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Welcome to Bloomberg Crypto, our twice-weekly look at Bitcoin, blockchain and more. If someone forwarded this to you, sign up here. In today’s edition, identifies a troubling truth about crypto underlying the FTX debacle:
The lapse in FTX’s collapse
As global investigators and regulators prepare to delve deeper into the collapse of Sam Bankman-Fried’s now-defunct crypto empire, others in the digital-asset industry are keen to show that they have everything in order. But once authorities are done with the most immediate problem that FTX presents — including possible criminal behavior — their next action will likely be to crack down on bad habits that are rife throughout the sector.
Lackluster risk management, slippery governance and incomplete disclosures can be found across crypto, a direct result of it still being a young industry with a lot of freedom and not enough scrutiny.
While not always illegal, these things would be frowned upon in more traditional sectors that have been subject to longstanding oversight by regulators. They also include opaque financial disclosures, a complex web of offshore entities, or suspiciously close relationships with sister companies — all things found in a new FTX bankruptcy filing on Thursday.
One issue in particular that seems in need of addressing is antitrust, and preventing the monopolization of an industry by any single player. Binance, as the largest crypto exchange by several orders of magnitude, is an obvious contender for finding itself under the microscope.
Bankman-Fried had already amassed a very large presence across much of crypto and finance, as demonstrated by the graphic below. FTX and Alameda Research both had sizeable venture capital arms, and others have since commented on how having an exchange-issued token like FTT can present both competitive and risk-management concerns.
Sam Bankman-Fried's Web of Influence
SBF's companies have had relationships with who-is-who of crypto and beyond
Source: Bloomberg
Note: *Exited FTX stake in 2021
FTX’s new CEO John J. Ray remarked in its filing on Thursday that “never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.” If and when the crypto industry finds itself under a more stringent regulatory spotlight, one would hope companies won’t be as prone to such lapses.
Charting it out
Pricey Zombie
Even after FTX's coin plunged into zombie territory, the cryptocurrency has a market value of $500 million
Source: Bloomberg
Hearing them out
What we’re reading (and writing)
- FTX’s Crypto Kids Came Dangerously Close to Upending Futures
- Sam Bankman-Fried Tries to Explain Himself
- Silbert’s Once-$10 Billion Crypto Empire Is Showing Cracks
- FTX Debacle Could Drag Down Decentralized Crypto Too (Wall Street Journal)
- Winklevoss Faithful Have a $700 Million Problem in Genesis Halt
- Matt Levine’s Money Stuff: FTX Creates Crypto Contagion (Bloomberg Opinion)
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— With assistance by Muyao Shen and Vildana Hajric
