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Speaker 1: Welcome to tech Stuff, a production from I Heart Radio.

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Speaker 1: Hey there, and welcome to tech Stuff. I'm your host,

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Speaker 1: Jonathan Strickland. I'm an executive producer with I Heart Radio.

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Speaker 1: And how the tech are you? So recently I mentioned

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Speaker 1: in a tech News episode of tech Stuff that cryptocurrency

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Speaker 1: exchange f t X was in deep trouble, which honestly

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Speaker 1: was putting it lightly, and I mentioned that the founder

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Speaker 1: of that exchange, or co founder I should say, a

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Speaker 1: guy named Sam Bankman Freed but more commonly referred to

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Speaker 1: as s b F was making the rounds, taking responsibility

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Speaker 1: for the whole thing. He subsequently resigned as CEO of

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Speaker 1: f t X. That happened on Friday, last Friday today,

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Speaker 1: by the way, being November twenty two. So for those

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Speaker 1: of you listening from the future you can you're gonna

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Speaker 1: be referring to that calendar a lot. Anyway, Uh, that catastrophe,

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Speaker 1: the f t X catastrophe, is far larger than I

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Speaker 1: could cover in a typical tech News segment, so I

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Speaker 1: thought I would explain it in greater detail here, so

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Speaker 1: much detail, and we'll also talk about the ripple effect

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Speaker 1: we're seeing as ft X goes through this existential crisis,

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Speaker 1: which I think even that is being generous. I think

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Speaker 1: ft X is is just uh seeing the end of

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Speaker 1: its days. But first, let's talk about cryptocurrency and exchanges

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Speaker 1: in general so that we can understand the foundation of

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Speaker 1: what's going on before we get into the details of

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Speaker 1: what happened at f t X. So let's think back

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Speaker 1: way back to the origin of bitcoin. In two thousand eight,

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Speaker 1: someone using the name Satoshi Nakamoto published a white paper

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Speaker 1: that was titled Bitcoin, a Peer to Peer Electronic Cash System.

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Speaker 1: That white paper laid out the details for Bitcoin's operation.

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Speaker 1: That this was going to be a decentralized digital currency,

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Speaker 1: that it would have a community of participants who would

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Speaker 1: track transactions through a shared ledger that was on top

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Speaker 1: of a blockchain. That this community would compete against one

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Speaker 1: another to validate blocks of transactions, and the winner would

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Speaker 1: take uh some newly minted bitcoin as a reward. That

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Speaker 1: the supply of bitcoin itself would be finite, That eventually

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Speaker 1: all bitcoin that will ever exist will be on the market,

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Speaker 1: and that every couple of years, the number of bitcoins

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Speaker 1: that are awarded to the successful system that verifies a

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Speaker 1: block of transactions will be cut down by half, that

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Speaker 1: the system itself would adjust the difficulty of the verification

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Speaker 1: task based on the amount of computational power dedicated to

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Speaker 1: solving it. This is called proof of work. It's a

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Speaker 1: version of UM cryptocurrency validation and minting that is used

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Speaker 1: not exclusively but by a lot of different cryptocurrencies, including bitcoin.

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Speaker 1: And that's the thing that feeds into people making increasingly

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Speaker 1: powerful computer systems to attempt to mine bitcoin. But what

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Speaker 1: wasn't really laid out was how people were going to

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Speaker 1: get bitcoin outside of just mining it. The peer to

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Speaker 1: peer nature would allow one bitcoin holder to transfer bitcoin

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Speaker 1: to someone else via some form of forum such as

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Speaker 1: bitcoin talk. That was one that Satoshi Nakamoto founded in

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Speaker 1: early two thousand nine. Two thousand nine is also when

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Speaker 1: bitcoin officially launched. The white paper came out a year earlier,

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Speaker 1: or early a few months earlier, at the end of

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Speaker 1: two thousand eight. In January two nine, was when bitcoin

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Speaker 1: became something that people could actually participate in. Now you

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Speaker 1: could use bitcoin in a personal transaction peer to peer,

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Speaker 1: but that was really about it. And the peer to

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Speaker 1: peer method worked, but it was also risky because there

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Speaker 1: was no guarantee that the person with whom you were

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Speaker 1: trading was on the up and up, or that whomever

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Speaker 1: held the bitcoin would actually transfer the bitcoin at the

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Speaker 1: conclusion of the transaction. However, bitcoin at the time was

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Speaker 1: also virtually worthless. It would take thousands and thousands of

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Speaker 1: bitcoin to amount to enough money to buy a pizza,

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Speaker 1: for example, and it would take a year before bitcoin

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Speaker 1: was worth even thirty nine cents per single bitcoin. So

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Speaker 1: what I'm saying is that while it was technically risky

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Speaker 1: to engage in a peer to peer bitcoin transaction, the

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Speaker 1: value of the currency was so low that even a

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Speaker 1: bad experience would likely result in the loss of at

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Speaker 1: most a few bucks. Now today, a bitcoin is worth

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Speaker 1: around sixteen hundred bucks as of the recording of this episode.

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Speaker 1: That is, that level of risk is a bit too

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Speaker 1: steep for most folks to just trust a peer to

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Speaker 1: peer transaction, though those can still happen. But by late

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Speaker 1: we started to see the first exchanges. So in exchange

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Speaker 1: does what it says on the ten. It's an entity

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Speaker 1: that can exchange one form of currency for another. One

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Speaker 1: of the first exchanges was Bitcoin Market, and here's how

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Speaker 1: it would work. Let's say you wanted some bitcoin, but

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Speaker 1: you weren't interested in mining for it. You just wanted

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Speaker 1: to purchase some You want to exchange some let's say

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Speaker 1: U S dollars for the equivalent value in bitcoin. Well,

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Speaker 1: you could arrange to purchase bitcoin from someone else who

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Speaker 1: has it in their own digital wallet to do the

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Speaker 1: peer to peer transaction, but again that's risky. The other

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Speaker 1: ways you could go with a bitcoin market exchange approach,

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Speaker 1: where the bitcoin owner would place the appropriate amount of

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Speaker 1: bitcoin in escrow and it would sit there in escrow

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Speaker 1: until your payment of the equivalent in U S dollars

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Speaker 1: or whatever currency you're using cleared and got to the seller.

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Speaker 1: Once the seller received the money, the bitcoin would be

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Speaker 1: released from scrow to your digital wallet, whether that was

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Speaker 1: on the market or your own personal digital wallet. That's

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Speaker 1: you know, that can be pulled offline if you want,

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Speaker 1: and the transaction is concluded. One bit that is important

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Speaker 1: to remember cryptocurrency exchanges typically require a transaction fee to

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Speaker 1: cover this process. The reason that's important is that there's

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Speaker 1: really no incentive to use cryptocurrency for very small transactions

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Speaker 1: because you end up paying more in transaction fees than

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Speaker 1: you would for whatever the actual purchase was. This would

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Speaker 1: be like if you walked into a store and you

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Speaker 1: wanted to buy some gum and you had a credit card,

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Speaker 1: so you buy it. You know, you got a pack

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Speaker 1: of gum that's I don't know, a dollar, and you

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Speaker 1: want to pay with your credit card, but the merchant

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Speaker 1: charges a five dollar minimum for any credit card purchase.

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Speaker 1: So do you really want the gun where you're gonna

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Speaker 1: pay five bucks for a one dollar pack of gum?

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Speaker 1: I mean, alternatively, I guess you could buy a bunch

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Speaker 1: of other stuff so that you at least feel like

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Speaker 1: you're getting value for your money. But that's the point, right, Like,

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Speaker 1: you're not going to use a cryptocurrency if there's a

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Speaker 1: if the transaction fee amounts to a significant percentage of

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Speaker 1: whatever you're purchasing in the first place. Well. Another early

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Speaker 1: cryptocurrency exchange that launched was uh Mount Cox. It launched

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Speaker 1: in Mount Cox was empty period g o X, and

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Speaker 1: that name was actually an initialism for magic. The gathering

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Speaker 1: exchange is referencing the the trading card fantasy game. This

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Speaker 1: name is one of the most infamous in cryptocurrency history

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Speaker 1: because not only did it become the dominant exchange in

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Speaker 1: the crypto world, handling something like sevent of all bitcoin

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Speaker 1: transactions by early but that same year saw Mount Cox

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Speaker 1: go under, so like they were on top of the heat,

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Speaker 1: and in that same year they went extinct. Is not

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Speaker 1: that different from what we're going to talk about with

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Speaker 1: ft X, At least the outcome is not that different.

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Speaker 1: The actual events that led to it were a little different.

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Speaker 1: The exchange, which again was the dominant entity on the

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Speaker 1: crypto market, found for bankruptcy and we would learn that

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Speaker 1: Mount Cox had been hacked, with assets stolen and hundreds

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Speaker 1: of millions of dollars worth of bitcoin disappearing from the exchange.

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Speaker 1: In fact, at the time, the thefts amounted to seven

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Speaker 1: percent of the total supply of bitcoin in the world.

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Speaker 1: Like when you can when you can look at a

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Speaker 1: bank robbery and you can contextualize that as a percentage

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Speaker 1: of all the money in the world. That's a big

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Speaker 1: bank robbery. And most of the the money that was

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Speaker 1: stolen didn't belong to the exchange itself. It belonged to

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Speaker 1: customers who were keeping their money on digital wallets that

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Speaker 1: were on exchange accounts. Again, not a good look when

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Speaker 1: a bunch of people lose their money, not through any

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Speaker 1: fault of their own but because the exchange that held

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Speaker 1: their accounts got hacked. Now, Mount Gox's implosion sent a

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Speaker 1: shock way through the bitcoin community and the value of

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Speaker 1: the currency dropped more than But despite the massive and

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Speaker 1: public collapse of this exchange, cryptocurrency was able to stick

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Speaker 1: it out and recovered Alright. So there's a lot more

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Speaker 1: to the history of cryptocurrency as well as cryptocurrency exchanges.

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Speaker 1: But that really gives us a foundation that we can

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Speaker 1: work from. So we're not gonna dive into that anymore.

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Speaker 1: Let's talk about f t X in particular. Now, that

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Speaker 1: story begins with Sam Bankman Freed or SBF. This young

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Speaker 1: man had worked for a while on Wall Street, and

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Speaker 1: in sen he co founded a company called Alameda Research.

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Speaker 1: This was a quantitative trading firm. And that phrase, will

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Speaker 1: we have at least some of you say in what now?

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Speaker 1: If you didn't say what, you should at least know

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Speaker 1: that I did say what when I encountered it, Because

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Speaker 1: the world of investment is one that I'm not particularly

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Speaker 1: well versed in, but I'll give it a shot. Generally speaking,

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Speaker 1: a quantitative trading firm relies heavily on math, statistics, and probability.

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Speaker 1: Estimations to determine where markets are most likely heading, So

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Speaker 1: you can sort of think of it as feeding a

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Speaker 1: whole bunch of variables into a computer model and then

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Speaker 1: projecting out what will happen from there. This, of course,

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Speaker 1: is predicated on the assumption that financial markets will generally

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Speaker 1: behave according to the value of these variables, which is

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Speaker 1: an assumption that not everyone agrees with. This quantitative approach

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Speaker 1: is heavily disputed in the investment world. I personally think

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Speaker 1: it might be somewhat unreliable, but again, I hadn't even

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Speaker 1: heard about this approach until today, so you could very

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Speaker 1: legitimately argue that this is just my skeptical nature coming out,

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Speaker 1: and I don't know what I'm talking about when it

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Speaker 1: comes to validity of the theory. Anyway, Alameda Research specialized

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Speaker 1: in cryptocurrencies, so the firm would leverage cryptocurrency markets to

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Speaker 1: make itself and its clients money. So that could include

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Speaker 1: stuff like arbitrage. This is where you attempt to leverage

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Speaker 1: a difference in price for something like a commodity or

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Speaker 1: some asset and you try to make a profit. So

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Speaker 1: if you wanted, like an oversimplified example, let's say you

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Speaker 1: know that apples are super cheap near you at the supermarket,

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Speaker 1: like you can buy them for super super cheap, but

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Speaker 1: you also happen to know that apples are twice as

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Speaker 1: expensive across town. So you might buy up a bunch

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Speaker 1: of cheap apples near you and then go across town

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Speaker 1: and sell them for a profit, you know, lower than

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Speaker 1: what the local markets are selling, but higher than what

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Speaker 1: you paid for them. That kind of thing is what

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Speaker 1: arbitrage is about, except you know, with crypto, and in

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Speaker 1: much larger amounts than a few apples. So yeah, crypto apples.

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Speaker 1: Alimator Research did more than arbitrage deals, however, but we

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Speaker 1: can really think of it as a company that relied

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Speaker 1: on computer models to make market based decisions related to cryptocurrency.

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Speaker 1: Alimator Research is going to play a huge part in

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Speaker 1: our story moving forward. So SPF founds Alimator Research. In

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Speaker 1: two years later, twenty nineteen, SPF partners with Gary Wong,

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Speaker 1: who used to be a Googler. He worked for Google. Uh.

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Speaker 1: They in turn founded the ft X Cryptocurrency Exchange. So

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Speaker 1: now they've got a company that is an investment company

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Speaker 1: that's entrenched in cryptocurrency and a cryptocurrency exchange, so two

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Speaker 1: very closely related entities here they do different things, but

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Speaker 1: it's all in the world of crypto now. F d X,

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Speaker 1: like a lot of cryptocurrency exchanges, had its own exchange token.

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Speaker 1: This is a type of cryptocurrency that's created by the

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Speaker 1: exchange itself, and it's meant to be used in all

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Speaker 1: sorts of transactions and as an award and an incentive.

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Speaker 1: So exchanges often use these tokens to encourage users to

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Speaker 1: cover transaction costs and that kind of thing, or they

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Speaker 1: might do it to raise the company's liquidity in the exchange.

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Speaker 1: It may also be used to hold a stake in

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Speaker 1: the exchange, so users can purchase exchange tokens in order

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Speaker 1: to have kind of a seat at the table when

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Speaker 1: it comes to blockchain governance. This is kind of the

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Speaker 1: decentralized approach of crypto, the idea that governance does not

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Speaker 1: fall to some centralized entity, but instead is made up

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Speaker 1: of the community itself. So by putting a stake in,

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Speaker 1: you have a seat. It's kind of like owning stock

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Speaker 1: in a company. Right. If you own stock, that gives

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Speaker 1: you the right to vote in various um stockholder meetings.

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Speaker 1: Throughout the year. So yeah, that's kind of what these

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Speaker 1: tokens are used for in general. And the f t

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Speaker 1: X exchange token is the f t T And yes,

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Speaker 1: I apologize, we're getting into alphabet suit territory here, right

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Speaker 1: because we've got SPF the guy, the human being who

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Speaker 1: co founded this company, and then you've got f t

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Speaker 1: X the company, and then f t X meants the

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Speaker 1: f t T token. Yeah, you know me, I'm down

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Speaker 1: with f t T. Not really, I'm not down with

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Speaker 1: f t T at all. F t T is down though. Um,

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Speaker 1: we're not done with initialisms. We're going to have more

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Speaker 1: before this is done. But you know, this is kind

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Speaker 1: of the way that the crypto community communicates. They do

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Speaker 1: it in a lot of like idioms and initialisms and acronyms,

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Speaker 1: and it gets to a point where you start to

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Speaker 1: wonder if anyone knows what they're talking about, or can

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Speaker 1: even you know, explain the content of their sentences. I

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Speaker 1: don't know, it's all Greek to me. Before everything went

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Speaker 1: pear shaped, you could buy f t T on f

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Speaker 1: t X, but there were also other cryptocurrency exchanges that

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Speaker 1: bought and sold f t T, so it was available

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Speaker 1: on exchanges across the crypto world, not just f t

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Speaker 1: X is and I mentioned ft T because that's also

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Speaker 1: going to play a very important part in our story later. Okay,

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Speaker 1: we've been going for a bit. Let's take a quick break,

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Speaker 1: and when we come back, we'll talk more about what

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Speaker 1: went down at f t X. All right, So SBF

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Speaker 1: and Wong co founded f t X in two thousand nineteen.

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Speaker 1: One early investor in the company was a rival cryptocurrency exchange,

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Speaker 1: the number one cryptocurrency exchange in the world, called Binance.

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Speaker 1: So yeah, the biggest cryptocurrency exchange out there. Now, this

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Speaker 1: story is going to unfold a little bit like a

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Speaker 1: superhero and their arch nemesis kind of both coming of

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Speaker 1: age at the same time. You know, they start off

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Speaker 1: as friends, the old Clark Kent and Lex Luthor or

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Speaker 1: buddies at first, but then things take a turn and

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Speaker 1: one of them wants to see the end of the other.

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Speaker 1: You've got your supervillain. So if ft X is our superhero,

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Speaker 1: Binance is our supervillain, or if we want to talk

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Speaker 1: about founders, SBF is our superhero. And Chong Peng Zhao

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Speaker 1: also known as c Z because again more initialisms, is

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Speaker 1: our supervillain, and spoiler alert, and this superhero story, the

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Speaker 1: bad guy wins. Now, for the record, I actually don't

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Speaker 1: want to cast Binance or c Z as the villain,

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Speaker 1: partly because the more we learn about fd X and SBF,

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Speaker 1: the less heroic those seem as well. And I think

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Speaker 1: this is more of a story of a bunch of

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Speaker 1: supervillains working against each other in a way. Alright, So

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Speaker 1: Finance puts in a significant investment into this young f

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Speaker 1: t X cryptocurrency exchange company. Two years later in fd

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Speaker 1: X is ready to pay back Binances investment. You know,

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Speaker 1: the whole point of an investment is to get a return.

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Speaker 1: So this is ft X saying, okay, we've made our money.

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Speaker 1: We're paying you off. Here's what you gave us plus more.

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Speaker 1: Finance was essentially cashing out and ft X paid Binance

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Speaker 1: in ft T. Again, that's the exchange currency for f

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Speaker 1: t X, right we talked about just a minute ago.

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Speaker 1: So in all, Finance received twenty three million f t

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Speaker 1: T tokens and it had a value around that time

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Speaker 1: of five nine million dollars. So Binance has a big

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Speaker 1: old stash of FTT sitting in the exchange in June,

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Speaker 1: f d X holds a round of funding that accumulates

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Speaker 1: nearly one billion dollars in investments. That's billion with a B.

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Speaker 1: The company's value is projected at eighteen billion bucks. Not

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Speaker 1: bad to go from being founded in twenty nineteen two

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Speaker 1: hitting nearly twenty billion dollars in value in just two years.

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Speaker 1: That's crazy. But hold onto your proverbial hats because we're

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Speaker 1: about to get crazier. In fact, hold onto your hats

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Speaker 1: and since your socks tight, because I'm gonna knock both

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Speaker 1: of them off if you're not careful. So in October

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Speaker 1: of twenty twenty one, just a few months after being

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Speaker 1: valued at eighteen billion dollars, f t X went up

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Speaker 1: to being valued at twenty five billion dollars, a boost

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Speaker 1: of seven billion dollars in just a few months, and

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Speaker 1: f t X was leveraging this valuation to raise even

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Speaker 1: more money from investors. That's one of the reasons why

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Speaker 1: you want to tout your valuation, as you're telling investors, hey,

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Speaker 1: look at how quickly we are growing. You want to

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Speaker 1: get in on this, so pour your money into it.

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Speaker 1: So you might wonder, well, what is f t X

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Speaker 1: doing with all the money it's making, you know, because

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Speaker 1: I mean, obviously a lot of it's going into the

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Speaker 1: operation of the exchange itself. But f t X was

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Speaker 1: getting so much cash, so what was it doing with it? Well,

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Speaker 1: one thing he was doing was promoting f t X

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Speaker 1: in various extravagant ways. For example, in September one, ft

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Speaker 1: X signed a sponsorship deal with a Formula One racing team,

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Speaker 1: so they started putting the logo on the cars. And

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Speaker 1: in April one, ft X signed a sponsorship deal with

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Speaker 1: the home arena for the Miami Heat basketball team, calling

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Speaker 1: it the f t X Arena. And this was a

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Speaker 1: nineteen year deal to have that naming rights. But f

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Speaker 1: t X wouldn't last nineteen years. And if I remember

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Speaker 1: to come back to this, I'll give you an update

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Speaker 1: on what's going on at the home of the Miami

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Speaker 1: Heat and also that Formula one team spoiler alert. I

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Speaker 1: will remember because I know I wrote it down. Meanwhile,

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Speaker 1: f t X is operating as a cryptocurrency exchange and

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Speaker 1: becomes the second largest crypto exchange, only behind Binance. So

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Speaker 1: Binance helped f t X get started, and now f

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Speaker 1: t X is number two behind Finances number one and

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Speaker 1: SPF started to make some really big moves, some of

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Speaker 1: which would sour his relationship with Binance and its CEO

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Speaker 1: c z you know, Chong Pang Zhao. Alright, so first

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Speaker 1: let's talk about SPFS moves to help companies that were

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Speaker 1: affected by the collapse of cryptos value. Now, I'm pretty

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Speaker 1: sure in a recent news episode I talked about cryptos

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Speaker 1: value crashing a couple of years ago. But that was

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Speaker 1: my brain misfiring, Like it hit me later that day

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Speaker 1: that I said something that was wrong, because I think

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Speaker 1: I said, you know, a couple of years ago when

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Speaker 1: bitcoin was worth sixty dollars. That wasn't a couple of

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Speaker 1: years ago. That was this year. That crash actually happened

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Speaker 1: earlier this year, in the spring of this year. It

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Speaker 1: just feels to me like this year has lasted five years,

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Speaker 1: which I guess I could say about the last couple

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Speaker 1: of years have felt that way. But anyway, so this

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Speaker 1: past spring, and again that's the Spring of two for

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Speaker 1: any of you listening from the future, we saw crypto

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Speaker 1: values in sharp decline. In a May two article titled

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Speaker 1: Cryptocurrencies melt down in a perfect storm of fear and panic,

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Speaker 1: The New York Times reporter team spelled it all out,

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Speaker 1: all right. So towards the beginning of the Panto back

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Speaker 1: back in, there was a spike in cryptocurrency adoption. This

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Speaker 1: increase in demand caused cryptocurrency values to increase. You know,

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Speaker 1: the more people want something, the more expensive it gets.

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Speaker 1: And these included not just your regular old folks dipping

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Speaker 1: their toes into doge coin or whatever. You had these

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Speaker 1: massive financial companies, including banks and hedge funds that were

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Speaker 1: purchasing large amounts of cryptocurrency and a bet that those

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Speaker 1: coins would continue to increase in value to the moon.

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Speaker 1: As the crypto bros would say. Um side note, crypto

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Speaker 1: bro is a pretty common, somewhat dismissive term for cryptocurrency enthusiasts,

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Speaker 1: but obviously anyone of any gender can be interested in crypto,

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Speaker 1: so crypto bro, as far as I'm concerned, should be

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Speaker 1: considered a non gendered term. But whether you agree with

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Speaker 1: that or not, it is the term that a lot

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Speaker 1: of folks use, all right. So the value for cryptocurrencies

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Speaker 1: in general goes up and up. Bitcoin reached a peak

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Speaker 1: of around sixty grand for a single unit of bitcoin.

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Speaker 1: In turn, the rising value of cryptocurrencies had lots of

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Speaker 1: other consequences. Proof of work cryptocurrencies like bitcoin, you know,

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Speaker 1: those are the ones that require participants to dedicate enormous

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Speaker 1: amounts of compute power to have even a hope of

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Speaker 1: mining a block of transactions. Well, that meant that collectively,

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Speaker 1: people were spending the same amount of electricity just to

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Speaker 1: mind cryptocurrency as certain countries would use in an entire year.

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Speaker 1: That in turn has an impact not just on electrical grids,

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Speaker 1: but on carbon dioxide emissions. So for any coal powered

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Speaker 1: power plants out there, I mean that increased demand just

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Speaker 1: meant we were dumping more CEO two in the atmosphere

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Speaker 1: because people wanted to mine Bitcoin. Then, for less valuable

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Speaker 1: cryptocurrencies like Ether, a lot of the miners were scooping

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Speaker 1: up powerful graphics cards like Bitcoin at this point had

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Speaker 1: graduated well beyond graphics cards. You could have the best

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Speaker 1: graphics cards on the market and not even make a

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Speaker 1: dent in the sophisticated bitcoin mining systems out there. But

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Speaker 1: for stuff like either where it wouldn't make financial sense

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Speaker 1: to go so hard on your mining rig. You know,

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Speaker 1: GPUs were a big asset, and it made it very

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Speaker 1: hard for anyone else to get hold of those graphics

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Speaker 1: processing cards, which really irritated a lot of gamers. Anyway,

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Speaker 1: this trend could not continue indefinitely, and eventually values began

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Speaker 1: to dip a bit. Now there were a lot of

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Speaker 1: external forces that would have a big impact as well.

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Speaker 1: The world began to enter into economic uncertainty. I guess

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Speaker 1: I still can't say recession. Um. You started to have

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Speaker 1: issues with inflation, you had interest rates going up, investments

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Speaker 1: and stuff like crypto started to look increasingly risky. Then

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Speaker 1: you know, Russia invaded Ukraine, which may economic uncertainty even worse,

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Speaker 1: and that led to some folks pulling out of the

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Speaker 1: crypto market. So they were selling off their crypto so

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Speaker 1: that they could walk away with a nice little profit,

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Speaker 1: and then the value would dip a bit. Then you

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Speaker 1: had folks getting nervous, So some folks began to sell

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Speaker 1: off their's because they're like, well, it's starting to go

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Speaker 1: down and I don't want to be left holding the bag,

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Speaker 1: so I'm getting out too. Now, arguably these cryptocurrencies were overvalued,

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Speaker 1: so there was a need for a market correction. But

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Speaker 1: this actually became a casscade because more and more folks

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Speaker 1: began to try and claw back their money, and crypto

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Speaker 1: in general saw a really tough decline that meant that

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Speaker 1: some companies in crypto got into financial difficulty. They had

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Speaker 1: extended deeply into the crypto market. The crypto market drops

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Speaker 1: out from under them and they are drowning and in sweeps. SBF,

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Speaker 1: who may or may not be a superhero or supervillain

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Speaker 1: now SPF really believed in his vision of crypto, and

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Speaker 1: he has an altruistic streak, a sile wide. I mean

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Speaker 1: he genuinely has talked a big talk and put a

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Speaker 1: lot of money towards philanthropy. But for crypto to succeed,

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Speaker 1: you know, he felt we really needed these various crypto

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Speaker 1: companies to stick around or else all confidence is going

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Speaker 1: to go out of crypto and the whole thing dies.

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Speaker 1: So rather than let these companies go out of business

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Speaker 1: while companies like Alameda, ft X and Binance may or

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Speaker 1: may not be able to weather the storm, he directed

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Speaker 1: his companies, which he owned like seventy of them, to

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Speaker 1: acquire and bail out some of the smaller crypto companies

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Speaker 1: that were in trouble. For example, this past July July

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Speaker 1: of two thousand twenty two, ft X signed a deal

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Speaker 1: with a company called Block five, which was a crypto

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Speaker 1: lender company. That deal had an option to buy Block

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Speaker 1: five at reportedly around two hundred forty million dollars, but

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Speaker 1: the actual deal involved providing a four hundred million dollar

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Speaker 1: credit facility for Block five to use. We'll get back

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Speaker 1: to that at the end of this episode. Later in July,

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Speaker 1: f t X reached out to a different crypto lender,

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Speaker 1: one that was in the throes of bankruptcy, so this

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Speaker 1: one wasn't just teetering it was in chapter eleven. This

433
00:27:14,240 --> 00:27:17,960
Speaker 1: one was called Voyager Digital, so the offer was for

434
00:27:18,119 --> 00:27:22,280
Speaker 1: a partial bailout. The Voyager Digital dismissed the offer as

435
00:27:22,320 --> 00:27:26,240
Speaker 1: a low ball bid, but the bankruptcy proceedings continued, and

436
00:27:26,320 --> 00:27:29,960
Speaker 1: eventually Voyager Digital essentially went up on the auction block

437
00:27:30,000 --> 00:27:32,400
Speaker 1: and f t X ended up winning the auction, so

438
00:27:32,680 --> 00:27:36,080
Speaker 1: it outbid all other competitors and f t X was

439
00:27:36,119 --> 00:27:39,600
Speaker 1: expected to bring Voyager Digital out of bankruptcy, which is

440
00:27:39,640 --> 00:27:43,359
Speaker 1: not going to happen. Spoiler alert. F t X started

441
00:27:43,400 --> 00:27:46,240
Speaker 1: to run into trouble later in the summer of two

442
00:27:46,320 --> 00:27:49,000
Speaker 1: for one thing, UH the f d i C a

443
00:27:49,160 --> 00:27:53,119
Speaker 1: U S Bank regulator issued a stern warning to ft X,

444
00:27:53,200 --> 00:27:56,520
Speaker 1: claiming the company had made misleading statements regarding whether it's

445
00:27:56,560 --> 00:28:00,720
Speaker 1: funds were ensured by the US government. Specific the f

446
00:28:00,840 --> 00:28:03,680
Speaker 1: d i C called out a tweet by Brett Harrison,

447
00:28:03,800 --> 00:28:06,720
Speaker 1: who was a leader at f t X. The f

448
00:28:06,880 --> 00:28:09,320
Speaker 1: d i C argued that Harrison's tweet made it sound

449
00:28:09,359 --> 00:28:11,680
Speaker 1: like customers who held funds at f t X and

450
00:28:11,720 --> 00:28:14,760
Speaker 1: who were purchasing stocks through f t X had the

451
00:28:14,800 --> 00:28:18,560
Speaker 1: benefit of those transactions being f d I C ensured,

452
00:28:19,080 --> 00:28:23,240
Speaker 1: which was not the case. Harrison would subsequently delete the tweet,

453
00:28:23,480 --> 00:28:26,160
Speaker 1: and folks assume that the whole thing was a poorly

454
00:28:26,200 --> 00:28:29,679
Speaker 1: worded message in the first place that was intended to

455
00:28:29,760 --> 00:28:32,960
Speaker 1: reassure people that crypto really isn't as risky as some

456
00:28:33,000 --> 00:28:36,320
Speaker 1: folks were saying. Keep in mind, this is happening in

457
00:28:36,320 --> 00:28:39,520
Speaker 1: the wake of the crypto market decline that began back

458
00:28:39,560 --> 00:28:42,680
Speaker 1: in the spring. Then we get to early November. Now,

459
00:28:42,720 --> 00:28:45,800
Speaker 1: for those listening from the future, I'm recording and publishing

460
00:28:45,840 --> 00:28:49,720
Speaker 1: this in mid November two. So everything I'm going to

461
00:28:49,840 --> 00:28:54,320
Speaker 1: talk about next happened in the last two weeks, and

462
00:28:54,360 --> 00:28:58,320
Speaker 1: a whole bunch of things happened in rapid succession. On

463
00:28:58,440 --> 00:29:02,640
Speaker 1: November two, the crypto news site coin Desk posted an

464
00:29:02,720 --> 00:29:07,200
Speaker 1: article about Elite balance sheet regarding Alimator Research, and the

465
00:29:07,240 --> 00:29:11,000
Speaker 1: implications were troubling, to say the least. According to the

466
00:29:11,040 --> 00:29:15,840
Speaker 1: balance sheet, Alimator Research was taking assets from ft X,

467
00:29:15,920 --> 00:29:19,960
Speaker 1: the cryptocurrency exchange, and then using those assets to fund

468
00:29:20,480 --> 00:29:24,280
Speaker 1: trades that Alimator Research was was making Those f t

469
00:29:24,560 --> 00:29:28,360
Speaker 1: X assets belonged to f t X customers, So one

470
00:29:28,400 --> 00:29:32,600
Speaker 1: of sbfs companies was essentially dipping into one of his

471
00:29:32,800 --> 00:29:36,840
Speaker 1: other companies in order to fund trades. And moreover, it

472
00:29:36,960 --> 00:29:42,360
Speaker 1: was doing this without the consent of f t X customers. Okay,

473
00:29:42,400 --> 00:29:44,560
Speaker 1: that's a lot to take in, but we've got so

474
00:29:44,640 --> 00:29:46,360
Speaker 1: much more. We're going to take another break, and when

475
00:29:46,400 --> 00:29:48,120
Speaker 1: we come back, I'm going to talk about some of

476
00:29:48,160 --> 00:29:51,480
Speaker 1: the really crazy stuff that's happened in the last two weeks.

477
00:29:51,520 --> 00:30:04,640
Speaker 1: But first let's take a break. Okay, So Alimator Research

478
00:30:05,280 --> 00:30:09,040
Speaker 1: is taking ft X money, which is provided by f

479
00:30:09,160 --> 00:30:13,080
Speaker 1: t x is customers who are part of this cryptocurrency exchange.

480
00:30:13,240 --> 00:30:15,360
Speaker 1: It's taking money out of those accounts in order to

481
00:30:15,440 --> 00:30:19,120
Speaker 1: fund investments. You might be thinking that doesn't sound like

482
00:30:19,160 --> 00:30:23,280
Speaker 1: it should be legal, and in most places it's not.

483
00:30:23,760 --> 00:30:27,920
Speaker 1: US securities law requires that companies be very transparent about

484
00:30:27,920 --> 00:30:30,960
Speaker 1: this sort of thing, and that they secure the consent

485
00:30:31,040 --> 00:30:35,840
Speaker 1: of customers before doing anything like this with those customers funds.

486
00:30:36,400 --> 00:30:39,640
Speaker 1: This practice actually even goes against f t x is

487
00:30:39,800 --> 00:30:43,600
Speaker 1: own terms of service, So even if it weren't illegal,

488
00:30:43,920 --> 00:30:46,560
Speaker 1: it would be against the company's own policy. And yet,

489
00:30:46,560 --> 00:30:49,640
Speaker 1: according to this leaked document, this is what was happening.

490
00:30:50,720 --> 00:30:54,800
Speaker 1: The balance sheet showed the Alimator Research had a lot

491
00:30:54,880 --> 00:30:59,360
Speaker 1: of assets in f t t that's that exchange coin

492
00:30:59,480 --> 00:31:03,720
Speaker 1: that's used by f t X. Now by itself, that's

493
00:31:03,760 --> 00:31:07,360
Speaker 1: not immediately a problem necessarily, but it brings up some

494
00:31:07,400 --> 00:31:11,840
Speaker 1: red flags because if your investment firms assets are made

495
00:31:11,920 --> 00:31:15,640
Speaker 1: up mostly of a cryptocurrency that you also happen to

496
00:31:15,760 --> 00:31:19,600
Speaker 1: have invented, it begins to sound a little bit like

497
00:31:19,640 --> 00:31:22,160
Speaker 1: you're printing up your own money and you're trying to

498
00:31:22,200 --> 00:31:26,000
Speaker 1: live like Emperor Norton of San Francisco. If you don't

499
00:31:26,000 --> 00:31:30,680
Speaker 1: know who Emperor Norton was, look him up. Because it's

500
00:31:30,680 --> 00:31:34,960
Speaker 1: a crazy story that's genuinely entertaining. There's some tragedy there there,

501
00:31:35,040 --> 00:31:37,840
Speaker 1: but it's it's got a lot of quirky fun stuff

502
00:31:37,880 --> 00:31:41,120
Speaker 1: in it. You should look that up anyway. The biggest

503
00:31:41,160 --> 00:31:44,880
Speaker 1: asset held by Alameda Research was a whopping three point

504
00:31:44,960 --> 00:31:49,800
Speaker 1: six six billion dollars worth of quote unquote unlocked f

505
00:31:49,880 --> 00:31:54,240
Speaker 1: t T. Third place, the third biggest asset was another

506
00:31:54,320 --> 00:31:59,280
Speaker 1: two point one six billion dollars of f t T collateral.

507
00:32:00,160 --> 00:32:03,640
Speaker 1: And then much further down you had another two million

508
00:32:03,720 --> 00:32:07,400
Speaker 1: dollars of locked f t T. And this got a

509
00:32:07,400 --> 00:32:10,800
Speaker 1: lot of folks saying, huh, it kind of looks like

510
00:32:10,840 --> 00:32:16,160
Speaker 1: you're robbing Peter to pay Paul that Alimator Research. This,

511
00:32:16,160 --> 00:32:21,560
Speaker 1: this quantitative investment firm, was leaning heavily on the funds

512
00:32:21,600 --> 00:32:25,920
Speaker 1: within f t X, a cryptocurrency exchange, in order to

513
00:32:25,960 --> 00:32:29,800
Speaker 1: pay for investments. Now, if this balance sheet had not

514
00:32:29,960 --> 00:32:34,200
Speaker 1: been leaked, and f t X customers remained unaware that

515
00:32:34,240 --> 00:32:38,440
Speaker 1: their money was being used to fuel Alimator Research, maybe

516
00:32:38,520 --> 00:32:42,320
Speaker 1: everything would have remained more or less stable, or at

517
00:32:42,400 --> 00:32:45,640
Speaker 1: least not obviously unstable. Maybe f t X would still

518
00:32:45,640 --> 00:32:50,479
Speaker 1: be operating just fine today. But Coin Desks report changed

519
00:32:50,560 --> 00:32:53,800
Speaker 1: all of that. For one thing, it showed that Alimated

520
00:32:53,880 --> 00:32:58,160
Speaker 1: Research had billions of dollars of debt. So that is

521
00:32:58,200 --> 00:33:02,000
Speaker 1: a big risk if this organization is in debt to

522
00:33:02,040 --> 00:33:05,280
Speaker 1: the tune of around eight billion dollars, and if it's

523
00:33:05,320 --> 00:33:10,200
Speaker 1: dependent upon funds from a totally different company, that other

524
00:33:10,280 --> 00:33:13,800
Speaker 1: company as at risk too. So a few days later,

525
00:33:14,080 --> 00:33:21,360
Speaker 1: on November six, Binances CEO ol c z Chong peng

526
00:33:21,520 --> 00:33:26,840
Speaker 1: Zhao said his company would liquidate their FTT holdings. Now

527
00:33:26,880 --> 00:33:30,800
Speaker 1: do you remember those because Binance was an early investor

528
00:33:30,840 --> 00:33:34,120
Speaker 1: into f t X. Then fd X paid off Binances

529
00:33:34,200 --> 00:33:39,240
Speaker 1: investment with twenty three million f t T s. Well,

530
00:33:39,240 --> 00:33:42,040
Speaker 1: now Binance was saying, yeah, we're gonna cash those out.

531
00:33:42,440 --> 00:33:45,480
Speaker 1: We would like to cash out our ft T holdings

532
00:33:45,520 --> 00:33:49,840
Speaker 1: for you know some other form of currency. Well, if

533
00:33:49,880 --> 00:33:53,560
Speaker 1: you flood a market with any asset, you typically see

534
00:33:53,560 --> 00:33:57,080
Speaker 1: that assets value drop. Right in the example I gave

535
00:33:57,120 --> 00:33:59,080
Speaker 1: early on, if you were to buy a bunch of

536
00:33:59,160 --> 00:34:02,280
Speaker 1: cheap apples and you were going across town and selling

537
00:34:02,280 --> 00:34:05,280
Speaker 1: your cheap apples at a profit, eventually you had flood

538
00:34:05,320 --> 00:34:08,200
Speaker 1: the market on the other side of town with apples,

539
00:34:08,440 --> 00:34:10,759
Speaker 1: and they wouldn't be valuable anymore, right they would, they

540
00:34:10,760 --> 00:34:14,359
Speaker 1: would the prices would be closer to evening out. So

541
00:34:15,600 --> 00:34:19,640
Speaker 1: you flood the market, the value drops. Well, finance dropping

542
00:34:19,640 --> 00:34:21,480
Speaker 1: all of its f t T was about to flood

543
00:34:21,480 --> 00:34:24,400
Speaker 1: the exchange with f t T tokens. So then you

544
00:34:24,440 --> 00:34:26,360
Speaker 1: had all these other people who owned f t T

545
00:34:26,520 --> 00:34:28,000
Speaker 1: tokens and they said, well, I don't want to be

546
00:34:28,080 --> 00:34:30,360
Speaker 1: left holding the bag. I don't want my f t

547
00:34:30,520 --> 00:34:35,320
Speaker 1: T tokens to be valueless. I'm going to cash out too. Well, now,

548
00:34:35,920 --> 00:34:39,239
Speaker 1: f t X was in a bind because it had

549
00:34:39,280 --> 00:34:43,440
Speaker 1: been apparently funneling money over to Alimta Research, and it

550
00:34:43,520 --> 00:34:47,279
Speaker 1: didn't have enough cash to cover all the requests as

551
00:34:47,360 --> 00:34:50,800
Speaker 1: people were trying to cash out. It was a liquidity crisis,

552
00:34:51,640 --> 00:34:55,719
Speaker 1: and f t X didn't have enough to cover all

553
00:34:55,760 --> 00:34:58,520
Speaker 1: of these requests. So the company ends up being in

554
00:34:58,680 --> 00:35:02,160
Speaker 1: serious trouble. Like if people here, hey, there's not enough

555
00:35:02,160 --> 00:35:05,239
Speaker 1: money in the bank to cover everyone, then there's often

556
00:35:05,280 --> 00:35:07,400
Speaker 1: a run on the bank. That's exactly what happened. There

557
00:35:07,440 --> 00:35:09,120
Speaker 1: was a run on the bank, except in this case,

558
00:35:09,560 --> 00:35:12,760
Speaker 1: the bank is a cryptocurrency exchange. Now, before I explain

559
00:35:12,800 --> 00:35:15,759
Speaker 1: what happened next, I need to talk a little bit

560
00:35:15,800 --> 00:35:20,520
Speaker 1: about CZ and his ongoing feud with SBF. Yes, it's

561
00:35:20,560 --> 00:35:24,239
Speaker 1: the War of the initials. Now, as we learned, CZ's

562
00:35:24,280 --> 00:35:28,160
Speaker 1: company was one of the earliest investors in SPFS company.

563
00:35:28,239 --> 00:35:31,600
Speaker 1: So what the heck happened to turn these two collaborators

564
00:35:31,640 --> 00:35:35,799
Speaker 1: into bitter rivals. Well, no one has really documented the

565
00:35:35,800 --> 00:35:38,760
Speaker 1: whole thing, but my guess is one really big reason

566
00:35:38,880 --> 00:35:43,520
Speaker 1: comes down to the concept of government regulation. See, governments

567
00:35:43,560 --> 00:35:46,680
Speaker 1: around the world have been debating on how or if

568
00:35:46,960 --> 00:35:50,120
Speaker 1: to regulate the crypto market, and of course, the crypto

569
00:35:50,160 --> 00:35:51,880
Speaker 1: market was set up in a large part as a

570
00:35:51,880 --> 00:35:57,800
Speaker 1: way to sidestep stuff like government regulation. SPF testified before

571
00:35:58,000 --> 00:36:02,200
Speaker 1: US Congress about do and even worked with them to

572
00:36:02,400 --> 00:36:06,160
Speaker 1: sort of draft recommendations for regulations that would end up

573
00:36:06,200 --> 00:36:10,439
Speaker 1: affecting the crypto industry, and c Z just wasn't having

574
00:36:10,480 --> 00:36:14,839
Speaker 1: any of that. C Z definitely does not want regulation

575
00:36:15,080 --> 00:36:18,479
Speaker 1: entering into the conversation at all. It's a four letter

576
00:36:18,520 --> 00:36:22,440
Speaker 1: word in his mind. Now, you could argue that SBF

577
00:36:22,520 --> 00:36:25,960
Speaker 1: saw that regulations are on the horizon and that by

578
00:36:26,000 --> 00:36:30,359
Speaker 1: becoming part of the conversation he could help draft regulations

579
00:36:30,360 --> 00:36:33,360
Speaker 1: that would have a relatively light touch on the crypto market,

580
00:36:33,400 --> 00:36:37,600
Speaker 1: so he could kind of steer the government's approach to crypto.

581
00:36:38,000 --> 00:36:42,239
Speaker 1: But his involvement in even talking about regulations made him

582
00:36:42,280 --> 00:36:45,200
Speaker 1: persona non grata to folks like c Z who just

583
00:36:45,800 --> 00:36:48,640
Speaker 1: don't want to even entertain the thought of it, whether

584
00:36:48,680 --> 00:36:52,520
Speaker 1: it's you know, somewhat favorable to crypto or not. Now,

585
00:36:53,200 --> 00:36:57,680
Speaker 1: did c Z see an opportunity to go for SPF's

586
00:36:57,960 --> 00:37:01,560
Speaker 1: jugular by selling off to any three million f T

587
00:37:01,719 --> 00:37:07,200
Speaker 1: T tokens and tanking and overextended cryptocurrency exchange? Moreover, it's

588
00:37:07,239 --> 00:37:11,919
Speaker 1: a cryptocurrency exchange that is second only to his own, right,

589
00:37:12,840 --> 00:37:15,040
Speaker 1: It's it's one that's run by a guy who's working

590
00:37:15,080 --> 00:37:19,840
Speaker 1: to draft crypto regulations with the US government. So you

591
00:37:19,880 --> 00:37:21,920
Speaker 1: could say that c Z has a whole bunch of

592
00:37:21,960 --> 00:37:26,000
Speaker 1: access to grind against s BF. Like, you've got the

593
00:37:26,120 --> 00:37:30,000
Speaker 1: number two cryptocurrency exchange out there, so it's the biggest competitor.

594
00:37:30,760 --> 00:37:36,200
Speaker 1: You've got this whole potential regulations thing looming on the horizon. Uh,

595
00:37:36,280 --> 00:37:38,600
Speaker 1: you know, all these sort of ideas. But according to

596
00:37:38,680 --> 00:37:42,360
Speaker 1: c Z, none of that even factored into his decision.

597
00:37:42,560 --> 00:37:45,680
Speaker 1: He said that Finance was divesting itself of f T

598
00:37:45,800 --> 00:37:50,719
Speaker 1: T tokens because of quote unquote recent revelations, which he

599
00:37:50,760 --> 00:37:53,279
Speaker 1: did not elaborate upon, but folks took it to mean

600
00:37:53,360 --> 00:37:57,040
Speaker 1: that balance sheet stuff that leaked on coin desk. Now,

601
00:37:57,080 --> 00:38:00,480
Speaker 1: I get the feeling some of this decision may have

602
00:38:00,600 --> 00:38:04,640
Speaker 1: in fact been personal and not just business. But again,

603
00:38:04,800 --> 00:38:08,480
Speaker 1: that's just my opinion. I don't have anything to back

604
00:38:08,520 --> 00:38:12,600
Speaker 1: that up apart from you know, various tweet streams that

605
00:38:12,760 --> 00:38:16,040
Speaker 1: came out, so you can't really call that evidence. It's

606
00:38:16,120 --> 00:38:20,920
Speaker 1: just the feeling I get. Anyway, whatever the motivation was,

607
00:38:21,239 --> 00:38:24,760
Speaker 1: finances move of selling off this f t t directly

608
00:38:24,840 --> 00:38:28,520
Speaker 1: led to a financial crisis for f t X, the

609
00:38:28,560 --> 00:38:32,520
Speaker 1: cryptocurrency exchange. And then two days later, because I told

610
00:38:32,560 --> 00:38:36,120
Speaker 1: you this stuff moved so fast, c Z and Finance

611
00:38:36,200 --> 00:38:40,239
Speaker 1: announced an intent to acquire f t X. So now

612
00:38:40,280 --> 00:38:44,239
Speaker 1: the number one cryptocurrency exchange says it's gonna buy the

613
00:38:44,320 --> 00:38:48,440
Speaker 1: number two cryptocurrency exchange because the number two one is

614
00:38:48,880 --> 00:38:53,200
Speaker 1: in trouble. The following day, so at this point we're

615
00:38:53,200 --> 00:38:59,000
Speaker 1: at November nine, c Z says, yeah, no thanks, I'm

616
00:38:59,040 --> 00:39:03,000
Speaker 1: good and backed away from the deal. And that was,

617
00:39:03,200 --> 00:39:06,000
Speaker 1: you know, legally fined because the two entities had not

618
00:39:06,160 --> 00:39:10,160
Speaker 1: entered into any sort of binding agreement. So Binance said

619
00:39:10,160 --> 00:39:12,200
Speaker 1: it was going to acquire fd X and the next

620
00:39:12,239 --> 00:39:14,680
Speaker 1: day said you know what, no, we're not, and they

621
00:39:14,719 --> 00:39:18,560
Speaker 1: walked away and things got even uglier at f t X,

622
00:39:19,040 --> 00:39:21,560
Speaker 1: and some wonder if that was in fact the point,

623
00:39:21,640 --> 00:39:26,040
Speaker 1: like if Finance ever actually intended to acquire f t X,

624
00:39:26,040 --> 00:39:28,520
Speaker 1: And I don't know the answer to that either. So

625
00:39:29,280 --> 00:39:33,320
Speaker 1: f t X halted withdrawals on November ten, so people

626
00:39:33,320 --> 00:39:36,800
Speaker 1: could not take their money out of f t X

627
00:39:36,960 --> 00:39:40,440
Speaker 1: starting November ten. They also stopped accepting new clients so

628
00:39:40,440 --> 00:39:42,880
Speaker 1: they wouldn't let anyone else get a get an account

629
00:39:43,080 --> 00:39:47,640
Speaker 1: with the exchange, and SPF indicated he was seeking alternative

630
00:39:47,719 --> 00:39:51,360
Speaker 1: saviors now that Binance had bailed out of the bailout,

631
00:39:52,000 --> 00:39:55,920
Speaker 1: so SPF needed more than nine billion dollars to stop

632
00:39:55,960 --> 00:40:00,719
Speaker 1: f t X from collapsing, along with Alimta Research. He

633
00:40:00,800 --> 00:40:04,239
Speaker 1: did not get his nine billion dollars. He reached out

634
00:40:04,239 --> 00:40:08,520
Speaker 1: to coin base CEO Brian Armstrong among others, and no

635
00:40:08,719 --> 00:40:14,000
Speaker 1: lifelines were thrown. So on November eleven, which was last Friday,

636
00:40:14,200 --> 00:40:18,040
Speaker 1: f t X entered into Chapter eleven bankruptcy proceedings here

637
00:40:18,040 --> 00:40:23,160
Speaker 1: in the United States. SBF also stepped down as CEO.

638
00:40:23,400 --> 00:40:25,680
Speaker 1: He was replaced by do you know what? You just

639
00:40:25,719 --> 00:40:28,680
Speaker 1: can't make this stuff up? He was replaced by John

640
00:40:28,920 --> 00:40:33,279
Speaker 1: Jay Ray the third This guy was the lawyer who

641
00:40:33,400 --> 00:40:36,920
Speaker 1: was brought in to oversee the liquidation of the Enron

642
00:40:37,160 --> 00:40:42,560
Speaker 1: Corporation in the wake of that company's scandalous self destruction.

643
00:40:43,080 --> 00:40:46,480
Speaker 1: So if I ever do a podcast series about businesses,

644
00:40:46,520 --> 00:40:49,080
Speaker 1: going to put kind of like business on the BRAINK

645
00:40:49,120 --> 00:40:51,719
Speaker 1: if I ever did that again, I could spend a

646
00:40:51,760 --> 00:40:56,600
Speaker 1: full season just covering what happened at Enron. Anyway, I

647
00:40:56,680 --> 00:40:58,560
Speaker 1: just think it's safe to say that John J. Ray

648
00:40:58,680 --> 00:41:01,759
Speaker 1: the third is an expert at dismantling companies that have

649
00:41:01,880 --> 00:41:06,600
Speaker 1: collapsed in on themselves. But wait, it gets worse. So

650
00:41:06,680 --> 00:41:10,680
Speaker 1: on November twelve, Reuters issued a report saying that f

651
00:41:10,800 --> 00:41:14,239
Speaker 1: t X was missing money, a lot of money. So

652
00:41:14,239 --> 00:41:17,880
Speaker 1: we're talking about around a billion dollars of customer funds

653
00:41:18,360 --> 00:41:21,160
Speaker 1: missing from ft X, maybe as much as two billion,

654
00:41:21,680 --> 00:41:24,840
Speaker 1: with certainly prompts a question, which is, where the hell

655
00:41:25,040 --> 00:41:29,640
Speaker 1: is my money? I'm assuming people who had accounts were

656
00:41:29,640 --> 00:41:31,480
Speaker 1: saying that I don't have an account with them, so

657
00:41:32,360 --> 00:41:34,680
Speaker 1: but I could just that's what I would be saying

658
00:41:34,760 --> 00:41:37,880
Speaker 1: if I did, I'll move. On that same day, f

659
00:41:38,040 --> 00:41:41,960
Speaker 1: t X moved customer funds into offline wallets a k

660
00:41:42,120 --> 00:41:45,600
Speaker 1: A cold storage, meaning that there's no way for customers

661
00:41:45,640 --> 00:41:49,080
Speaker 1: to access those funds. They are disconnected from the exchange,

662
00:41:49,400 --> 00:41:51,960
Speaker 1: but it also means that nothing else happening at the

663
00:41:52,000 --> 00:41:55,919
Speaker 1: exchange can pull money from those digital wallets. And ft

664
00:41:56,120 --> 00:41:58,160
Speaker 1: X then announced that there had been a string of

665
00:41:58,280 --> 00:42:03,319
Speaker 1: quote unquote unauthorized transactions and that these had drained fd

666
00:42:03,560 --> 00:42:06,480
Speaker 1: X funds. You might wonder, well, how much money was taken,

667
00:42:06,840 --> 00:42:09,279
Speaker 1: and that depends upon whom you believe. On the low end,

668
00:42:09,280 --> 00:42:13,600
Speaker 1: we're looking at around four hundred seventy three million dollars

669
00:42:13,600 --> 00:42:17,560
Speaker 1: that were drained or stolen. It could be as much

670
00:42:17,560 --> 00:42:21,799
Speaker 1: as six hundred fifty million or maybe even more. That's

671
00:42:21,800 --> 00:42:24,640
Speaker 1: a huge range right at. F t X definitely did

672
00:42:24,680 --> 00:42:27,040
Speaker 1: not need this on top of everything else. It really

673
00:42:27,120 --> 00:42:30,239
Speaker 1: is kind of like beating a dead horse, and it

674
00:42:30,320 --> 00:42:33,600
Speaker 1: might even be worse because one fd X admin allegedly

675
00:42:33,640 --> 00:42:37,279
Speaker 1: posted to the company's Telegram accounts saying quote f t

676
00:42:37,600 --> 00:42:41,200
Speaker 1: X has been hacked. All funds seem to be gone

677
00:42:41,400 --> 00:42:46,520
Speaker 1: end quote yikes. Immediately there were folks online speculating that

678
00:42:46,640 --> 00:42:51,359
Speaker 1: perhaps someone within f t X, maybe SPF or one

679
00:42:51,400 --> 00:42:56,320
Speaker 1: of the ten people that cohabitate with him in the Bahamas,

680
00:42:56,640 --> 00:42:59,000
Speaker 1: had done this, had siphoned off the cash and they

681
00:42:59,040 --> 00:43:01,520
Speaker 1: were trying to make a quick getaway, but there have

682
00:43:01,600 --> 00:43:04,839
Speaker 1: been no reports to suggest that's actually what is going on.

683
00:43:05,520 --> 00:43:09,000
Speaker 1: Investigations are ramping up. In fact, a few investigations began

684
00:43:09,120 --> 00:43:12,880
Speaker 1: before f t X even announced the theft. For example,

685
00:43:12,920 --> 00:43:16,399
Speaker 1: so you have the Royal Bahamas Police Force. That's one

686
00:43:16,560 --> 00:43:19,719
Speaker 1: entity engaged in investigating ft X. You might wonder, well,

687
00:43:19,760 --> 00:43:23,360
Speaker 1: why the Royal Bahamas Police Force, And again it's because

688
00:43:23,440 --> 00:43:27,520
Speaker 1: last year ft X relocated it's HQ to the Bahamas UM.

689
00:43:27,560 --> 00:43:31,200
Speaker 1: These crypto exchanges frequently choose offshore locations to avoid stuff

690
00:43:31,239 --> 00:43:35,880
Speaker 1: like those pesky government regulations we keep mentioning. Anyway, the

691
00:43:35,920 --> 00:43:38,520
Speaker 1: Bahamas Police have stated that they're looking into f t

692
00:43:38,719 --> 00:43:41,440
Speaker 1: X for any signs of criminal activity in the wake

693
00:43:41,560 --> 00:43:46,120
Speaker 1: of this collapse. Then the Wall Street Journal reports that

694
00:43:46,160 --> 00:43:49,560
Speaker 1: the US Department of Justice, as well as the US

695
00:43:49,719 --> 00:43:55,600
Speaker 1: Securities Exchange Commission or SEC, are also investigating f t X.

696
00:43:55,960 --> 00:43:59,160
Speaker 1: And in fact, these investigations started before we learned about

697
00:43:59,239 --> 00:44:03,920
Speaker 1: the theft. Okay, so investigations are ramping up. We'll probably

698
00:44:04,040 --> 00:44:07,080
Speaker 1: learn more about what was going on and potentially who

699
00:44:07,160 --> 00:44:10,480
Speaker 1: was responsible. But let's also talk about some of the

700
00:44:10,520 --> 00:44:14,480
Speaker 1: other effects this fallout has had beyond f t X

701
00:44:14,520 --> 00:44:18,320
Speaker 1: going into bankruptcy. So just a few months ago, SBF,

702
00:44:18,360 --> 00:44:22,040
Speaker 1: the co founder, had a personal worth of around twenty

703
00:44:22,080 --> 00:44:27,840
Speaker 1: six billion dollars billion with a b billionaire. Now, at

704
00:44:27,880 --> 00:44:30,680
Speaker 1: the beginning of the f t X debacle, that value

705
00:44:30,719 --> 00:44:34,080
Speaker 1: had plunged by more than nine billion dollars. To lose

706
00:44:34,160 --> 00:44:37,279
Speaker 1: nine billion dollars instantly is that's got to be a

707
00:44:37,280 --> 00:44:40,880
Speaker 1: heck of a thing. But obviously things just kept getting worse.

708
00:44:41,360 --> 00:44:44,520
Speaker 1: So toward the middle of last week, SBF was said

709
00:44:44,560 --> 00:44:48,640
Speaker 1: to have lost ninety four percent of his wealth. Now,

710
00:44:48,680 --> 00:44:52,960
Speaker 1: remember he had seventy ownership of his companies of f

711
00:44:53,080 --> 00:44:55,799
Speaker 1: t X and Alimated Research, so a lot of his

712
00:44:55,840 --> 00:44:59,320
Speaker 1: wealth was actually tied up into the value of those companies.

713
00:44:59,360 --> 00:45:02,040
Speaker 1: It's not like he had a Scrooge McDuck style vault

714
00:45:02,080 --> 00:45:06,640
Speaker 1: filled with cash. So with those companies imploding, his wealth

715
00:45:06,719 --> 00:45:09,279
Speaker 1: went up in smoke. And this is where we remember

716
00:45:09,320 --> 00:45:14,560
Speaker 1: that wealth and money are two different things. I'm not

717
00:45:14,640 --> 00:45:17,719
Speaker 1: sure how SPF is doing now, but on paper, he

718
00:45:17,800 --> 00:45:21,319
Speaker 1: essentially went from being a billionaire to being broke in

719
00:45:21,440 --> 00:45:24,160
Speaker 1: just a couple of weeks. I don't know if I

720
00:45:24,200 --> 00:45:27,000
Speaker 1: could manage that, but I'm willing to give it a try.

721
00:45:27,560 --> 00:45:30,760
Speaker 1: Someone just has to give me a few billion dollars first,

722
00:45:31,480 --> 00:45:34,200
Speaker 1: any takers. And yeah, I'm being a little flippant, but

723
00:45:34,239 --> 00:45:38,319
Speaker 1: we should also remember SPF Diden genuinely want to help others,

724
00:45:38,400 --> 00:45:40,440
Speaker 1: or at least he said he did. So let's talk

725
00:45:40,480 --> 00:45:42,560
Speaker 1: about some of the companies that f t X moved

726
00:45:42,600 --> 00:45:46,080
Speaker 1: to bail out before ft X had its own crisis.

727
00:45:46,560 --> 00:45:49,719
Speaker 1: There was Block five, which has recently announced it has

728
00:45:49,760 --> 00:45:53,560
Speaker 1: ceased business as normal. It has cited a lack of

729
00:45:53,640 --> 00:45:56,120
Speaker 1: clarity regarding the situation at f t X as the

730
00:45:56,160 --> 00:45:59,480
Speaker 1: reason to put a freeze on withdrawals. In addition, the

731
00:45:59,520 --> 00:46:02,080
Speaker 1: company had wise customers not to put more money into

732
00:46:02,120 --> 00:46:04,879
Speaker 1: their digital wallets connected to the company's accounts, So that's

733
00:46:04,880 --> 00:46:08,440
Speaker 1: a big old ouch. Voyager Digital, the company that f

734
00:46:08,560 --> 00:46:11,640
Speaker 1: t X purchased at auction, is looking for a new

735
00:46:11,680 --> 00:46:15,800
Speaker 1: buyer to bail out the bankrupt broker and lending company.

736
00:46:16,520 --> 00:46:18,800
Speaker 1: So the life preserver that f t X through to

737
00:46:18,920 --> 00:46:23,200
Speaker 1: Voyager Digital has transformed into an anchor, so they're back

738
00:46:23,239 --> 00:46:27,840
Speaker 1: at square one. The cryptocurrency called Solana is in free

739
00:46:27,840 --> 00:46:31,200
Speaker 1: fall at the moment. Salona has connections to SPF, as

740
00:46:31,239 --> 00:46:34,200
Speaker 1: it is the native token to the Salona blockchain, which

741
00:46:34,200 --> 00:46:39,000
Speaker 1: in turn has ties to another SPF project called Serum.

742
00:46:39,000 --> 00:46:42,680
Speaker 1: So arguably because of SPF's association, Serum is in trouble

743
00:46:42,760 --> 00:46:47,120
Speaker 1: and so Lana's value is plummeting by association. The Miami

744
00:46:47,200 --> 00:46:50,720
Speaker 1: Heat Arena has now removed the f t X arena

745
00:46:50,840 --> 00:46:52,959
Speaker 1: name and said it will search for a new name

746
00:46:53,040 --> 00:46:56,200
Speaker 1: sponsor that we're still seventeen and a half years left

747
00:46:56,239 --> 00:46:58,680
Speaker 1: on the previous deal, but the arena had only received

748
00:46:58,719 --> 00:47:02,280
Speaker 1: a small amount of the hundred thirty five million bucks

749
00:47:02,320 --> 00:47:04,799
Speaker 1: that were said to be part of that deal, so

750
00:47:04,880 --> 00:47:08,720
Speaker 1: they're done now. Uh. The F one racing team owned

751
00:47:08,719 --> 00:47:11,719
Speaker 1: by Mercedes that f t X had sponsored, has similarly

752
00:47:11,840 --> 00:47:15,680
Speaker 1: removed at the ft X logo from their vehicles. Last week,

753
00:47:15,760 --> 00:47:18,880
Speaker 1: f t X is philanthropic organization, the f t X

754
00:47:18,920 --> 00:47:22,680
Speaker 1: Foundation and it's f t X Future Fund projects saw

755
00:47:22,719 --> 00:47:26,319
Speaker 1: a mass resignation as the entire staff quit due to

756
00:47:26,360 --> 00:47:30,560
Speaker 1: having quote fundamental questions about the legitimacy and integrity of

757
00:47:30,560 --> 00:47:32,960
Speaker 1: the business operations that we're funding. The f t X

758
00:47:33,000 --> 00:47:37,040
Speaker 1: Foundation and the future fund end quote. The organization had

759
00:47:37,040 --> 00:47:40,360
Speaker 1: previously committed to awarding more than a hundred fifty million

760
00:47:40,400 --> 00:47:44,719
Speaker 1: dollars in grants. And you know, it's rare that I

761
00:47:44,760 --> 00:47:46,920
Speaker 1: do this these days, because I don't tend to have

762
00:47:47,680 --> 00:47:50,000
Speaker 1: episodes last quite this long. But we're gonna take one

763
00:47:50,000 --> 00:47:52,640
Speaker 1: more break, and I'm going to talk a bit about

764
00:47:52,680 --> 00:47:56,239
Speaker 1: some of the other lasting effects that f t x

765
00:47:56,360 --> 00:48:01,000
Speaker 1: is destruction has had and will continue to have on

766
00:48:01,080 --> 00:48:13,560
Speaker 1: the crypto world. But first, let's take one more break. Okay,

767
00:48:13,600 --> 00:48:16,880
Speaker 1: thanks for sticking around. We are in the home stretch.

768
00:48:16,960 --> 00:48:21,360
Speaker 1: But man, just the the implications of this are so huge,

769
00:48:21,400 --> 00:48:25,200
Speaker 1: and so many different companies and organizations have been affected.

770
00:48:25,239 --> 00:48:27,600
Speaker 1: You know, we've already talked about the companies that f

771
00:48:27,680 --> 00:48:30,359
Speaker 1: t X was trying to bail out and how now

772
00:48:30,400 --> 00:48:33,080
Speaker 1: they're in as bad or if not worse place than

773
00:48:33,120 --> 00:48:37,200
Speaker 1: they were before that happened. H f t X, obviously

774
00:48:37,280 --> 00:48:41,719
Speaker 1: an alimated research, are both totally crumbling. SPF is on

775
00:48:42,680 --> 00:48:45,680
Speaker 1: the bricks. He's been kicked out or really he resigned

776
00:48:46,200 --> 00:48:49,680
Speaker 1: after saying that he uh done messed up, but he

777
00:48:49,800 --> 00:48:54,800
Speaker 1: used more colorful metaphors in his language. But the fallout

778
00:48:54,840 --> 00:48:59,200
Speaker 1: has also raised concerns that these crypto exchanges lack proper governance.

779
00:49:00,120 --> 00:49:03,400
Speaker 1: So the concern is that they're being run by people

780
00:49:03,880 --> 00:49:08,200
Speaker 1: who might be engineers, they might be investors, but they

781
00:49:08,239 --> 00:49:12,319
Speaker 1: aren't people who necessarily have a deep amount of experience

782
00:49:12,320 --> 00:49:17,319
Speaker 1: when it comes to running giant financial companies. And when

783
00:49:17,320 --> 00:49:19,520
Speaker 1: they're on the small scale, it might be manageable, but

784
00:49:19,560 --> 00:49:22,040
Speaker 1: as they get bigger and bigger, that becomes more difficult

785
00:49:22,080 --> 00:49:27,000
Speaker 1: to do. And typically these giant financial institutions have a

786
00:49:27,040 --> 00:49:30,719
Speaker 1: board of directors that pulls from a really diverse group. Uh,

787
00:49:31,000 --> 00:49:35,240
Speaker 1: maybe not racially diverse, as it turns out the finance

788
00:49:35,239 --> 00:49:41,399
Speaker 1: world is overwhelmingly staffed with white men, but it would

789
00:49:41,440 --> 00:49:44,879
Speaker 1: be a diverse from different areas of expertise, so that

790
00:49:45,000 --> 00:49:49,480
Speaker 1: you would have people who could guide an organization so

791
00:49:49,520 --> 00:49:53,400
Speaker 1: that it doesn't find itself in real trouble. But again,

792
00:49:53,520 --> 00:49:57,520
Speaker 1: like cryptocurrency, one of the big things that attracts people

793
00:49:57,600 --> 00:50:01,200
Speaker 1: to it is that it kind of has this bootstrapped,

794
00:50:02,400 --> 00:50:10,279
Speaker 1: almost techno anarchist approach to finance. It's certainly and evangelicized

795
00:50:10,360 --> 00:50:15,920
Speaker 1: as being decentralized. I would argue, effectively, it is not decentralized.

796
00:50:16,520 --> 00:50:19,680
Speaker 1: It's just kind of surface level decentralized, But effectively you

797
00:50:19,760 --> 00:50:24,960
Speaker 1: get a core of very powerful entities that control everything,

798
00:50:25,000 --> 00:50:27,360
Speaker 1: and so it still becomes centralized. It's just centralized in

799
00:50:27,360 --> 00:50:32,720
Speaker 1: a different way than you would find in traditional financial institutions. Anyway,

800
00:50:33,400 --> 00:50:35,360
Speaker 1: there's a real lack of governance for a lot of

801
00:50:35,400 --> 00:50:38,880
Speaker 1: these organizations, so when things go wrong, there's not really

802
00:50:38,920 --> 00:50:42,919
Speaker 1: anyone there who has the experience to kind of right

803
00:50:43,080 --> 00:50:47,440
Speaker 1: the course before things just escalate into an uncontrollable situation.

804
00:50:47,640 --> 00:50:51,600
Speaker 1: Allah F t X, and this has led to renewed

805
00:50:51,680 --> 00:50:56,359
Speaker 1: calls for regulating the industry. My guess is that any

806
00:50:56,440 --> 00:51:01,440
Speaker 1: regulations we actually see pasted to handle cryptocurrency and crypto

807
00:51:01,520 --> 00:51:05,840
Speaker 1: markets are not going to be the light touch approach

808
00:51:05,960 --> 00:51:11,600
Speaker 1: that SPF was advocating for. Like SPF wrote a a

809
00:51:11,719 --> 00:51:18,319
Speaker 1: white paper that was essentially crypto regulations for Dummies. In fact,

810
00:51:18,320 --> 00:51:22,120
Speaker 1: it was titled something similar to that. And you know,

811
00:51:22,320 --> 00:51:24,400
Speaker 1: his idea was that these are going to happen one

812
00:51:24,440 --> 00:51:26,840
Speaker 1: way or the other, so it's best if our voice

813
00:51:26,880 --> 00:51:31,279
Speaker 1: is represented during the formulation of these regulations so that

814
00:51:31,320 --> 00:51:35,560
Speaker 1: they don't kill the industry, because there's a legit fear

815
00:51:35,600 --> 00:51:41,880
Speaker 1: that could happen. Um And so now with this spectacular

816
00:51:41,960 --> 00:51:47,200
Speaker 1: implosion of FTX, along with SBF being revealed to perhaps

817
00:51:47,239 --> 00:51:51,520
Speaker 1: have been engaged in some uh at least questionable and

818
00:51:51,560 --> 00:51:55,160
Speaker 1: potentially illegal activities as far as Alimator Research and f

819
00:51:55,280 --> 00:51:58,960
Speaker 1: t X are concerned, that really means that I think

820
00:51:58,960 --> 00:52:01,680
Speaker 1: a lot of people who otherwise would have been receptive

821
00:52:01,880 --> 00:52:04,480
Speaker 1: to his ideas are now going to say no, no,

822
00:52:04,719 --> 00:52:07,919
Speaker 1: he's he was protecting himself, right. These regulations were meant

823
00:52:08,239 --> 00:52:11,440
Speaker 1: to allow him to continue to operate in a way

824
00:52:11,480 --> 00:52:15,040
Speaker 1: where he would benefit most, and so we can't trust it,

825
00:52:15,120 --> 00:52:20,799
Speaker 1: so we have to make much much more restrictive regulations. Which, Hey,

826
00:52:21,000 --> 00:52:25,000
Speaker 1: c Z, if in fact any of your motivations tied

827
00:52:25,080 --> 00:52:29,680
Speaker 1: back to a resentment about SBF arguing for regulation, I

828
00:52:29,760 --> 00:52:32,279
Speaker 1: got some bad news for you, Bud. Things are gonna

829
00:52:32,320 --> 00:52:35,399
Speaker 1: be way worse now than they would have been. If

830
00:52:35,440 --> 00:52:38,880
Speaker 1: in fact, Finance's decision to pull out was just business

831
00:52:38,920 --> 00:52:41,000
Speaker 1: and there was nothing personal about it. If in fact

832
00:52:41,080 --> 00:52:44,560
Speaker 1: what c Z said was true that Finance got out

833
00:52:44,600 --> 00:52:48,160
Speaker 1: because they saw this balance sheet or you know, quote

834
00:52:48,200 --> 00:52:53,400
Speaker 1: unquote recent revelations and realized that their their investment was

835
00:52:53,840 --> 00:52:57,719
Speaker 1: unwise and that's why they sold it off, well you

836
00:52:57,760 --> 00:53:03,480
Speaker 1: could argue that that move acipitated into this escalating effect

837
00:53:03,680 --> 00:53:09,360
Speaker 1: that has affected the entire cryptocurrency industry, including finance itself

838
00:53:09,400 --> 00:53:12,279
Speaker 1: and the value of their assets that it may be

839
00:53:12,400 --> 00:53:15,360
Speaker 1: viewed as a very self destructive business move in the

840
00:53:15,440 --> 00:53:18,120
Speaker 1: long run. Not that I think SPF and f t

841
00:53:18,280 --> 00:53:20,960
Speaker 1: X should have just kept getting away with allegedly misusing

842
00:53:20,960 --> 00:53:24,719
Speaker 1: customer funds either. I don't think that. But again, there

843
00:53:24,719 --> 00:53:27,160
Speaker 1: are no good guys in this story, y'all. It's all

844
00:53:27,239 --> 00:53:31,799
Speaker 1: a bunch of supervillains. Speaking of cz, he has also

845
00:53:31,880 --> 00:53:35,720
Speaker 1: gone on to throw shade at another cryptocurrency exchange called

846
00:53:35,800 --> 00:53:39,880
Speaker 1: Crypto dot Com. Crypto dot com got pulled into the

847
00:53:39,920 --> 00:53:47,840
Speaker 1: spotlight when it when it accidentally transferred around three hundred

848
00:53:47,880 --> 00:53:53,200
Speaker 1: sixty million dollars worth of cryptocurrency that belonged to Crypto

849
00:53:53,800 --> 00:53:58,759
Speaker 1: customers off of its own exchange and onto another external

850
00:53:58,880 --> 00:54:05,680
Speaker 1: public exchange. So what they intended to do was transfer

851
00:54:05,840 --> 00:54:10,680
Speaker 1: those funds into cold storage, in other words, into offline

852
00:54:10,719 --> 00:54:15,560
Speaker 1: digital wallets, which already was kind of like it raises

853
00:54:15,640 --> 00:54:20,360
Speaker 1: your bread flags again, like why are you moving money

854
00:54:20,400 --> 00:54:23,240
Speaker 1: off of your exchange and into cold storage where people

855
00:54:23,320 --> 00:54:26,319
Speaker 1: can't access it? Why are you doing that? Or are

856
00:54:26,360 --> 00:54:28,560
Speaker 1: you doing it in a way so that you can

857
00:54:28,560 --> 00:54:32,680
Speaker 1: protect it because you expect some form of intrusion attack

858
00:54:32,800 --> 00:54:36,960
Speaker 1: on your exchange, and this way the money is protected

859
00:54:37,040 --> 00:54:39,920
Speaker 1: from hackers trying to get access to those funds, whatever

860
00:54:39,960 --> 00:54:44,920
Speaker 1: it may be. It starts to raise concerns and uh,

861
00:54:45,080 --> 00:54:47,880
Speaker 1: you know crypto dot Com had accidentally moved these funds

862
00:54:47,920 --> 00:54:50,680
Speaker 1: onto a totally different exchange. Then they wrote to the

863
00:54:50,719 --> 00:54:55,000
Speaker 1: exchange and essentially said, uh, my bad, would you mind

864
00:54:55,080 --> 00:54:59,000
Speaker 1: handing that three hundred and sixty million dollars worth of

865
00:54:59,040 --> 00:55:02,799
Speaker 1: assets back to us please? Which is nice because you

866
00:55:02,840 --> 00:55:06,680
Speaker 1: know that exchange actually did do that. They returned the money,

867
00:55:06,719 --> 00:55:09,719
Speaker 1: but it was beyond embarrassing. I mean, you're talking about

868
00:55:09,760 --> 00:55:13,239
Speaker 1: more than a quarter of a billion dollars accidentally sent

869
00:55:13,760 --> 00:55:16,319
Speaker 1: to the wrong place. That is not the kind of

870
00:55:16,400 --> 00:55:20,000
Speaker 1: story you want to tell when you're desperately attempting to

871
00:55:20,040 --> 00:55:26,640
Speaker 1: reassure people that crypto is not a huge risk. Anyway,

872
00:55:26,920 --> 00:55:30,839
Speaker 1: c Z appeared to allude to Crypto dot Com and

873
00:55:30,880 --> 00:55:34,000
Speaker 1: said that if an exchange is moving large amounts quote

874
00:55:34,440 --> 00:55:38,200
Speaker 1: before or after they demonstrate their wallet addresses, it is

875
00:55:38,239 --> 00:55:41,880
Speaker 1: a clear sign of problems end quote. Now this also

876
00:55:41,920 --> 00:55:45,680
Speaker 1: ties into the pressure that a lot of these exchanges

877
00:55:45,719 --> 00:55:50,160
Speaker 1: are now feeling as governments and as customers are demanding

878
00:55:50,400 --> 00:55:54,799
Speaker 1: that the exchanges prove they have the liquidity, they have

879
00:55:55,040 --> 00:55:59,480
Speaker 1: the cash on hand to cover all the assets on

880
00:55:59,640 --> 00:56:02,040
Speaker 1: the change. So if you think of it like a bank,

881
00:56:02,680 --> 00:56:06,279
Speaker 1: you want proof that the bank has a dollar for

882
00:56:06,440 --> 00:56:10,120
Speaker 1: every dollar that clients have put into an account, so

883
00:56:10,160 --> 00:56:12,360
Speaker 1: that if people wanted to pull their money out of

884
00:56:12,360 --> 00:56:15,120
Speaker 1: the bank and everyone did it at the same time,

885
00:56:15,640 --> 00:56:18,520
Speaker 1: the bank would actually be able to cover that. That's

886
00:56:18,520 --> 00:56:21,640
Speaker 1: what people want exchanges to prove, and because of the

887
00:56:21,719 --> 00:56:25,080
Speaker 1: lack of governance, that's really hard to do. At least

888
00:56:25,080 --> 00:56:27,560
Speaker 1: it's really hard to do in a way that will

889
00:56:28,400 --> 00:56:31,719
Speaker 1: seem legit right, Like there's a real worry that someone

890
00:56:31,800 --> 00:56:34,839
Speaker 1: might just print out a piece of paper say yes,

891
00:56:34,920 --> 00:56:37,480
Speaker 1: we have all the moneys and not actually have to

892
00:56:37,600 --> 00:56:40,920
Speaker 1: prove that they in fact have all the moneys. So

893
00:56:41,160 --> 00:56:44,920
Speaker 1: fd X did not have this right that that company

894
00:56:44,920 --> 00:56:48,600
Speaker 1: had funneled its assets to alimator research, at least allegedly.

895
00:56:49,280 --> 00:56:52,839
Speaker 1: And people want to know if they decide they want

896
00:56:52,840 --> 00:56:55,160
Speaker 1: to withdraw their money that the exchange is actually going

897
00:56:55,200 --> 00:56:57,560
Speaker 1: to have the money to pay them. That's what it

898
00:56:57,600 --> 00:57:01,120
Speaker 1: really boils down to, and it's it's a real crisis

899
00:57:01,200 --> 00:57:04,840
Speaker 1: for cryptocurrency exchanges right now that have been operating fast

900
00:57:04,880 --> 00:57:07,759
Speaker 1: and loose for a few years. Now. Some analysts are

901
00:57:07,800 --> 00:57:11,480
Speaker 1: even warning that Binance could fall into a similar situation

902
00:57:12,000 --> 00:57:16,680
Speaker 1: down the line, because like f t X, Finance is

903
00:57:16,760 --> 00:57:20,880
Speaker 1: also an offshore exchange with very little governance. So there's

904
00:57:20,880 --> 00:57:26,760
Speaker 1: not a whole lot of uh confidence that finances being

905
00:57:26,920 --> 00:57:30,760
Speaker 1: run on the up and up. It might be, but

906
00:57:31,320 --> 00:57:35,320
Speaker 1: the lack of governance creates suspicion. So there's this fear

907
00:57:35,840 --> 00:57:39,280
Speaker 1: that Finance could be engaged in, you know, similar activities

908
00:57:39,320 --> 00:57:42,240
Speaker 1: that f t X was engaged in, and that it

909
00:57:42,320 --> 00:57:46,880
Speaker 1: could be gambling with user funds. Now, maybe that gamble

910
00:57:46,920 --> 00:57:50,280
Speaker 1: will pay off and everyone will be fine, or maybe

911
00:57:50,320 --> 00:57:53,000
Speaker 1: it could come all crashing down, which would be a real,

912
00:57:53,240 --> 00:57:56,320
Speaker 1: super hard blow to the crypto industry as a whole.

913
00:57:56,920 --> 00:58:00,200
Speaker 1: So we've seen crypto take a hit in vow you

914
00:58:00,680 --> 00:58:02,720
Speaker 1: with ft X as fall. I'll talk about that again

915
00:58:02,720 --> 00:58:07,280
Speaker 1: in the second. So if Finance, the number one cryptocurrency exchange,

916
00:58:07,280 --> 00:58:10,320
Speaker 1: went down, it would be true chaos, and that's what

917
00:58:10,360 --> 00:58:14,080
Speaker 1: a lot of people are worried about. Now. Maybe Finance

918
00:58:14,200 --> 00:58:19,640
Speaker 1: isn't gambling at all. Maybe these suspicions that some analysts

919
00:58:19,720 --> 00:58:23,360
Speaker 1: have are completely misguided. You know, maybe it's totally fine,

920
00:58:24,120 --> 00:58:28,960
Speaker 1: it's just impossible to say because it's offshore exchange that

921
00:58:29,120 --> 00:58:34,760
Speaker 1: has very little governance and there's no transparency. So with

922
00:58:35,000 --> 00:58:39,800
Speaker 1: that comes this suspicion that cannot be allayed. Right unless

923
00:58:39,800 --> 00:58:43,840
Speaker 1: you change the operation of the organization, people are just

924
00:58:43,840 --> 00:58:46,640
Speaker 1: going to continue to be suspicious. Now, maybe nothing goes

925
00:58:46,640 --> 00:58:50,040
Speaker 1: wrong and everything's fine, or maybe someone goes really wrong

926
00:58:50,080 --> 00:58:55,520
Speaker 1: and nothing's fine. Uh. I don't know how legit those

927
00:58:55,560 --> 00:58:58,439
Speaker 1: suspicions are, Like, I don't know how well founded they are,

928
00:58:58,920 --> 00:59:01,080
Speaker 1: because I would need to look much more deeply into

929
00:59:01,160 --> 00:59:04,320
Speaker 1: Finance to give my opinion. Maybe I'll do a full

930
00:59:04,360 --> 00:59:08,000
Speaker 1: episode on Finance Leader and kind of say what at

931
00:59:08,040 --> 00:59:11,440
Speaker 1: least the experts are thinking, because obviously this is above

932
00:59:11,480 --> 00:59:16,280
Speaker 1: my pay grade. But I will say cz the CEO

933
00:59:16,440 --> 00:59:20,640
Speaker 1: of Finance strikes me as a little bit of a bully. Um.

934
00:59:20,680 --> 00:59:24,840
Speaker 1: That doesn't necessarily mean that the organization is rotten or

935
00:59:24,880 --> 00:59:28,280
Speaker 1: anything like that. Uh, it just it doesn't help the

936
00:59:28,360 --> 00:59:32,560
Speaker 1: case because sees these very good at getting people's hackles up,

937
00:59:33,000 --> 00:59:38,320
Speaker 1: and that I think feeds into this suspicion. Finally, let's

938
00:59:38,320 --> 00:59:41,440
Speaker 1: talk about f t x is collapse and it's broader

939
00:59:41,480 --> 00:59:45,680
Speaker 1: impact on crypto in general. So in one week, the

940
00:59:45,720 --> 00:59:50,040
Speaker 1: market cap for crypto fell around twenty as f t

941
00:59:50,400 --> 00:59:55,520
Speaker 1: X smoldered and then collapsed and just became a burning

942
00:59:55,560 --> 01:00:00,200
Speaker 1: trash fire. So again, if finance sold off its f

943
01:00:00,320 --> 01:00:04,640
Speaker 1: t T stock as a business decision, like it was

944
01:00:04,680 --> 01:00:08,360
Speaker 1: solely for business, and they thought ft T is not safe.

945
01:00:08,960 --> 01:00:12,040
Speaker 1: H f t X is in trouble. We want to

946
01:00:12,080 --> 01:00:14,240
Speaker 1: get out of this before it goes bad. This is

947
01:00:14,280 --> 01:00:18,280
Speaker 1: just business, there's nothing personal about it. Well, that decision

948
01:00:18,280 --> 01:00:21,880
Speaker 1: did precipitate a series of events that saw binances overall

949
01:00:21,920 --> 01:00:26,600
Speaker 1: investments decrease in value by about a fifth. So again,

950
01:00:26,640 --> 01:00:29,240
Speaker 1: if it's a business decision, it's a business decision that

951
01:00:29,360 --> 01:00:34,080
Speaker 1: costs them a huge amount of wealth um. And maybe

952
01:00:34,080 --> 01:00:36,640
Speaker 1: it was just purely a business decision. Maybe it in

953
01:00:36,720 --> 01:00:39,200
Speaker 1: fact was the best out of a bunch of bad

954
01:00:39,240 --> 01:00:43,800
Speaker 1: possible choices. Again, it's hard for me to say. I

955
01:00:43,840 --> 01:00:46,640
Speaker 1: will say that f t X and its collapse and

956
01:00:46,680 --> 01:00:49,880
Speaker 1: that drop, it's pretty much in line with what we

957
01:00:49,920 --> 01:00:53,920
Speaker 1: saw with Mountain Cox years ago. Now, mount Gox was

958
01:00:54,000 --> 01:00:57,480
Speaker 1: the number one cryptocurrency exchange when it went under, and

959
01:00:57,600 --> 01:01:00,120
Speaker 1: that ended up being a thirty percent drop in the

960
01:01:00,120 --> 01:01:04,000
Speaker 1: crypto market. The crypto market in general was way way

961
01:01:04,040 --> 01:01:07,080
Speaker 1: smaller than what it is today, but yeah, it was

962
01:01:07,120 --> 01:01:10,480
Speaker 1: the number one dropped in value. Now the number two

963
01:01:10,520 --> 01:01:14,080
Speaker 1: goes down, we see a twenty value drop. It's rough.

964
01:01:14,640 --> 01:01:17,600
Speaker 1: I don't know what's on the horizon for crypto. I

965
01:01:17,640 --> 01:01:20,880
Speaker 1: don't know if and when it will have a turnaround.

966
01:01:20,960 --> 01:01:23,320
Speaker 1: I suspect there will be a turnaround at some point.

967
01:01:24,000 --> 01:01:26,840
Speaker 1: Not every cryptocurrency is gonna make it. I don't think.

968
01:01:26,880 --> 01:01:30,280
Speaker 1: I think some other cryptocurrencies are going to completely fold

969
01:01:30,760 --> 01:01:34,600
Speaker 1: before we see the end of this year, maybe definitely

970
01:01:34,640 --> 01:01:37,960
Speaker 1: before we get too far into next year. But I

971
01:01:38,040 --> 01:01:40,840
Speaker 1: don't know that they're all going to go away. And certainly,

972
01:01:40,880 --> 01:01:46,320
Speaker 1: Bitcoin has had periods where its value has dropped significantly

973
01:01:46,800 --> 01:01:50,640
Speaker 1: only for it to return to being even stronger than

974
01:01:50,680 --> 01:01:54,400
Speaker 1: it was before, so it's entirely possible it will be

975
01:01:54,440 --> 01:01:57,760
Speaker 1: able to do that again. But as events like this

976
01:01:57,880 --> 01:02:02,120
Speaker 1: happen and people begin who lose confidence in the crypto

977
01:02:02,240 --> 01:02:06,480
Speaker 1: market overall, um, it's bad news for everyone in the

978
01:02:06,520 --> 01:02:09,920
Speaker 1: crypto game, because, as some people have put it, the

979
01:02:10,040 --> 01:02:14,720
Speaker 1: real value in crypto comes in people's belief in crypto,

980
01:02:15,120 --> 01:02:19,520
Speaker 1: and if people stop believing in crypto, then it stops

981
01:02:19,560 --> 01:02:23,400
Speaker 1: having value because there's nothing else to back up the

982
01:02:23,480 --> 01:02:28,840
Speaker 1: value of the cryptocurrency except people's belief that it has value. Uh.

983
01:02:29,280 --> 01:02:32,560
Speaker 1: It strikes me kind of as similar to the way

984
01:02:32,680 --> 01:02:37,920
Speaker 1: Terry Pratchett treated gods in his Discworld series. The gods

985
01:02:37,960 --> 01:02:42,960
Speaker 1: of Discworld have a presence and power that is equal

986
01:02:43,040 --> 01:02:46,440
Speaker 1: to the amount of belief that is placed in those gods.

987
01:02:47,080 --> 01:02:50,880
Speaker 1: So as as people stop believing in God's those gods

988
01:02:50,920 --> 01:02:54,880
Speaker 1: become less and less powerful until they're barely there at all.

989
01:02:55,760 --> 01:02:59,160
Speaker 1: The same thing could be said about cryptocurrencies, because there's

990
01:02:59,200 --> 01:03:04,560
Speaker 1: nothing else underneath them. Two dampen the effect of people

991
01:03:04,640 --> 01:03:08,560
Speaker 1: losing confidence in the currency. So we'll have to see

992
01:03:08,920 --> 01:03:13,560
Speaker 1: how or if the cryptocurrency market in general recovers from

993
01:03:13,720 --> 01:03:18,400
Speaker 1: the f t X scandal. I'm sure we're still really

994
01:03:18,400 --> 01:03:21,400
Speaker 1: in the early stages of those consequences. I mean, like

995
01:03:21,440 --> 01:03:24,200
Speaker 1: I said, most of the stuff I talked about in

996
01:03:24,200 --> 01:03:26,800
Speaker 1: this episode happened over the last two weeks. Who knows

997
01:03:26,840 --> 01:03:29,400
Speaker 1: what's going to happen in the next two weeks. Besides

998
01:03:29,440 --> 01:03:31,959
Speaker 1: Thanksgiving America. Thanksgiving is going to happen in the next

999
01:03:31,960 --> 01:03:34,240
Speaker 1: two weeks, so you know, have a slice of turkey

1000
01:03:34,280 --> 01:03:36,960
Speaker 1: for me if you eat turkey. If you don't, then

1001
01:03:37,080 --> 01:03:40,120
Speaker 1: don't eat turkey for me. That would just be selfish

1002
01:03:40,120 --> 01:03:44,080
Speaker 1: on my part. Okay, that's it for this epic long

1003
01:03:44,160 --> 01:03:46,960
Speaker 1: episode of tech Stuff. I hope you enjoyed it. I

1004
01:03:47,000 --> 01:03:49,680
Speaker 1: hope this has given you insight into what was going

1005
01:03:49,720 --> 01:03:53,440
Speaker 1: on with f t X, with its co founder SPF,

1006
01:03:54,000 --> 01:03:59,640
Speaker 1: with its arch nemesis c Z and finance and uh

1007
01:04:00,040 --> 01:04:03,400
Speaker 1: the token f t T you know me. So we're

1008
01:04:03,440 --> 01:04:06,120
Speaker 1: done with all that for now. I'm sure I'll have

1009
01:04:06,240 --> 01:04:09,600
Speaker 1: to follow up on this story as more develops, but

1010
01:04:09,640 --> 01:04:12,000
Speaker 1: I wanted to get this down while it was all

1011
01:04:12,160 --> 01:04:15,240
Speaker 1: very fresh. If you have suggestions for future episodes of

1012
01:04:15,280 --> 01:04:16,760
Speaker 1: tech Stuff, there are a couple of ways you can

1013
01:04:16,760 --> 01:04:19,960
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1014
01:04:20,000 --> 01:04:22,680
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1015
01:04:22,760 --> 01:04:25,560
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1016
01:04:25,600 --> 01:04:27,400
Speaker 1: over to tech Stuff by typing it into the little

1017
01:04:27,400 --> 01:04:30,000
Speaker 1: search bar. You can listen to episodes that way. You

1018
01:04:30,000 --> 01:04:32,960
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1019
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1020
01:04:35,280 --> 01:04:37,160
Speaker 1: message up to thirty seconds in length. Let me know

1021
01:04:37,200 --> 01:04:38,960
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1022
01:04:39,000 --> 01:04:41,960
Speaker 1: me to include your voice message and a future episode

1023
01:04:41,960 --> 01:04:44,640
Speaker 1: of tech stuff, let me know that too. I will

1024
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Speaker 1: only include it if you say it's okay. Otherwise I'll

1025
01:04:47,920 --> 01:04:50,080
Speaker 1: listen to it and you'll never have to worry about

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01:04:50,080 --> 01:04:53,680
Speaker 1: being played for anyone else. Or if you would rather

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01:04:53,800 --> 01:04:57,080
Speaker 1: not speak into a microphone and some days I'd rather

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01:04:57,160 --> 01:04:59,560
Speaker 1: not too, but it's my job, then you can always

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01:04:59,560 --> 01:05:01,400
Speaker 1: reach out to me on Twitter. The handle for the

1030
01:05:01,400 --> 01:05:05,080
Speaker 1: show is text stuff H s W and I'll talk

1031
01:05:05,120 --> 01:05:14,000
Speaker 1: to you again really soon Y. Text Stuff is an

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01:05:14,040 --> 01:05:17,720
Speaker 1: I Heart Radio production. For more podcasts from I Heart Radio,

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01:05:18,040 --> 01:05:21,240
Speaker 1: visit the I Heart Radio app, Apple Podcasts, or wherever

1034
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