It has been eight years since Mt Gox, the then-biggest cryptocurrency exchange, imploded.
And investors and creditors, who were fleeced of something like 850,000 coins, are still yet to see anything back.
Mt Gox could have been yesterday. Or it could have been 2019, when Cryptopia, the NZ-based cryptocurrency exchange, collapsed.
Last week it was FTX, a Bahamas-based crypto currency exchange, placed into chapter 11 bankruptcy with an estimated million creditors out of pocket to the tune of billions, yes billions.
Apparently FTX’s founder, a 28-year-old with wild, too-cool-to-care-about-rules hair, Bahama-based Sam Bankman-Fried, simply shifted billions from his exchange to a hedge fund he also founded, called Alameda. What Alameda did with that money is going to be dug into over the coming weeks, but at first glimpse it seems Alameda held some shares in Sharesies-like US app Robinhood.
One of its biggest assets was reportedly a US$2.2 billion holding of a cryptocurrency called Serum. So far so stratospheric. Except Serum's estimated market capitalisation ranges from between US$78 million on Wednesday NZ time, to about US$88 million about the time that FTX went bust.
Related party transactions should always strike fear into the heart of serious investors (a specialty play in the finance company collapse era), and make an appearance here, too. Alameda also held what's been called an "unusually large amount" of FTX's own token, called FTT.
Once this news got out, rival exchange Binance decided it wanted out of its holdings of FTT and this triggered a run on FTX, FTX couldn’t cover the estimated US$5 billion in withdrawals, and as it announced it would shelter what business it had left in chapter 11 bankruptcy, FTX customers were live tweeting their fears that FTX was also being hacked and their accounts drained. And yep, that happened, with an estimated US$600 million disappearing from FTX's crypto wallets.
The playbook for the collapse of a crypto exchange is familiar now, like the airline safety manual in the back of your plane seat, you’ve seen it so many times the outline sticks in your memory but the details aren't important.
It looks something like this. Wobbly liquidity brought about by adverse news of some sort, a run on the exchange and investors try to pull out funds, a perfectly timed hack magics away all the coins, and then years of court orders, legal battles and chasing down allegedly untraceable coins with the only financial benefit swiftly coming to the trustees or receivers.
Or even simpler: exchange gets put under pressure, gets hacked, and step three is you never see your money again.
And why? Why is it like this? Aside from the obvious, that fundamentally cryptocurrencies have no value so it's at best a hit-and-hope not-at-all investment, the crypto industry is bristling with scammers and grifters and confidence tricksters, who brazenly boast to anyone who will listen how not only does the new wannabe banking emperor have no clothes, it also wants yours, including the shirt off your back.
One of the biggest problems with cryptocurrencies is that everything about them is a lie. For a start, it's not an investment, it's a glorified pyramid scheme or ponzi gussied up with a veneer of newfangled technology and impenetrable jargon strapped to a marketing rocket, that wants to shoot your money into the sun.
The big lie of crypto is that it's decentralised, miles away from those meanies in government, far away from that uncool red tape, legislation and regulation that makes banks and banking about to be superseded. Any day now.
While parts of this may be true, and regulators do not wield power over cryptocurrency and exchanges, who does wield all the power?
The scammers and grifters and confidence phonies who came up with whatever crypto of the day is in favour. This is their world, and you’re just visiting, Doge. Crypto is centralised with its founders, and this is the world of FTX’s founder, Sam Bankman-Fried. This is his business pitch (TM).
Have I got an empty box for you!
Other people, hedgies and big investor types, have seen this empty box. They say it’s pretty cool. It’s going to change the world. Or maybe it’s just a box. But the potential is huge. You can have a slice of the box, just put some money into it, then it comes back in token form. We’re calling the tokens emptee.
I’m gonna tell lots of people about emptee so if you want in, now is the time. Of course, after the success of our last project, Fleecor, you’re gonna want a piece of it. Who doesn’t? It’s already valued at $200 million. Yeah, I know. Empty box, emptee. Write it down. It’s already massive, and growing rapidly. Every time someone takes a slice and gets more emptee, the value of emptee increases. Obviously, it’s worth it. It’s worth millions. I heard Elon is going to tweet about it any day now…
Is it any wonder so many people don’t understand what the likes of Bankman-Fried are offering? Its so stupid and ridiculous you have to suspend disbelief. Of course it makes no sense to give money to someone who has decided an empty box is worth $20 million. Sorry, did I say $20 million? I meant $200 million. Whoops, almost like I just made that up!
Possibly the most gobsmacking thing about investing in an empty box is that not only would you have invested in an empty box to secure your empteeness, but you could then also have what you invested into it taken by the very same people that enticed you into getting involved, and then you fruitlessly wait for years to see … well nothing. You put money in a box, what did you expect? It to stay there? It wasn't a locked box, or a safe or, say, a bank vault.
Now, investors are constantly being softened up to join the crypto delusion. They think, carpe diem. I can't possibly be the one that gets burned. Someone else will. But not me. I got into emptee early!
FTX has been at the forefront of the massive rise in awareness of crypto. It became a naming sponsor of the high profile Miami Heat basketball stadium in the US, and it has been a familiar name on the nose of the Mercedes team competing in Formula One this season.
Some KiwiSaver schemes have decided to follow the cool into crypto. Hedge funds will always be where there is money to be made. But they're gilding what isn't even a lily. Its just an empty box.
The NZ regulator, the Financial Markets Authority, will tell you, if you will listen, that crypto ain't it.
FTX was a triumph of marketing over substance, and the most crypto thing FTX could do was fail, in the way it did.
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