At the beginning of 2022, Sam Bankman-Fried was according to Forbes still good for a personal fortune of $24 billion. The founder and owner of the successful crypto exchange FTX was also a prominent proponent of ‘effective altruism’, the movement that believes spreadsheets and models can do maximum good. In that capacity, he was one of the most important donors to the Democrats in the United States.
Twelve months later, Bankman-Fried experiences a Christmas like in an André Hazes song: behind bars. Bankrupt. Ensom awaits his extradition from the Bahamas to the United States, where he is suspected of one of the biggest frauds in history. Customers and investors are furious. From the very beginning, their money would have been secretly transferred to a hedge fund. As such, Bankman-Fried used it for his personal financial adventures: venture investments, real estate and political donations. And then it turns out that another eight billion dollars is also gone.
The rapid rise and fall of the thirty-year-old vegan sounds like a metaphor for the entire crypto world. Not so long ago, the bitcoin price approached sixty thousand euros. Attracted by that record streak, Wall Street also showed interest. One established investor and bank after another started doing ‘something’ with cryptocurrencies. But 2022 became the year of disillusionment. One bitcoin is now worth sixteen thousand euros.
Besides the usual hacks where customers lose their money, there was also a real crypto bank run. And in May, terra, one of the most important, crashed ‘stablecoins’. These cryptocurrencies pegged to the dollar were considered relatively safe. Not the case, because questions also arose about the market leader Tether. Such as: What kind of exotic investments do such companies actually put their buffers that they consider safe?
FTX’s bankruptcy has made users even more nervous. Even the big, seemingly unapproachable crypto exchange Binance suffered a financial exodus this month. It’s all part of a maturing sector, analysts reassure. Growth spurt. They forget that the crypto world is not ordinary. Never wanted to be either.
The cryptosystem depends on deception and mistrust
The crypto uprising started on January 3, 2009. An anonymous person named ‘Satoshi Nakamoto’ – or was it a group? – then mine the first bitcoins. The new currency was embraced by a motley crew of cyberpunks, left-wing anarchists and (lots of) right-wing libertarians. I remember a meeting at Amsterdam Rai in 2018 where a solidly built Briton was allowed to take the stage. “I voted to leave Europe in the Brexit referendum,” he shouted. ‘Because I think the ECB is a fascist organisation!’
Despite the rebellious self-image, big, opportunistic money already had the movement in its grip. At conferences it was more about price expectations and initial coin offering than politics. As one disappointed person involved summed it up: ‘People start out with a hoodie, but now they’re suddenly wearing a suit.’ One thing remained. The aversion to government interference, regulatory authorities and regulation. Contrary to the despised and gagged financial establishment, crypto trading should remain a free market.
We now see how the abstract dream works in practice. The bankrupt crypto exchange FTX had neither internal nor external oversight. No one blamed founder and owner Bankman-Fried. There were hardly any formal procedures and serious accounting was also lacking. It doesn’t seem like most of the competition have handled this much better.
It results in a system of theft, deception and mistrust of everything against everyone. An anarcho-capitalist nightmare just like you find in the drug world. It is no coincidence that this is one of the few other major sectors of our economy where government is largely absent.
‘I fucked’, Bankman-Fried apologized for the collapse of his house of cards. In reality is ‘crypto boy king’ the world a wonderful gift. A full-scale economic experiment: what happens when you let profit-hungry traders do their thing?
The result is a picture of the true free market that is as realistic as it is disturbing. I hereby nominate the young American for the election of the most effective altruist of the year.