Failure of FTX: The Evil Effects Of ‘Altruistic Intentions

Captain Sidd is a financial writer and explorer of Bitcoin culture. This opinion editorial is by him. Sam Bankman-Fried was the founder of the exchange. He has been a media darling for the past two years, gracing Fortune magazine’s cover and getting interviews with Bloomberg and CNBC. SBF, as he’s commonly called, studied physics at MIT. He also worked at Jane Street, a renowned arbitrage trading company. He was described as the nerdy gigabrain with a messy hairstyle and a penchant to sleep in the office while building a financial business empire. He could have swindled investors and millions of retail clients with his boyish, nerdy face and slick crypto con-man style. Another theory is that SBF was a government-owned plant. This could be due to his connections to U.S. regulatory authorities and the fact that he was second-largest contributor to President Biden’s 2020 campaign. Perhaps the fall of FTX was part of a plan. This would have provided a perfect “emergency” for regulation of Bitcoin and other decentralized tools that could threaten the existing world order. This article does not attempt to discredit this view. This article is about SBF and his team, who were talented, ambitious, and altruistic entrepreneurs who made many, admittedly, large mistakes out of their desire to make the world better. This view is why? It is a damning view of other benevolently-led organisations. This view reveals a critical insight into the state of leadership today and what we can fix it — before our world economy suffers the same fate that FTX. SBF The Altruist. Sam Bankman-Fried frequently spoke out in media about his belief in “effective altruism.” Sam Bankman-Fried was a media star who frequently spoke out about his belief in “effective altruism.” SBF’s quantitative mind seems have taken him further than others in his pursuit for good. Sequoia Capital, a prominent venture capital firm and investor in FTX, stated that SBF needed to find a path that would keep him a coin toss away completely from bankruptcy. The profile was published six weeks before FTX’s rapid implosion. It was titled “Sam Bankman Fried Has a Savior Complex — and Maybe You Too” and had the subtitle “The founder at FTX lives by a calculus for altruistic impact. He may have been driven by a mentality to risk everything to increase the impact he could make on the world. SBF’s gambles may have been a reflection of his mathematically rigorous take on the vague mantra behind effective altruism: “Effective Altruism is an initiative that seeks to find the best ways for others to help them, and put them into action. SBF believed that this was the best path to maximize humanity’s impact, even though it led to a coin-toss scenario: get big or go bankrupt. Perhaps he thought it was worth it if it allowed the traditional financial system to decentralize faster. But, the reality of what he did is quite different from what SBF thought and calculated. The Altruistic Fraudster. We see the devastation caused by his reckless actions in a world occupied primarily by those whom SBF claimed he wanted. Despite his intentions, millions upon millions of retail traders were locked out of the FTX Exchange overnight, shortly after SBF publicly declared that “Assets Are Fine.” SBF deleted the tweet just 24 hours later and replaced it with a misleading message claiming that Binance had agreed to purchase FTX in order to resolve “liquidity crises.” The massive hole in FTX’s and its associated companies became very apparent over the next few days. Several people may have bribed FTX to withdraw funds, even though FTX claimed that only Bahamian residents were allowed to withdraw. Later, it was discovered that SBF had a backdoor into FTX’s accounting system which allowed him to move funds without notifying others. SBF and FTX’s pedigree attracted lenders and investors from all parts of the financial ecosystem, including major VC firms such as Sequoia Capital and the Ontario Pension Fund. Many investors suffered painful markdowns due to FTX’s collapse. There were also likely many more implosions in what could be a 2008-style contagion. BlockFi, a crypto lender and savings account provider, was the first to stop user withdrawals of funds following FTX’s collapse. But it may not be the only one. All of this appears to be insider fraud to many outsiders. SBF lied through the teeth, abusing trust and possibly absconding personally with user funds as the exchange collapsed. SBF might view the collapse of his empire as poor luck. He was simply playing a game of leverage and misappropriation to do the most good at the fastest possible pace. SBF’s actions might seem like a complex mental exercise to justify. But to SBF, they could have been the ugly means to a positive outcome for all humanity. This is just a way to show that his view of him isn’t incompatible with the crimes he committed as well as the huge losses incurred by clients and investors who trusted him and his team. This view of SBF is a good indicator of the wider world of politics and the risky financial decisions politicians make for the benefit of their constituents. The Altruistic PolitikerSBF may believe that living on the edge of bankruptcy allowed him maximize his positive impact on this world. Unfortunately, the way we fund our governments today shows that many politicians follow the same logic. While you may believe that most politicians are evil ghouls out to drain the lifeblood of the common man to finance their private jets and pet projects, I am sure they have the best intentions. Many politicians believe that the regulations they want, taxes they want to change or projects they want funded will bring about positive change. This is irrelevant to my argument. What I will argue is that due to their reckless funding method, the result of even altruistically-driven spending by politicians will result in a mess indistinguishable from fraud, just as we saw in SBF’s case. What is reckless funding? Excessive government debt. SBF may have recklessly borrowed money from customers and used credit cards to finance projects that he believed would make a positive impact on the world. This led to the rapid collapse of his company, and near total loss of customer funds. Our governments are doing the exact same thing with our savings and wages on an alarmingly large scale. How? How? By paying into the system via taxes, there is no accumulation of debt and no risk of bankruptcy. Our governments are currently dependent on debt. All currencies around the globe became “fiat” in 1971 when President Nixon ended the U.S. Dollar’s tie with gold. Their value was not supported by anything other than trust in the government’s ability pay down its debts. The world’s government debt has exploded in size since 1971. A government that takes on debt increases its liabilities. This creates risk, and a responsibility to pay for uncertain future revenues. Most are in deep debt, with more than half of them being over 100%. Source. Many governments have debt burdens that exceed their entire GDP, including the U.S. Even if politicians spent all of the money they raised by issuing debt on programs that they believed would benefit citizens, there is still a large hole in the balance sheet that must be repaid. A politician might think that taking on debt to continue government programs and servicing existing debt is a way to do the most good for the world and citizens. Even though it causes an increase in debt, doing what is necessary to address the crisis at hand can seem like good intentions. Governments are special because they are able to survive on trust. Creditors need to trust that the government will eventually pay off its debts. To continue paying down their excessive debts, governments have more tools than a normal corporation. To reduce their liabilities, many governments can simply print money. While you and me have to work to pay our debts off, a central bank of a government can buy its debt and transfer billions to it with just a few keystrokes. Other schemes, such as minting a trillion-dollar currency, achieve the same goals. All of them take the value from all holders, which hurts the lower socioeconomic spectrum that keeps a greater portion of its assets cash. They then give it to government. Printing money worked well until 2021 when inflation in real goods took root. Prior to 2021 inflation had a major impact on asset prices such as real estate and a wealth gap due to the Cantillon effect. Consumers are now feeling severe pain from the rapidly rising cost of staples, energy and food. Many central banks understand that their excessive printing and low interest rates caused this result. The ability to print more cash is now limited, as a result. How can governments maintain the trust of their creditors and be able to pay down their debts without a money printer? The second tool governments have to pay down their excessive debts is violence and coercion. We have given governments a unique monopoly over violence that they can use to force their citizens to pay. The threat of jail time and fines is enough to make many fearful about paying more tax or financial controls such as those that may be associated with a central bank digital money (CBDC). You only need to look at China to see how a CBDC could be used to micromanage individual finances in the name of the greater evil — as defined by ruling class. The government’s use of money printing and violence coercion means that citizens pay the price for the state’s collapse due to the reckless debt burdens that politicians have incurred. These politicians may even support violent coercion and money-printing to keep the funding flowing, believing that the pain of others is worth it in the pursuit to a greater good. FTX’s depositors will pay the majority of the cost of the exchange’s reckless use and misappropriation of their funds. This may seem like a mistake, or a rough patch on the road to helping others. It is not distinguishable from fraud to anyone else. Are You Ready to Be Crushed? The entire global financial system is looking about as bad as FTX’s books, and the only thing keeping it from unraveling is our faith in it. We are trusting that our governments will extract value from us in order to pay for the financial misadventures of politicians. Citizens have an easy solution: Get out of the financial and monetary system that is designed for your destruction. The system will only survive if everyone trusts it enough to keep our hard-earned cash in it. The entire ruse will crumble if we withdraw in large numbers — just like FTX. If you are one of the first to withdraw from the existing financial systems, you may still have your value — just as those who withdrawn from FTX were made whole before the assets dried up. Those who wait too long to withdraw will find themselves with pennies on dollar and will be punished by the taxation, control, and money printing that governments will need to continue to exist. What does it mean for you to withdraw in a world in which your bank accounts can be frozen and your property taken if there is suspicion of a crime? This is true even in the most developed countries. It’s all about distance. How can you keep your assets and fraud at bay? As each person is unique, I’ll let you decide which form works best for you. It’s digital money that is unforgeable, moves at lightning speed, and lives everywhere and everywhere at once: Bitcoin. I hope that you will act sooner than later, whatever it is for your situation. This guest post is by Captain Sidd. These opinions are not necessarily those of BTC Inc.