Crypto has an Enron-sized scandal that threatens to completely undermine belief in its existence, whatever Sam Bankman's roasting fault is.
Why it matters : The house of cards built by Bankman-Fried has many parallels, including Enron, Theranos, Bear Stearns, Lehman Brothers and Madoff Investment Securities.
- In this context, there is nothing new under the sun – not even the wild volatility that characterizes the emerging digital currency market.
- We've seen this movie before and think we know how it ends.
The Big Picture: The "First Day FTX Notice" in bankruptcy court confirms the pattern that has developed over the past month.
Like Theranos/Madoff/Lehman, the main cause of FTX's downfall was the incredible incompetence and dishonesty of its founder, and the failure of those around him to notice (or at least care).
- "[FTX's] results, due to mixed client assets, poor disclosures and lack of internal controls, should remind us that while the mix of people and products may change, the scenario of financial market volatility remains all too familiar," said Robin Vince, president and chief executive officer. executive director. banking giant BNY Mellon., an article for the Financial Times on Friday.
Yes, but: Cryptocurrency is an unproven, interdependent, interdependent ecosystem ripe for contagion and dramatic contagion. And as this lamp is lit, the fire grows faster and wider.
- This is crucial for the long-term prospects of cryptography - and therefore it may take a long time for investors (especially small ones) to trust the industry again.
What they say: FTX's collapse "will fundamentally change the cryptoecosystem, further shake confidence and cast doubt on its future prospects," Moody's analysts wrote last week.
- The company's failure would result in "a gap in market share that will be difficult to fill without renewed consumer interest in crypto-assets, a scenario we currently assess as highly unlikely."
- Cryptocurrency companies deal with damage prevention. With voluntary audits suddenly all the rage, cryptocurrency exchanges are scrambling to stem the tide of outflows. But even they have limits to what they can prove.
Flashback : Cryptocurrencies were born in the post-crisis darkness of 2009; Its main advantage was its decentralized nature.
- The idea was that people couldn't trust traditional money and gave smaller players more power to make their own decisions without the influence of the big players.
Conclusion: The cryptocurrency industry was already experiencing a trust deficit. It threw him back.
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