What the hell is FTX?

FTX saga unravels more after the crypto exchange's bankruptcy filing

The bankruptcy filing of crypto exchange FTX on Friday did not stop the chaos surrounding the once prominent and trusted crypto trading venue.

Since the filing that included 135 affiliated companies, millions of dollars in crypto have been stolen from the company, which is facing a shortfall between $6 billion and $10 billion. Bahamian officials are also probing the matter.

As a sheltered innocent, I had never heard of FTX before today, when a friend texted me a link to an ESPN story about the Miami Heat basketball team taking that name off of the arena where they play. It reminded me of how the Houston Astros used to play at Enron Field or Stadium or something like that until Enron disappeared from the face of the earth. A similar cautionary tale of capitalism is currently unfolding.

The scope of this story:

From Friday to Sunday, the global market capitalization for crypto assets is down 3% from $856 billion to $831 billion. Since November 1, it has fallen by 18% from a little over $1 trillion, according to Coinmarketcap.

A hundred billion clams gone poof in a couple of weeks, raising the question of whether that "money" ever existed in the first place.

On Friday night, approximately $663 million in crypto mysteriously flowed out of wallets linked to the now bankrupt exchange.

John Jay Ray III, the new chief restructuring officer and CEO who was appointed less than 24 hours before, said in a statement Saturday morning: “Unauthorized access to certain assets has occurred.”

Of the total outflow, about $477 million is estimated to have been stolen, while the remaining has been moved to cold storage by FTX for safeguarding, according to blockchain analytics firm, Elliptic.

“Process was expedited this evening - to mitigate damage upon observing unauthorized transactions,” FTX US's general counsel, Ryne Miller, said on Twitter.

FTX declined to comment further on the matter.

Willie Sutton evidently has become a computer nerd. And an accomplished sophist:

FTX will deal with the same “big legal question” as crypto lenders Celsius Network and Voyager, Greg Plotko, a legal partner with Crowell & Moring, told Yahoo Finance. That's whether crypto held in customer accounts belongs to the customers themselves or the bankruptcy estate.

I am utterly ignorant about these financial/technocratic issues. but I am by education a lawyer, and I get this point. Creditors want to get paid whatever they are owed and they don't give a fuck from whom.

Yahoo news goes on to describe the dominos to fall:

“There’s also almost certainly massive amounts of criminal fraud that led to this scenario and as a result, we can expect this will be a very messy public trial that will lead to bad publicity and regulatory backlash for the [crypto] industry,” Haseeb Quershi, a managing partner with venture firm, DragonFly Capital, told Yahoo Finance.

Like Quershi's firm Dragonfly, several larger name crypto hedge funds and market makers have assets trapped on FTX, including Galaxy Digital, Multicoin Capital, Jump Trading, Wintermute, and Galois Capital.

"When you have these situations, there are a lot of institutions that want to exit their positions. They don't want to be stuck in a bankruptcy for two years, waiting for payouts," Plotko said. There's already a lot of holes as to where all the money went. Institutions and individuals may want to sell out."

Great turn of phrase "a lot of holes as to where the money went"

I told my friend that I never understand anything i read or hear about crypto, pro or con. It all sounds to me like selling the Brooklyn Bridge over and over again.

I aimed my own amateur satire at this quintessential geek institution a while back:
Submitted by fire with fire on Sat, 05/14/2022 - 1:15pm

Speaking of Sharks

I just put half of my life savings into a can't miss cryptocurrency based on tickets to the Sigfried and Roy show in Las Vegas. There were a finite number of tickets issued over the decades of their spectacular presentations, but an unknown number still exist -- some torn in half at the entrance and others, the pristine tickets, remain somewhere after their purchasers did not attend the performance.

An algorithm projects the "value" of each category and block chain technology will prevent clandestine manipulation of the price.

The cryptocurrency is called the Barnum.

Hard to call them innocent but there are victims already in the FTX saga:

Crypto lender BlockFi has also gone silent since officially announcing a freeze on customer withdrawals Thursday night. Since then, a number of customers have noted their BlockFi credit cards no longer work.

While BlockFi isn't included in the FTX Chapter 11 filing, the firm is expected to be a major creditor after it took an emergency $400 million line of credit from FTX in late June.

As recently as Monday, BlockFi attempted to relaunch its yield product. On Tuesday, COO Flori Marquez announced the firm was "fully operational." BlockFi did not respond to comments on its status through the weekend.

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Lookout's picture

They were posing as an exchange...but actually a big grift - about 5 min tells the story
[video:https://www.youtube.com/watch?v=gdViG8gHooE&t=5m10s]
1. Donate US funds to Ukraine
2. Ukraine buys FTX
3. FTX donates millions to the dims (second only to Soros) as well as millions to Joementia.

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7 users have voted.

“Until justice rolls down like water and righteousness like a mighty stream.”

snoopydawg's picture

@Lookout

https://halturnerradioshow.com/index.php/en/news-page/world/breaking-new...

Turner is usually a pro democrat pundit so if he’s posting about it I think people should take it seriously.

Democrats have been up to their eyeballs in the Ukraine corruption since Obama’s brutal coup there in 2014. Lots of contacts with defense industries and Ukraine lobbyists.

Almost 40 democrats retired from the house and now we are supposed to believe that democrats will not only hold on to the senate but the house too? With Biden’s approval rating below 40% and the economy in the crapper because of his policies? History does repeat itself. Republicans were pretty far ahead until the cameras went out overnight and when they came on again democrats were then ahead. Anyone want to buy a bridge?

And hey remember when people in Nevada and Jersey couldn’t vote because the machines were broken? Boy it’s a good thing our intelligence agencies blocked Russia from interfering this time ain’t it? Why would they even bother when we have such crappy voting machines? Maybe congress will go out and spread some of our great democracy to more countries.

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The ideal subject of totalitarian rule is not the convinced Nazi or the dedicated communist, but people for whom the distinction between fact and fiction, true and false, no longer exists.
~Hannah Arendt

@Lookout @Lookout I get the idea that this is a scam, and I can buy the idea of the scam going to the benefit of the Ukraine fraud and/or the Biden/Democrat fraud. But how the hell does this work? Who ponies up the scratch in the first place and what do they believe they are getting for it? How does spendable cash get to its nefarious destinations? If this is so easy to do, how does anybody know all the other "exchanges" are not just scams with other end users?

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7 users have voted.

I cried when I wrote this song. Sue me if I play too long.

Lookout's picture

@fire with fire

Not so different than Madoff's ponzi. Largely people who wanted bitcoin without the hassle.

So your tax dollars bought it through the Ukraine grift as well.

At least that's my understanding.

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7 users have voted.

“Until justice rolls down like water and righteousness like a mighty stream.”

earthling1's picture

where nothing trickles down, everything disappears.

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7 users have voted.

Neither Russia nor China is our enemy.
Neither Iran nor Venezuela are threatening America.
Cuba is a dead horse, stop beating it.

QMS's picture

no, this money did not disappear. It can not be traced to the pockets of the thieves but
it is still there. like the 2008 collapse, billions disappeared overnight. it did not go away
so much as it found a new untraceable home. this is the new economy ..
of and for the already over-wealthy.

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question everything

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of at least some of the real money that went into FTX. It landed there as a capital investment after it was transferred from the US Treasury to Ukraine -- a corrupt ripoff that could just as easily involve any other business that entertains investment. The criminal behavior in the transaction has nothing to do with crypto.

So I still do not grasp what FTX does. It's called an exchange, which suggests that it is a neutral venue to introduce buyers of cryto to sellers, presumably charging a fee for the service. But that does not explain why any of their clients would have money held by FTX. I have to be missing something about what this and similar operations actually do.

Specifically, I am trying to understand why anybody has put money into the coffers of FTX. Do such exchanges create their own crypto currency and sell it for dollars or Euros or whatever?

Or is crypto an utterly imaginary construct that has to be hosted somehow and somewhere? That would provide even less reason to trust in it than my Sigfreid and Roy tickets.

This whole thing can't be that absurd, can it? If anybody can explain this, I would deeply appreciate it.

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6 users have voted.

I cried when I wrote this song. Sue me if I play too long.

snoopydawg's picture

@fire with fire

But crypto currency has always gone over my head. I’m seeing more people calling out the corruption between the democrats and the guy who just fled the country. A graphic of the scam. Every person should be upset about this if it’s true. Who in the dem party knew what he was doing and who actually got the funds that should have gone to Ukraine? And what was Zelensky's involvement in it? Did he also get some funds? This might get interesting.

He wasn’t the only one who fled either. Seems that 3 other people involved in the company have also fled or tried to and to countries that have no extradition treaties with America.

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The ideal subject of totalitarian rule is not the convinced Nazi or the dedicated communist, but people for whom the distinction between fact and fiction, true and false, no longer exists.
~Hannah Arendt

Lookout's picture

@fire with fire

it is kind of a hassle, plus you have to secure it in a wallet. Some people just want to invest in bitcoin without the hassle. So FTX was a bitcoin investment company more than an exchange like binance or coinbase. The bitcoin community motto - if you don't hold your bitcoin, you don't own it. Which means if you don't possess a digital wallet that holds your bitcoin, you can lose it. And that's what happened to all the investors in FTX.

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6 users have voted.

“Until justice rolls down like water and righteousness like a mighty stream.”

usefewersyllables's picture

always a Ponzi scheme.

I actually bought some Bitcoin once, on purpose even. My favorite dispensary is prevented from using banks, like all weed businesses- but they figured out a way to work around not being able to do credit card transactions, anyway. They would have their customers buy bitcoin with their cards and then pay the dispensary using those. So I bought enough bitcoin (something like .0000000000034 bitcoin) to trade for some very nice edibles, and that was the end of my dalliance with the breed.

It's a big club, and none of us are ever going to be in it. But it is kind of nice (in a schadenfreudish way) to see some whales get fleeced, just the same...

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Twice bitten, permanently shy.

snoopydawg's picture

Lots of people knew that Ukraine was putting money into it going back to March if not earlier

Link

Huge scandal for democrats and let’s see how the media covers it.

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The ideal subject of totalitarian rule is not the convinced Nazi or the dedicated communist, but people for whom the distinction between fact and fiction, true and false, no longer exists.
~Hannah Arendt

@snoopydawg I'll give you a hint, it'll get swept under the rug as fast as possible.

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4 users have voted.

If it was easy, everyone would do it.

You responded to my question, but I guess I'm just too dense for this century. What the heck is a wallet? Was my cynical and disdainful guess correct?

Or is crypto an utterly imaginary construct that has to be hosted somehow and somewhere? That would provide even less reason to trust in it than my Sigfreid and Roy tickets.

I'm guessing now that the hassle of obtaining crypto stems from the obvious insecurity of this enterprise? You have jump through a series of hoops to establish your legitimacy? And I guess the wallet is "where" your valuable yet ineffable asset is stored?

Please tell me I'm on the wrong track here and this trillion "dollar" industry is not one big boot strap argument that bitcoin exists.

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5 users have voted.

I cried when I wrote this song. Sue me if I play too long.