FT Cryptofinance: Cryptos Lehman moment

Welcome to this week edition of the FT Cryptofinance newsletter. No prices for guessing the topic this week.

Where should you start after such a week?

The spectacular dissolution of the crypto empire by Sam Bankman-Fried, from the cryptocurrency exchange FTX to Alameda Research, its owner, was compared to the Lehman Brothers moment of the industry.

The last one who made the comparison was Changpeng Zhao, CEO of Binance, who said it was "probably a precise analogy".

You can see the parallels to the financial crisis in 2008. In March of the same year, Bear Stearns failed, which triggered the market instability, and after a troubled summer there was a disaster from Lehman.

At the beginning of the year, the crypto industry was shaken to the mark when conventional tokens collapsed, stable coins became unstable and companies like Celsius Network went bankrupt. And again after a troubled summer of speculation, one of the biggest names in the industry.

But this year's cryptocrisy teach us a particularly valuable lesson. If cracks appear in the industry - or actually if the chairman of the board "screws in" - the resolution can be done at the speed of light.

In order to do justice to crypto, the traditional financial system has an extensive back catalog with fast reversations of Archegos, Enron, Amaranth, LTCM and MF Global. As in Hemingway's aphorism, you can gradually go bankrupt, then suddenly.

But if we take this Coindesk story as a starting point, FTX has been fooled up in less than 10 days.

Part of it can be traced back to it some transparency into crypto markets. Spectators saw, as FTT-the crypto token issued by FTX-collapsed in real time. You could pursue the flow of money thanks to the transparency of blockchains, the digital main books, which can exacerbate the fee for the exit.

The easy accessibility of social media also plays an important role in the spread of the drama, especially Twitter. It was the medium through which both Bankman-Fried and Zhao announced their deal and published the sparse information that we had.

But it also shows - once again - that the claims of industry, to be decentralized, are a myth. The connections between FTX and Alameda show that large parts of the crypto industry are still opaque, networked and highly concentrated on a few people.

"Sam Bankman-Fried created a number of tweets on Twitter that were probably not in his best interest.. Do we really have to monitor tweets?" said an observer. "Is the transparency of FTX really about that your Chief Executive exudes a stream of consciousness through some tweets? Where's the adult in the room?"

The representation of the drama on social media also underlines a broader public effect. So today they are notorious, the earlier failures of crypto, such as Celsius and Three Arrows Capital, had nothing to do with the public profile of FTX. FTX was created out of nowhere in less than four years and became a household brand that has never existed in the industry.

sports fans cannot avoid. The FTX logo was glued to Miamis basketball stadium, Australian cricket places, the uniforms of the baseball referee and the Instagram account by Tom Brady. There was even a super bowl advertising.

"Many of the other rattles were still in a very technical box. While this is Tom Brady, this is Miami Heat," said Aidan Larkin, Managing Director of the crypto-asset recovery platform Asset Reality.

ftx was not the only one who pursued a large public brand campaign or clung to sports stars. But this week will bleed the public and inevitably cloud the crypto brand.

"By using these celebrities, it has given an industry credibility, which indicates that it is far more mature than she was," Ilan Solot, co-manager for digital assets at Marex Solutions, told me on the phone.

Irony is that it was the failure of Lehman and the resulting loss of trust in the traditional banking system that contributed to driving the popularity of crypto to this day.

In many ways, the world still has to come to terms with the effects of Lehman. The US Federal Reserve has just raised its key interest rate to the highest level since 2008. It remains to be seen how long it takes to recover from FTX.

How do you assess the FTX financial crisis? As always, send me an email: scott.chipolina@ft.com

what we discovered ...

• The zeal to distance yourself from Bankman-Fried is in full swing. Caroline Pham, Commissioner at the Commodity Futures Trading Commission, put a photo (Yup, posted on Twitter) in April, on which she smiled alongside crypto's former figurehead. I asked her why she did that, she told the post office and "make sure that attention is again focused on the important work of the CFTC". I renew it here so that the focus can be shifted back back to the relationships between the supervisory authorities to crypto bosses.

• Inevitably, uncertainty has hit crypto prices and has come for exactly one year since they have reached high. The flagship of the industry, Bitcoin, fell to around $ 17,000 this week. This is a low point that has not been reached since November 2020.

• In other messages (yes, there was other messages), the US Ministry of Justice obtained a conviction in a historical crypto fraud in connection with Silk Road, the notorious Dark Web, which is still a synonym for some for some. Read everything about it here.

• A few weeks ago, this newsletter dealt with the US sanctions that were imposed against the crypto mixing service Tornado Cash because he allegedly helped to wash crypto worth billions of dollars. This week the US Ministry of Finance renamed Tornado and converted its justification for sanctions from the support of North Korean hackers to support the country's mass destruction.

Soundtrack of the week

So many to choose from this week, but I have to continue with the most unmusical comments that I have heard for ages. Su Zhu, half of the master team behind the collapsed crypto hedge fund Three Arrows Capital, decided to comment publicly. Of course, Twitter .

Apart from the fact that he keeps the world up to date with what he does (meet friends, learn new languages, surf, surf), that he also mentioned that he develops the spirituality and pray for those who were injured with me, those who want to hurt me, and those who are injured in alkalene ".

But obviously he wanted to compare his emergency to that of Bankman-Fried.

"I was there, surfed on the wave of the waves, wiped out the next moment, broken bretted, rock reefs everywhere. The sudden pain of business failure and the loss of the purpose as a golden child of the industrial and business cycle in the broader sense was just as difficult as the subsequent ostrichment and demonization."

Data Mining: CZ, The King of Cryptography

as a binance agreed to buy FTX, I heard in the entire industry that Krypto in Changpeng "Cz" Zhao "has a new king". It is a little strange because the numbers tell you that he has already ruled the quarters. The diagram shows how Binance left his rival FTX - which is primarily an appointment exchange - for a long time in the dust.