The crypto catastrophe: Currency world reeling after FTX crash

He made for one of the world’s most unlikely-looking billionaires. Dressed in gym shorts, wrinkled T-shirts and with unkempt hair, Sam Bankman-Fried’s appearance was hardly intended to inspire investors to trust him for their money, although that’s exactly what they did — for a while.

Its exchange, FTX, admitted last week that it did not have enough money to meet £4.2 billion in demands from investors seeking their money back.

It filed for bankruptcy on Friday.

The implosion of one of the largest cryptocurrency exchanges is nothing short of a disaster for the industry, according to one of the men closely involved – Changpeng Zhao. Known as CZ, he is the chief executive of rival exchange Binance and one of its founders.

“It’s devastating,” said CZ, who was near the center of FTX’s implosion after announcing a week ago that he would sell his shares in FTX, triggering a run in his rival’s stock market. .

During a rare personal appearance at a global financial technology conference in Indonesia on Friday, CZ said the collapse was part of a wider slump stalking the cryptocurrency sector. But he admitted his actions were “the straw that broke the camel.”

With a degree of understatement, he said: ‘Consumer confidence has been shaken. I think we were actually set back a few years. I think, rightly so, that regulators will control this industry much, much harder – which is probably a good thing to be honest.” About small investors, he said: “This short-term setback is very painful. But in the longer term, this is another wake-up call to say, look, this is a new industry. There are many risks. We have to learn to deal with these risks.’

The crash of FTX has put the little-known world of young male ‘crypto bros’ in the spotlight. Known for their scruffy looks, obsession with Lamborghinis, and tendency to be called by their initials, these cryptocurrency proponents have mostly operated in the shadows.

Rivalry: FTX boss Changpeng Zhao on Forbes cover

The deep rivalry between CZ and Bankman-Fried, who also likes to be called SBF by his initials, has caused ripples in the industry that may yet bring him to his knees.

A few days after CZ announced that it had sold FTX, Binance said it was considering a rescue from its rival, only to pull out later. The turnaround came, the company said, amid concerns over FTX’s finances and suggestions about “mishandled customer funds.”

SBF responded Thursday with a cryptic tweet, saying, “At some point I may have more to say about a particular sparring partner, so to speak. But you know, glass houses. So for now I can only say: well played; you won.’ But in the short term, SBF may have other problems. Reuters reported last week that $1 billion in customer funds disappeared after being transferred from FTX to Alameda Research – a company founded by Bankman-Fried and run by his former girlfriend Caroline Ellison. SBF appeared to question the accusation and only responded with ‘???’ when Reuters contacted them.

The wider turmoil has sent Bitcoin’s price to its lowest level since December 2020. Investors have also massively pulled out of rival cryptocurrencies such as ethereum and dogecoin.

Some analysts warn that this could be the beginning of the end for an asset class that has never been fully appreciated by mainstream investors.

Neil Wilson, analyst at Markets trading platform. com, said, “This is when the industry has been exposed for what it is. Crypto has no intrinsic value and if the liquidity dries up, there will be nothing left. It’s amazing that these people have gotten away with it for so long.’

There are also concerns about whether it could harm the wider financial sector, although traditional financial and banking institutions have kept crypto at bay. To many, the antics of SBF and CZ are proof that this is an industry that hasn’t grown.

SBF still lives with ten friends in a penthouse in Nassau, the capital of the Bahamas, where FTX is also headquartered. According to colleagues, he can often be found sleeping on a beanbag next to his desk, and he is said to have worked so hard in the early days of the company that he rarely showered.

Coaching: footballer Cristiano Ronaldo

“Every minute you sleep costs you X thousand dollars,” he is said to have told his colleagues.

Despite their nerdy attitude, both men have successfully courted the big and the good in an effort to sell crypto to the non-believers.

CZ, who has even appeared on the cover of the influential business magazine Forbes, is known for his lavish parties at his Dubai mansion and was spotted among royalty and celebrities at the Abu Dhabi Grand Prix last December. Earlier this year, Binance teamed up with Portuguese football legend Cristiano Ronaldo to launch collections of non-replaceable tokens. These are shares in digital assets, such as sports memorabilia or art.

SBF’s Crypto Bahamas conference in May resembled the Davos World Economic Forum in its ability to attract the elite. Guests included Bill Clinton, Tony Blair and supermodel Gisele.

Few will sympathize with SBF and CZ, who flew too close to the sun. The tragedy is the gullible investors who went along.