June 10, 2023

He was hailed as the savior of crypto. Now he needs billions for a bailout | CBC News

Last week, California billionaire Sam Bankman-Fried was touted as a key figure in cryptocurrency — even a savior. Today, amid a series of apologetic tweets, he said, “I wonder” after his cryptocurrency exchange leaked billions of dollars.

His FTX exchange is now trying to raise $9.4 billion from both investors and rivals as customers rush to withdraw their funds.

Many people relied on FTX as a place to buy tokens or cryptocurrencies like bitcoin.

Now, industry watchers say its spectacular drop could be the catalyst that forces governments — including Canada — to crack down on cryptocurrencies.

The problem started when a rival owner of the world’s largest exchange, Binance, questioned the stability of FTX on Twitter. This caused a three-day panic that cost FTX an estimated $6 billion.

According to the New York Times, Binance CEO Changpeng Zhao on Wednesday withdrew a proposed acquisition of its second-ranked rival, citing regulatory concerns.

That put FTX in limbo.

Bankman-Fried has said that she is negotiating with others about another bailout deal, but has made no promises.

“I’m sorry. That’s the biggest thing. I got carried away and I should have done better.” he wrote on Twitter.

Exactly what mistakes were made remains unclear.

But crypto experts say the investor’s money, which should be “liquid,” isn’t.

According to Samson Mow, CEO of Pixelmatic and new bitcoin technology company JAN3, FTX faced increasing legal and regulatory threats before the withdrawals were frozen.

Binance CEO and founder Changpeng Zhao, left, meets with the President of El Salvador, Nayib Bukele, in San Salvador, El Salvador on March 24. For a moment, Zhao was ready to buy FTX. (Secretaria de Prensa de la Presidency/Reuters)

Mow says the FTX explosion is a familiar sentiment, although digital assets like Bitcoin and ethereum weren’t the problem.

He says the exchange created tokens called FTT that were used to store value. FTT was the backbone of FTX, so when its value dropped, users scrambled to get out.

Mow says the U.S. Securities and Exchange Commission is investigating and it appears customer money may have been misused to dig FTX subsidiary Alameda Research out of a $10 billion hole.

People who bought bitcoins or other currencies through the exchange are now unable to withdraw them.

Mow says Bitcoin is reliable, but exchanges that rely on tokens like the money transfer tax as collateral are building a house of financial cards.

He said users know the risk of being “lazy” and leaving assets unclaimed in currency exchanges.

The Binance and FTX logos can be seen in this image. Bankman-Fried blamed himself for FTX’s losses, though it’s not clear what went wrong. (Dado Ruvic/Reuters)

“You played at a casino that went bust — and now you’ve lost your money,” Mow said.

People who didn’t withdraw their digital assets and keep them in their own wallets now can’t access them because FTX used FTT as collateral and those tokens are now worthless, he says.

“There’s an old saying – no keys, no coins. It’s not a new lesson. People just don’t learn. They gamble – and got what they deserved.”

The collapse of FTX, which was recently valued at US$32 billion, is just the latest bad news for digital asset investors. Bitcoin prices are less than a third of what they were at their peak in 2021, before last fall’s big crash.

But Bankman-Fried was seen as an influential player who “worked closely with regulators” to try to regulate the space, said Ashley Stanhope of Ether Capital Corp., an Ethereum-focused public company and founding member. Canadian Web3 Council, a group that works with governments to build better investor protection.

He had also spent millions to help other companies, claiming to be a proponent of effective altruism, a movement that advocates philanthropy to secure the future of humanity.

A Bitcoin ad is displayed on the street in Hong Kong on February 17. (Kin Cheung/The Associated Press)

His interpretation of his apology is that he made “genuine missteps. It doesn’t sound like he was trying to cheat investors or do them wrong,” he said.

Stanhope says this situation damages the industry’s credibility and that he fears regulators will “paint all cryptos with the same brush.”

Among FTX’s investors is the Ontario Teachers Pension Plan (OTPP), which put more than $126 million into the exchange between October 2021 and January 2022.

In a statement, OTPP said Thursday that FTX’s “uncertainty” has a “limited impact” on the pension scheme, as the investment was less than 0.05 percent of its total net assets.

As for FTX’s losses and their impact, Stanhope admits it’s a challenge, and that Bankman-Fried’s downfall is likely to change the crypto world.

“The collapse of FTX is likely to change the approach of investors,” he said.

“We’ll probably see more users take their assets off centralized exchanges and rely on self-hosted wallets” until exchanges are more secure and transparent, he said.

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