Washington’s $32 Billion Crypto Scam


FTX entrepreneur has emerged as the second-biggest donor to liberal groups after George Soros

Financial Times, Nov. 12, 2022

Sam Bankman-Fried stormed on to the US political scene with multimillion-dollar donations that led lawmakers, particularly Democrats, to believe he was ushering in the next generation of donors.

Before the fall of Bankman-Fried’s cryptocurrency exchange FTX, the entrepreneur had emerged as the second-largest donor to Democrats after George Soros. He had vowed to give up to $1bn to political candidates linked to causes he supported, a pledge from which he later backed away.

He also became one of the most prominent crypto representatives in Washington, supporting digital asset legislation and hiring former regulators as advisers.

The entrepreneur was the second-largest donor to Democratic-leaning groups during the latest midterm elections, spending $36mn. Soros spent $126mn, but the Pac he supported with that large donation only spent about $15mn this cycle.

The majority of Bankman-Fried’s donations, about $27mn, went to the Protect Our Future Pac, which supported candidates that prioritised pandemic prevention, one of his interests. It endorsed 25 Democrats in congressional races this cycle, of which 18 have so far won their respective races. Chief among these were Virginia representative Abigail Spanberger and Florida representative-elect Maxwell Frost, who at 25 will be Congress’s first Generation Z member.

Some lobbyists and donors said they suspected Bankman-Fried’s primary goal in politics had been to further his crypto interests. During the 2022 cycle, Bankman-Fried donated $155,000 to rightwing Pacs: the Alabama Conservatives Fund, which backed Republican Alabama Senator-elect Katie Britt, a crypto supporter; and Heartland Resurgence, which backed Senator John Boozman of Arkansas, the top Republican on the Senate agriculture committee that oversees crypto. Bankman-Fried also gave to Debbie Stabenow, the committee’s Democratic chair.

Both Boozman and Stabenow said this week that they would continue to support the Digital Commodities Consumer Protection Act, for which Bankman-Fried campaigned.

The entrepreneur also grew his profile in Washington by hiring former regulators to liaise with financial watchdogs, including Mark Wetjen, former acting chair of the Commodity Futures Trading Commission. FTX had submitted an application with the CFTC to automate risk management tasks in futures markets that are typically completed by brokers. Wetjen declined to comment.

Excerpted from https://www.ft.com/content/428c7800-c72d-4c59-9940-4376fea6e263

Crypto’s Boy King Got Dethroned Overnight

By David Gerard, the author of the book Attack of the 50 Foot Blockchain, Foreign Policy, November 11, 2022

Cryptocurrency has a serious problem: The party’s over. Fresh dollars from naive retail buyers aren’t coming in anymore after the crashes in May and June, despite a round of advertising during the Super Bowl in February reaching every consumer in the United States. Without those fresh dollars, the holders can’t cash out.

Crypto trading firms hold large piles of assets whose “market cap”—their alleged mark-to-market value—supposedly adds up to a trillion dollars. But this number is unrealizable nonsense because the actual dollars just aren’t there. Everyone in the system knows it.

The regulated U.S.-based exchanges are just the cashier’s desk for the wider crypto casino. The real trading action, as well as price discovery, is on the unregulated offshore exchanges. These include Binance, OKX, and Huobi. Until Tuesday, Nov. 8, they also included Sam Bankman-Fried’s FTX, which cut off customer withdrawals around 11:37 a.m. UTC on Nov. 8 and then revealed around 4 p.m. UTC that it was suffering a “liquidity crisis.”

Bankman-Fried aggressively lobbied in Washington, D.C., for the Commodity Futures Trading Commission to control crypto in the United States. He was photographed with its commissioner, Caroline Pham.

Bankman-Fried’s media promotion served to distract attention from what was going on inside FTX. Occasionally, warning signs would leak: His Forbes billionaire list entry included a cautionary note that most of his claimed wealth “was tied up in ownership of about half of FTX and a share of its FTT tokens.”

FTT was the internal trading token of FTX—like supermarket loyalty points for frequent traders, who could get discounted trading fees and free withdrawals. The token was also traded in the wider crypto market. On Nov. 2, a balance sheet was leaked showing that a third of Alameda’s claimed assets were a large volume of FTT. It was as if the Tesco supermarket chain was solvent only if you counted its own made-up Clubcard points as assets. Alameda had also used this pile of FTT as collateral for loans from outside companies.

The crypto traders will go broke, and everyone in crypto will finally admit to their losses. Sequoia Capital has marked its FTX investment down to $0—and deleted from its website its previous hilarious paean to Bankman-Fried’s mysterious genius.

The crypto bag-holders all actually lost their money long before, when they bought the bitcoins. In the time since, they’d been telling themselves and everyone else that their magic beans were worth money and never mind the lack of buyers. But this was not the case. The beans were always worthless, and the only way to make money from them was to sell them off before other people caught on.

Excerpted from https://foreignpolicy.com/2022/11/11/ftx-crypto-bitcoin-sambankmanfried-effectivealtruism/


Steven L. Robinson

(Last week's spectacular - and sudden -  bankruptcy of high flying crypto firm FTX brings to mind similar failures of the dot com recession - the early 2000s - or even the much bigger failures of 2008. The failure of FTX has the fingerprints of Bill Clinton and his administration all over it. While FTX itself is BK,undoubtedly the various venture capital firms that funded it may be impacted as well. SR)