It’s Sam Bankman-Fried’s trial. But it’s cryptocurrency’s colonoscopy.

FTX might sound, at first, like a regular business clown show rather than a crypto clown show….


But the meltdown of FTX, at root, happened because FTX and its doomed sister hedge fund, Alameda Research, were in the crypto business. The mechanics of the companies’ collapse carry an aura of being complicated, and the more granular elements are complicated. But what happened here is pretty simple from 30,000 feet: FTX allegedly took its customers’ crypto deposits and gave them to SBF’s hedge fund, which made speculative bets with unassuming depositors’ deposits. That hedge fund invested a lot of the money in made-up crypto tokens that were not just minted by FTX, but whose value was tied directly to confidence in FTX’s continued operation and success. The paper value of those coins was not real, and not only in the sense that anyone who holds a big enough stash of any asset will need to accept a markdown if it actually wants to sell all of it. No, SBF had his customers’ money outside his crypto exchange and tied up in coins that barely traded at all. Analogy time: Imagine your friend Buster sells you a bag of air. He calls it “a BusterCoin,” and because you believe in your friend Buster, you pay him $10. He then fills 9,999,999 more plastic bags with air. The last one traded at $10, so the total value of all of Buster’s BusterCoins is now, in Buster’s view, $10 million. That is pretty much how FTX’s balance sheet worked, only the “values” were in billions. All of the other gory, funny, criminal details are secondary.

Source: It’s Sam Bankman-Fried’s trial. But it’s cryptocurrency’s colonoscopy.