© John Konstantaras/Chicago Tribune/TNS Talent Manager Colin Ripley works in Coinflip's Chicago office on August 30, 2021.CHICAGO – When FTX.US headquarters opened in May in a shiny new Fulton Market tower, Mayor Laurie Lightfoot and her entourage went to officially welcome cryptocurrency exchanges to Chicago, a city positioning itself as a thriving financial center for digital assets.
This must be the start of something big.
The Chicago office has been named the first U.S. trading platform headquarters for Bahamas-based FTX, the startup that has grown into a $32 billion global cryptocurrency exchange and successor to Bitcoin audacity. Six months later, FTX went bankrupt and Chicago became another empty office of the new cryptocurrency flagship.
"You can't say it's good for the industry," said Ben Weiss, 27, CEO of CoinFlip, a Chicago-based bitcoin ATM operator and one of the city's leading cryptocurrency companies.
The story of FTX's sudden collapse and alleged misuse of customer funds has shaken the fledgling cryptocurrency industry to its core of digital assets. The Chicago chapter is about what didn't happen.
FTX was launched in 2019 by Sam Bankman-Fried, a balding millennial who risked an MIT degree and a brief stint on Wall Street to become one of the largest cryptocurrency exchanges in the world. Offshore-based FTX can bypass US futures restrictions and offers a wide range of leveraged derivatives, generating large trading volumes amid volatile cryptocurrency price swings.
Bankman-Fried also marketed FTX to major companies through stadium naming rights deals, advertising campaigns and lobbying in Washington, DC. FTX made waves with a Super Bowl TV ad in February that urged viewers: Don't be like comedian Larry David, who dismissed cryptocurrencies as the next big thing.
- I don't think so, - David said stupidly.
But FTX quickly collapsed as deposits dried up and the cryptocurrency dropped $8 billion, leading to Bankman-Fried's resignation and the company's Chapter 11 bankruptcy filing on November 11. Investors' assets have been frozen and regulators are investigating whether FTX client funds were misused to cover losing positions at trading firm Alameda Research.
According to Nomics, a leading cryptocurrency index, global FTX trading volume this year was $3.45 trillion and FTX.US reached $65 billion before both exchanges shut down in November.
US regulated exchange FTX.US offers fewer products than global exchanges, but FTX is the only platform licensed for US investors to trade cryptocurrencies. Daily trading volume on FTX.US has grown sixfold this year, while the number of registered users has grown from 10,000 to about 1.5 million, according to a source familiar with the deal.
According to Bankman-Fried, the US platform was not part of the large-scale liquidity crisis that hit the global FTX exchange.
“As far as I know, it is completely digestible; is fully funded," Bankman-Fried told The New York Times' Andrew Ross Sorkin in a Nov. 30 video interview, and has no problem with it affecting American platforms."
Launched in January 2021, FTX.US established Chicago as its headquarters in June of that year, setting up shop in a temporary office after naming Brett Harrison, a former software developer at Citadel Securities, as the exchange's initial president American cryptocurrency. .
The permanent headquarters in Chicago officially opened on May 10, 2022 at 167 Green Street in the new 17-story Fulton Market office building. Lightfoot and other Chicago dignitaries cut the ribbon. FTX.US says it will fill the 9,000-square-foot space on the 11th floor with 70 employees, but the biggest promise is to boost Chicago's position as a cryptocurrency trading hub.
The company also pledged $1 million to a black charity in Chicago.
That promise was broken on Sept. 27 when Bankman-Fried made two shocking announcements in an email to employees: Harrison was leaving the company and FTX.US was moving from Chicago to Miami, four months after Fulton Market opened.
The announcement came as a shock to the two dozen FTX.US employees in Chicago whose jobs have either moved or been phased out.
"I think a lot of people don't know about FTX partners, FTX and people in the industry," said Paul Hsu, 47, founder and CEO of Decasonic, a Chicago-based venture capital fund focused on blockchain innovation. cryptocurrency technology.
Decasonic was until recently housed in the same building as FTX.US, and Hsu spoke at the cryptocurrency exchange's office opening in May.
Harrison, 34, who previously worked with Bankman-Fried at the Jane Street trading firm in New York, declined to comment.
Although Bankman-Fried invited Harrison to run the US trading platform, FTX's lack of a formal management structure and understaffing in the Chicago office ultimately soured the working relationship, banking sources said.
Sources say Harrison's departure from FTX.US is still months away, with plans to launch a Chicago-based cryptocurrency company.
After the Chicago office closed at the end of October, some employees moved to Miami, where a new FTX.US office was to be opened, not far from the parent company's Bahamian enclave. Through a 19-year naming rights agreement, FTX has established a significant presence in Miami, featuring its logo on the court of the NBA Heat.
But some FTX.US employees will be reluctant to bring their talents to Miami as they seek work abroad, sources said. In a few days, FTX will collapse, leaving some of Chicago's first movers out of a job in Miami.
"We look for our portfolio companies through FTX.US alumni," Hsu said. "We've seen a variety of resumes for our jobs at Decasonic."
Miami's move and subsequent bankruptcy also left FTX.US' Capital and Transformation Initiative, a 12-month pilot program paying $500 a month to 100 former Chicago inmates in underserved neighborhoods, partially funded and unable to launched this fall. is planned.
Richard Wallace, founder and executive director of Equity and Transformation of Chicago, did not respond to a request for comment, but the city said it is trying to find new sources of funding.
"While the City Council is not currently involved in the administration or funding of the EAT program, upon learning of FTX's bankruptcy filing, the City Council supports EAT's efforts to secure alternative funding for this important program so that it can serve returning citizens. Get involved," Kate Lefurgy, spokeswoman for the mayor's office, said in a statement.
With little regulation and a lack of unwavering faith in its supporters, the cryptocurrency has sent investors on a wild ride through the pandemic.
Bitcoin, launched in 2009 by an anonymous computer developer, operates on a decentralized peer-to-peer payment network. Although there is no central bank, encrypted digital transactions are verified using blockchain technology, a type of database that forms a permanent record of all transactions on a shared computer network.
Bitcoin's price, which peaked at nearly $69,000 in November 2021, has fallen 75% to around $17,000 in what industry analysts are calling a crypto winter, fueling skepticism among some investors that the digital asset is worth interior.
Bitcoin remains the most valuable cryptocurrency with a market capitalization of about $330 billion, according to CoinMarketCap, which tracks cryptocurrency prices. Other major cryptocurrencies include Ethereum and Dogecoin, which were created as a joke by some software engineers in 2013 and now have a market cap of nearly $13 billion.
According to CoinMarketCap, the total cryptocurrency market capitalization has fallen from $2.8 trillion in November 2021 to approximately $854 billion.
In 2022, World Business Chicago, the city's economic development arm, is making the fintech industry, including crypto, a focus area. Investments in Chicago's fintech ecosystem doubled to nearly $4.6 billion last year, according to a research report released by the agency in March.
Michael Fasnacht, president and CEO of World Business Chicago and the city's chief marketing officer, who attended the May ribbon-cutting of FTX.US' new offices, downplayed the role of startup exchanges in the city's big fintech aspirations.
"We didn't even mention FTX in our research review," Fasnacht said in a statement. "We continue to believe that the broader fintech sector has a bright future in Chicago."
A nationwide bill to create a special depository fund for digital assets, providing a regulatory framework for banks and other custodians to hold crypto accounts for customers, passed the House of Representatives in April 2021, but has stalled. In the Senate last fall. .
While the city has deleted FTX from its corporate report, Chicago's top crypto players are still assessing the implications of its failure.
CME broke new ground in 2017 when it began trading bitcoin futures. Despite the crypto-winter, CME has increased interest in cryptocurrency trading this year, with average daily volume increasing by 17% for all of 2021. Some industry analysts believe that CME is one of them. one of the world's largest futures exchanges could see trading volumes increase as investors move to more established platforms following the FTX boom.
CME President and CEO Terry Duffy said the future of bitcoin remains to be seen.
"The cryptocurrency market is at an inflection point," Duffy said in a statement. "While we have seen some positive applications of technologies such as blockchain, cryptocurrencies as an asset class still need to demonstrate that their uses are more than just speculative tools. However, cryptocurrency markets continue to support those who believe in the ideas and values of digital currencies. It continues. How this market will develop further remains to be determined."
Bobby Zagota, CEO of Chicago-based Bitstamp USA, a rival cryptocurrency exchange, said FTX had attracted many new investors to the digital asset, but its decline had set the industry back two years in terms of building trust. investors.
Zagotta, a former Kraken executive who helped launch CME bitcoin futures trading in 2017, says the cryptocurrency industry needs more regulation. For Chicago, "the trading capital of the world," Zagota said, other companies will benefit from a "smarter marketplace" after FTX is completed.
"Over the last two or three years, Chicago has really established itself as a hub for innovation, not just around blockchain or cryptocurrency, but around technology in general," Zagota said. "We all need to reset and get very smart and look at how we build our businesses around these very common scams and failures."
Founded in 2015, CoinFlip moved into the Old Post Office last year and has about 260 employees in the Chicago area. The fast-growing company thrived during the cryptocurrency winter and is expected to generate $150 million in revenue this year, up 67%, thanks to its network of more than 4,000 Bitcoin ATMs in 49 states and Canada that convert cash to bitcoin.
"Usually it's not a bad thing for us if there's uncertainty because you charge more people, more people can come," said Weiss, a Deerfield native. "Volatility usually leads to more transactions."
FTX's decline could also benefit CoinFlip's business model, which does not hold customer funds. Weiss defends the "independence" of cryptocurrencies in digital wallets, even though there are security risks.
Gina Peters, a professor of economics at the University of Chicago and cryptocurrency expert, visited the FTX.US offices and met with the staff during her short stay in Chicago.
According to him, most people outside of Chicago's crypto community probably don't know that FTX.US offices were once in the city before they suddenly moved to Miami and the other destination before filing for bankruptcy.
While the FTX.US office was small and short-lived, its sudden closure would still have a negative impact on Chicago's crypto ecosystem, Peters said.
"I think the bankruptcy filing of the Chicago FTX office and the broader implications for the city are very difficult to decipher as the cryptocurrency industry will remain fairly quiet," he said. "This will be a continuation of the cryptocurrency winter."
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