Sam Bankman-Fried Arrested

Sam Bankman-Fried was arrested yesterday, and will be facing a massive list of charges including conspiracy to commit wire fraud on customers, conspiracy to commit wire fraud on lenders, conspiracy to commit securities fraud, conspiracy to commit money laundering, and conspiracy to defraud the United States and violate campaign finance laws. He is potentially looking at decades in prison if this is prosecuted properly.

For me, what is even more interesting than the charges is some of the information disclosed by the new FTX CEO, John Ray, shared while testifying before the House Financial Services Committee. Below are some of the shocking things he shared:

• Top executives (including Bankman-Fried and co-founder Gary Wang) at FTX moved hundreds of millions of dollars out of FTX after declaring bankruptcy.

• FTX used Quickbooks, which is designed for small businesses, to run their multi-billion business.

• Ray said $8 billion is totally missing.

• FTX stored private keys without encryption.

I sincerely hope Bankman-Fried ends up spending a very long time in prison, and other leaders at FTX face similar charges. The cryptocurrency industry can not continue to take reputation hits like this if it will continue to survive going forward.

What can we learn from the FTX collapse?

Sam Bankman-Fried (often referred to as SBF), was a darling of the crypto community. Venture capital funds sent over $2 billion his way with very few strings attached. He grew his business into an industry powerhouse in 5 years, challenging rivals like Coinbase and Binance. He was brilliant, young, energetic, and at least appeared to be altruistic, giving away fast sums of money to charity. And yet it all imploded in about 1 week. What led to this spectacular implosion?

I have posted links to a few articles I found especially interesting. One from CoinDesk that breaks down what ultimately led to FTX declaring bankruptcy, and Bankman-Fried resigning as CEO. The second link was a write up that Sequoia Capital put together that in hindsight has aged very poorly, but is still worth reading. It provides some insight into what motivated Sam. Obviously he is a very smart, driven individual - and it would not surprise me if we see him re-emerge from this mess to try to start another business. He is only 30 years old and realizes he over extended himself with all of the things he was trying to do at FTX. He also wasn't fully aware of the amount of risk FTX was taking on, and clearly seemed to rely too much on a small core of employees (who were generally young and somewhat inexperienced).

CoinDesk Covers the FTX collapse:

https://www.coindesk.com/layer2/2022/11/09/8-days-in-november-what-led-to-ftxs-sudden-collapse/

Sequoia Capital SBF bio:

https://web.archive.org/web/20221109230422/https://www.sequoiacap.com/article/sam-bankman-fried-spotlight/

Update: I found this article on Vox which makes me feel like it is quite unlikely that SBF has learned many valuable lessons from the implosion of FTX (see link below):

https://www.vox.com/future-perfect/23462333/sam-bankman-fried-ftx-cryptocurrency-effective-altruism-crypto-bahamas-philanthropy

What does Russia's invasion of the Ukraine mean for crypto?

Since prices peaked in November the general trend for cryptocurrency prices has been downwards. In many respects, crypto prices have been tracking the stock market as institutional adoption of crypto has increased. Daily market swings in crypto are generally larger than they are in the stock market, as it is a more volatile investment. With this week's news that Russia has invaded Eastern Ukraine on a "peacekeeping" mission the question is what does this mean for crypto?

Other pieces of news, such as Germany delaying the opening of the Nord Stream 2 pipeline (a 764 mile long pipeline connecting Russia to Germany), and the United States introducing a first round of sanctions against Russia, the most likely outcome is for investors to get nervous and for prices to drop further. This could create good buying opportunities for investors who believe in the long term prospects of cryptocurrency. At this time it would probably be wise to avoid meme coins and other smaller crypto projects to focus on better established cryptos like Bitcoin, Ether, Polygon, etc.