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How Sam Bankman Lost $23 Billion Dollars in One Month

The cryptocurrency market has largely operated so far on the economic periphery, with little impact on the rest of the world. One individual, however, was adamant about changing that.


Sam Bankman-Fried, the 30-year-old founder of the cryptocurrency businesses FTX and Alameda Research, made billions in a short period of time and, in the process, rose to prominence in a field typically populated by less-than-respectable individuals.


He was one of the few crypto nerds who managed to become well-known. He and FTX became household names, appearing on the covers of publications like Fortune and Forbes, in Super Bowl commercials with them, and in advertisements in Vogue and The New Yorker. Comedian Larry David and football player Tom Brady also starred in commercials for the business, and the Miami Heat's home stadium was renamed the FTX Arena. Additionally, Bankman-Fried established a standing as an authority on cryptocurrency. He publicly promised to bail out struggling crypto companies when they were in need of assistance.


That is, until last month, when it became clear that the majority of Bankman-empire Fried's was based on the fictitious token FTT that FTX marketed. Investors and clientele were alarmed by the disclosure and sought to leave. His businesses' worth fell, and he had no one to turn to for assistance.


On November 11th, Bankman-businesses, Fried's FTX and Alameda Research, declared bankruptcy.


We examine his ascent to the top of the cryptocurrency market, his very recent collapse, and what it all means for the rest of the crypto community. He had strong branding and an apparent solid reputation.


It is now obvious that what occurred at the FTX cryptocurrency exchange and the hedge fund Alameda Research involved a number of deliberate and intentional fraud attempts meant to defraud both investors and users of their money. Because of this, a recent New York Times interview received harsh criticism for appearing to blame FTX's downfall on poor management rather than criminal activity. A Wall Street Journal story lamented the loss of FTX's charity contributions, possibly supporting Bankman-pretensions Fried's to strategic philanthropy. By attributing Bankman-funds Fried's to aiding Democrats in the 2020 elections, Vox co-founder Matthew Yglesias, a court chronicler of the neoliberal status quo, appeared to cover up his own involvements while avoiding the possibility that the funds were actually embezzled.


The most egregious aspect of this is that, despite Bankman-repeated Fried's insistence that the company was merely overleveraged and mismanaged, several media sites have labeled what happened to FTX as a "bank run" or a "run on deposits." The misuse of consumer funds, which is the main problem, is obscured by both of these attempts to characterize the aftermath.


Because they are clearly in the business of lending client funds out to produce returns, banks are susceptible to "bank runs." If everyone withdraws at once, they may run out of cash temporarily, but there won't be any long-term issues.


FTX and other cryptocurrency exchanges are not banks, though. Even a very sharp rise in withdrawals shouldn't put a strain on liquidity because they don't (or shouldn't) engage in bank-style lending. Customers who entrusted their crypto to FTX exchange were specifically assured that the company would never lend out or otherwise use the cryptocurrency.


Actually, the money was transferred to the closely related trading company Alameda Research, where it appears that it was simply gambled away. To put it simply, this is stealing on a level that is almost unheard of. According to a bankruptcy document, even though the total losses have not yet been calculated, up to one million customers may be affected.


In less than a month, reporting and the bankruptcy process have discovered a long list of further choices and actions that, even in the absence of crypto-specific regulations, would have been considered financial fraud if FTX had been a U.S. regulated corporation. These schemes are nonetheless subject to legal action in U.S. courts to the extent that they made it possible for American people' property to be effectively stolen.

The list is really lengthy.

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