“I’ve had a bad month” was Sam Bankman-Fried’s response to the collapse of what used to be considered the safest place (FTX) to start buying Bitcoins and other virtual currencies. That was before FTX filed for bankruptcy and before it was learned that the company was using customer funds to prop up a related company’s hedge fund trading operation without permission. (The hedge fund, Alameda Research, has also filed for bankruptcy.)
In the process, an estimated $30B of crypto ‘assets’ have vanished…
This confirms what many traditional investors have long believed: that the cryptocurrency market is solely made up of speculative assets. Further questions remain on whether this signals a rush to zero for Bitcoin, Ethereum, Dogecoin and a few hundred other virtual tokens. Fortunately, the FTX collapse has caused few ripples outside the crypto world, in part because the financial marketplace has never been an active participant in it. Banks are not collateralizing loans in Bitcoin, few mutual funds have allocated investor money in cryptocurrencies and most publicly traded businesses have declined to accept virtual tokens in return for their goods and services.
With the benefit of hindsight, it might feel natural to express some measure of ridicule for the BitCoin enthusiasts that pressured others to join them in their losses. But a better response is to feel sympathetic toward the people who woke up to realize that they collectively lost $30B of their hard-earned money, and potentially stand to lose much more as this crisis continues to play itself out.