison looms
Bankman-Fried continues proclaiming his innocence. But it seems likely that he will spend decades in prison.
You will find out how long it will last on March 28, 2024. could be more than a century if he receives the maximum sentence for all the charges for which he has been convicted. And he may still face more charges.
/cloudfront-us-east-1.images.arcpublishing.com/gray/6RWTMEKFYNC2LQQQ5CMBJL2HJ4.jpg?w=75&resize=75,75&ssl=1 "FTX founder Sam Bankman-Fried convicted of defrauding cryptocurrency customers")
